Why a Slowdown in Housing Prices Is Great News

There was some glumness in the latest news on housing prices. There shouldn’t be. Slower home price rises — and in some markets, outright declines — are a sign the housing market is starting to move past the boom-and-bust cycle of the last dozen years toward a market where sensible prices driven by local economic conditions prevail.

The S.&P./Case-Shiller home price index showed prices rose 8.1 percent in 20 major cities in the 12 months ended in June, the lowest rate of increase since 2012. Compared with May’s prices, national home prices actually declined oh-so-slightly, by 0.1 percent, with six major metropolitan areas reporting price declines of more than 1 percent. (Those would be Atlanta, Boston, Chicago, Cleveland, Detroit and Minneapolis.)

Why is this good news? Because the new data offer hints that a disastrous era for housing may be ending.

I just moved to the DC area. (Yeah, I know. How stupid could I be?). Here the market has lots of little micro markets that represent examples of what is happening in other parts of the country.

In DC there is massive gentrification, where "nice" neighborhoods are taking over the former slums. It seems to start with affluent African Americans going in first, followed by adventurous whites with no kids. Areas where there is no way you would go 15 years ago are now relatively safe.

There are high priced inner suburbs that look like parts of the Bay Area. Rich people are buying old homes on bigger lots and immediately ripping them down to put up mini-mansions.

in the outter suburbs you would think the housing bust never happened. Houses are going up everywhere. Prices are high. Existing homes were all 10-20 years old, contractor grade, and floor plans that were out of date 25 years ago in the rest of the country. If you are looking for a boxy, colonial, center hallway, formal living room, formal dining room in the front, Northern VA is the place for you. You can look at a thousand of them any day you want. The second issue is that if you want less than 3000 sq ft you are probably looking at a townhome. They don't build 2200 sq foot ranchers and cape cods here.

One of the more alarming trends has been the ghettofication of some inner areas as illegal aliens have taken over neighborhoods that used to be desireable. Middle class families are moving out of Herndon and Reston, despite a new Metro line going in. They are moving out towards Leesburg if they can afford it. They are moving to Gainesville and Haymarket if they can't. Make no mistake, the DC metro area is overrun with illegal labor, way more than I expected. It is also teeming with MS-13 and other Hispanic gangs. Very sad to see in the place where laws are supposed to come from.

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