Feb. 10–16, 2006
by Brian Beutler
Saying goodbye to D.C.’s real-estate bubble
I Wouldn’t Want to Speculate
Here’s the sort of difference a year makes: On Nov. 20, 1998, the property at 1731 P St. NW, a little more than a block from Dupont Circle, sold for $595,000. On Nov. 22, 1999, it sold again—this time for $800,000.
The 1731 P flip suggested that something was changing in a neighborhood that had been known just a few years earlier for the broken auto glass that smash-and-grab perps often left on the sidewalks. Was this the first sale of the boom? Should the D.C. Chamber of Commerce place a plaque at 1731 P, commemorating it as the point of departure for the bonanza that fattened real-estate agents and work-averse speculators?
It doesn’t quite work that way. Depending on which real-estate agent or economist you talk to, the boom’s kickoff started as early as 1997 or as late as 2002. Cathie Gill, who runs an eponymous real-estate agency, says the madness didn’t really start until the end of that span. In 2002, says Gill, “We’d get multiple offers, people calling, saying, ‘Please get me a home.’ We’d bring on a house at $595,000 and sell it at $750,000 in 72 hours.”
Nor do experts agree on the causes of the boom. Oft-quoted economist Stephen Fuller, a professor at George Mason University, suggests that hard times fueled the run-up. “The recession that began in early 2000 gave people no other alternative financial investments aside from housing,” he says. “People didn’t trust the stock market or 401(k)s. That touched off the investment dimension of housing.”
Perhaps. But D.C. residents know that a more provincial set of factors led to the District’s becoming a leading importer of granite and Brazilian cherry wood. Here’s at least a partial inventory:
•After losing 14,000 residents to the suburbs in 1995, D.C. began holding on to its taxpayers. Between April 2000 and July 2001, the city lost only 237 people.
•Violent crime tanked in 1997 for the first time in years, dropping 24 percent.
•In February 1998, the city welcomed the now-defunct Massage, a quarterly Web zine hosted by Nomads, an impromptu group of visual-arts connoisseurs.
•In May 1998, Marion Barry announced his decision not to seek a fifth term as mayor.
•In early 1999, D.C. unveiled plans to revitalize the 14th Street corridor in Columbia Heights. In September, the Green Line Metro station at 14th and Irving Streets opened for business.
•In November 1999, Yum’s Carryout at 1919 14th St. NW was shut down for health-code violations, sending a strong message to the neighborhood that shoddy business practices would not be tolerated and clearing the way for the rise of the U Street corridor.
Pam Kristof, a real-estate agent with 23 years of experience in D.C., has a catchall theory of the boom’s underpinnings. “By the standard of other booms, this should’ve been over by about 2000. I think you can attribute that to the fact that a lot of businesses moved into the area and made this a nice place to live. Crime is down, legislation is much better. Even getting your driver’s license takes five minutes, whereas before, in the late ’80s, it would take hours,” says Kristof.
The local media and many industry analysts are now talking about the bubble in the past tense. As evidence, they cite the longer periods that homes are staying on the market, the plateaus in sales prices, and the generally saner bidding environment.
But many agents can’t seem to part with their dear epoch. “This was a great year for us,” says Gill of 2005. “People are anticipating a decline in prices because of what they’ve read in media.…And you know what? It’s not happening,” says Gill.
Virginia Walker of Weichert Realtors says, “Some people think the market is falling, but it isn’t.”
And when asked whether there’s reason for pessimism, Yolanda Mamone of Randall Hagner responds, “No. Our January this January was better than January last year. We sold a million-and-a-half dollars more. Up at least 15 percent.”
Agent Dan Melman, who has worked the D.C. market for seven years, appeals to investors to keep the good times rolling. “Get something that’s not being well-marketed or something that’s distressed, and turn it around,” he says. “People today like stainless; they seem to like the granite. People will pay a premium not to have to do that themselves.”
Justice of the Fleece
On Jan. 31, Samuel A. Alito Jr. was sworn in as an associate justice of the U.S. Supreme Court. Commentators everywhere are talking about a new epoch on the court, a time when key con-law precedents like Roe v. Wade could be in jeopardy.
Yet Alito at this point may well be concerned with a different epoch altogether—namely, the real-estate boom. The Alito family has lived since the late ’90s in a two-story colonial in the desirable Manhattan ’burb of West Caldwell, N.J. The property would likely command a price well beyond its $869,550 assessment.
The catch? Alito is fleeing one radically overinflated housing market only to dive into another.
Should he decide to buy in the D.C. metro area, Alito will likely find himself scratching and clawing with yuppie couples, even as prices level off. When the new justice looks down the bench at his colleagues, it will be only with envy: Most of the current justices bought in the area during the ’80s and ’90s and have since watched their home values double and triple and, at least in Antonin Scalia’s case, quadruple.
Of course, Alito could follow the advice of some housing experts and forgo buying altogether. Still-somewhat-affordable apartments are available for rent near the gentrifying Southwest Waterfront, such as the one occupied by Justice David H. Souter, who was attacked and beaten by hoodlums while jogging there in 2004.
But based on Alito’s financial statement, which lists more than a dozen mutual funds and common stocks, he won’t be looking to mail a hefty rent check off to oblivion each month. He’ll want equity. So to assist his honor in his relocation efforts, the Washington City Paper has examined his financial situation, carried a few zeros, and combed local listings in search of a few homes he could afford on an associate justice’s salary of $203,000.
