I recently reported that Los Angeles only has a 2 month supply of housing inventory based on current sales rates. In California, it's all about the Bernanke money that is flowing into Silicon Valley that is now moving north and south of the area. In NYC its Bernanke bankster money and foreigners with Bernanke printed dollars and in D.C. it's Bernanke propping up the government Treasury market.
Here's Megan McArdle explaining, with a bit of confusion, what's going on in D.C. (my bold):
A couple of years ago, when we bought our house, I was convinced that we had probably already lost money. We put in our offer immediately after the expiration of the first-time homebuyer's tax credit, which in DC had triggered bidding wars that upped prices by far more than the $8,000 the tax credit was worth.Only a beltarian with a faulty memory would fail to understand the connection between government spending (a significant part of which stays in D.C. to "administer" the spending) and Fed printing money (particularly to boost the Treasury market). The faulty memory is McArdle's apparent lack of recalling that in the last housing bubble, incomes and other metrics have little to do with asset price climbs. If the Fed is pushing money out there, the assets will climb.
We weren't particularly worried about this, mind you; we planned on being in the house for long enough that we expected it simply wouldn't matter. But we didn't have any illusions that the huose would be, say, part of our retirement savings.
So far, I have been proven spectacularly wrong in this assessment. Renovated homes on our block are selling for more than 150% of what we paid for our (less renovated home); even wrecks are going at a substantial premium. We're glad to think that our house is worth more, of course, but we're also mystified. It seems to me that there remains a distinctly bubbly mentality in the city, which you can a bit of in this comment thread on a local blog. People seem to have a hidden assumption that every house in the District will eventually be crowding $1 million in value.
This doesn't seem possible to me. Ultimately, home prices have to have some relationship to incomes. And at a traditional salary-to-value ration of two or three times income, I don't see where the money would come from to push everyone's house into the $800,000 range. (Nor, needless to say, would it be a good thing for soceity if this happened).
For the record, here's U.S. government outlays. It's a lot of spending that is controlled in D.C.:
And, of course, here's Ben's masterful work:
Like I said, only a beltarian would fail to understand this data and put two and two together to realize why housing prices are climbing in the D.C. area.