Home Prices: DC & the Region

By Art Rodgers

The recent release of the Case-Shiller Home Price Indices shows that housing prices in the Washington DC Metropolitan Statistical Area (MSA) increased by 9.2 percent over the past year. DC residents might be interested to know there is a similar index published by both Freddie Mac and the Federal Housing Finance Agency (FHFA) where you can compare the change in DC prices to the rest of the MSA. The chart below shows the change in the Freddie Mac Home Price Index (FMHPI) for both DC and the rest of the MSA since December 2000.

Source: Freddie Mac, Home Price Index 2014.

Source: Freddie Mac, Home Price Index 2014.

The chart shows a comparable rise in prices through mid-2006 after which prices across the region start to decline whereas the District’s prices simply stabilize, and then show a modest decline after 2007.

Fast forward to the past year where the MSA’s prices increased 7.9 percent (similar to the Case-Shiller 9.2 percent increase), but the District’s index increased 13.5 percent. Even more astounding, while the prices in the MSA over the past several months seem to have stabilized, increases in the District’s prices appear to be accelerating. The monthly year over year change at the end of 2013 for the District was 13.5 percent, significantly higher than the 9.6 percent change at the end of 2012.

There are some basic constraints to the FMHPI to be aware of:

  • It only includes single family homes of 1-4 units, but no condos.  The long run supply of single-family homes in DC is constrained compared to the rest of the region.
  • Unlike the Case-Shiller, which uses all sales, the FMHPI only uses Freddie Mac and Fannie Mae loan data, which have a lending limit of $625,000 on one unit properties.  So more expensive homes which may not be appreciating as fast are less likely to be included in the data.  This means that prices for all homes might be rising more slowly than the index would indicate; but
  • Like the Case-Shiller, the FMHPI is built using paired resales of the same properties over time.  It is therefore possible that a home bought 10 years ago and resold recently has appreciated so much as to make the buyer less likely or unable to use Freddie Mac or Fannie Mae loan products and therefore the resale may not be included.  This would mean home prices might be rising even faster.