Our housing market continues to heat up.

In October, we saw a big increase in sales since last October:

  • Sales Volume: +4.5%
  • Closed Sales: +2.6% (highest October levels since 2009)
  • New Contracts: +1.4% (highest October levels since 2005)

We also continued to see huge drops in inventory. New listings dropped 12.4% year-over-year, while active listings dropped 18% year-over-year.

Clearly, developers are not keeping up with our market’s demand for housing, creating a hot opportunity for investors looking to fill this gap.

However, no matter how hot this opportunity may be, it isn’t the only opportunity unfolding in Washington, D.C.’s development market. Between 2007-2016 home ownership rates actually dropped from 69.20%—63.7%. Over a third of Washington, D.C.’s population are renters who live in apartments, and this population will likely continue to grow.

Despite our hot housing market, could apartments offer an even better investment opportunity for developers?

Apartment Market Dynamics

While the indicators of a hot housing market are impossible to deny, the data on Washington, D.C.’s apartment market is a little more ambiguous and does not paint as clear a picture.

As District, Measured noted, the number of apartment units developed in Washington, D.C. appears to be growing at a faster rate than the population. Between 2013-2016, Washington, D.C.’s population grew 5.3%, while the number of apartment units grew 7.8%. This data suggests developers may be over supplying the apartment market.

Further data supports this point. Greater Greater Washington points out in 2015, “Washington D.C. permitted more new housing units—4,956, to be exact—than in any year since the Census started keeping track in 1980,” and these new housing units “skewed heavily towards large multifamily buildings, as it has in recent years.”

While the short-term data suggests developers may be over-developing apartments in Washington, D.C., longer-term data suggests this surge in development may be a response to the few years of under-development that occurred during, and immediately following, the recession. In 2010, the number of new apartments in Washington, D.C. only grew by 1%. We may be seeing a market correction with developers “catching up,” rather than developers over-supplying the market.

This point is further supported by two more key facts: Unit absorption numbers are hitting new highs and prices are increasing.

In October, year-over-year median rent on a one-bedroom apartment in Washington, D.C. rose 4%. During the same period, median sales price on a house in the Washington, D.C. Metro Area only rose .3%.

In 2015, Class A apartment absorption in the Washington, D.C. Metro Area occurred at a record rate and more than doubled the region’s 10-year average. This growth did not occur at the sacrifice of other housing—Class B apartment absorption rates also increased last year.

Picking Your Development Market

Though not as clear-cut as our housing market, our apartment market is not struggling and it offers multiple indicators of growth and opportunity.

Whether you should invest in our apartment market, or stick with our housing market, is highly contextual. Contact Evergreen Private Finance today to discuss your particular context and which developments will make a better investment for you.

Written by: Evergreen Private Finance