Strict Constructionist. Let’s assume Alito takes a conservative approach to home-buying, putting no more than the recommended 28 percent of his income after expenditures toward his mortgage. That would leave him with a loan of about $775,000—not nearly enough for a house in such tony enclaves as Georgetown or McLean. Instead, Alito could set precedent among his colleagues by trekking east into the hinterlands, to Columbia Heights. The three-story, six-bedroom Victorian at 1440 Fairmont St. NW would fit the bill nicely at $729,000. The listing warns that the home is “ready for remodeling,” meaning that a busy Justice Alito would have to hire contractors to touch up the façade, where black cables hang from chipped window frames like rotted vines. Another item on the “Honey, do” list is the patch of white splooge—bird droppings?—covering a patch of the cinnamon brick.
Loose Constructionist. Let’s say Alito takes a more liberal angle, devoting 33 percent of his income toward his mortgage—the high end of what most lenders would recommend. Such aggressive financing would secure him a loan of around $870,000, or just barely enough to limp into the Georgetown housing market. Forget about a modest townhouse there like Justice Stephen G. Breyer’s, which could probably net a million dollars. Alito would more feasibly be meeting his real-estate agent in the lobbies of condominiums, such as the one at 3303 Water St. NW, where he could take advantage of his empty nest and snatch the one-bedroom there for a handsome $849,000. In case Alito worries that a condo isn’t distinguished enough for a justice, the listing assures him it’s “The only 1-br on the 7th flr!”
“It’s an awful lot of money for a one-bedroom,” concedes Monica Boyd, the agent, “but if you see the size of the one-bedroom, and if you look at the market, you can understand why it is what it is.” Alito had better hurry—Boyd says she’s already had a number of offers.
Reckless Judiciary. If a righty like Alito aspires to live among his own kind, he’ll have to bag the District and head to one of Northern Virginia’s conservative enclaves, like McLean. But in order to share a zip code with ideological kin Scalia, Alito would have to disregard all financial wisdom and be willing to throw more than a third of his net at his mortgage. With a $950,000 loan, he could close on a one-story, three-bedroom rambler in the “prestigious” McLean neighborhood of Chesterbrook Woods. The listing describes the home as “cozy”—which is to say it’s a shoebox—and vaguely warns that the mid-century rambler is “liveable” and being sold “AS IS.” What the nearly $1 million will really buy him is a less-than-half-acre building lot close to the Beltway, which means he’d better be willing to free up some more of those assets. As the listing makes clear: “Value is on land.” —Dave Jamieson
Show and Smell
Today that’s no longer the case. The gorge between price and value is slowly narrowing, providing buyers with homes that at least appear to be worth a million dollars. But there’s a catch. Many of the listers and agents trying to sell in today’s markets either are too young to have turned over a property outside of a buying frenzy or have simply forgotten how.
Gather ’round, then, for some friendly recommendations, derived from actual open-house excesses during the boom:
Zoltner and Infante can enjoy their new home for more than just its internal features. “I can tell you I like Petworth a lot—especially our location by the Old Soldiers’ Home,” says Zoltner.
Small wonder that Zoltner cites an amenity that’s been around since 1851. That’s because the bubble that swept the couple into Petworth has yet to yield a payoff in commercial entities there. The problem is that the linked ideas of prosperity and consumerism haven’t tracked each other in parallel. Though the commercial boom chased the real-estate boom along a similar trajectory, it was a slower behemoth, and, lacking real-estate’s profound momentum, its front line sits a few corridors west and south of the city’s gentrification boundary.
Herewith a collage of the retail landscape surrounding the Zoltner–Infante household.
Fruit of the Boom
And those limits have an address: 1107 Massachusetts Ave. NW, aka the John Nourse house. Nourse was related to the legendary Joseph Nourse, who ran the Treasury Department in the early days of the republic.
Perhaps the house’s historic cachet has ratcheted up its current appeal. Here’s its recent purchase history:
March 13, 2000: sold for $240,000
March 17, 2003: sold for $650,000
Now: on market for $1,900,000
One-point-nine—just how much house will that get you on majestic Mass Avenue?
First of all, it gets you a nice set-back from the road—a 20-foot expanse of wood chips, shrubs, and a slate pathway separates the front porch from the street. It also gets you a classic yellow façade that’s becoming dulled by dirt deposits, which are also affecting the stairs, the window sills, and the balustrade.
The interior befits a mansion in Georgetown, thanks to a renovation in the range of $300,000 to $400,000, featuring $40,000 worth of crystal chandeliers.
The backyard, though, is landlocked by surrounding buildings and an alley that the city closed off because of “all the murders and prostitution that used to happen here,” says agent Kathleen Young. In the middle of it is a square structure that vaguely resembles a broken water fountain. Its shattered blue tiles are caked in dry mud, and it has clearly been collecting refuse, including a discarded DVD version of Disney’s Treasure Planet, for some time.
So perhaps great neighbors justify the asking price? Maybe not. The Nourse house is wedged between a large condominium complex and the low-income Burke Park Apartments, which were recently described by a disgruntled tenant on apartmentratings.com like this: “[T]he building is in shambles, the management is rude, incompetent, and ignorant, and the residents are unruly drunks.”
And, even though converting a basement into an apartment has become de rigueur for Washington homeowners, the unit in this house is dank and cavelike.
No surprise, then, that the Nourse house has been on the market for about a year. It has had three different agents but no buyer. The primary drawback is that its three levels are sized for a family, yet the surrounding thoroughfares make it a touch dangerous for toddlers. “Where are the children going to play? Across Massachusetts at Burke Park?” asks Young.
She has a point. Burke Park is, at best, a glorified traffic island. Young thinks the house would be much better suited for a nonprofit, but right now it lacks the proper zoning. “The city can’t find the certificate, so for now, it’s residential high-density real estate,” she says. “It could be offices. As long as somebody resides here, they can pretty much use it however they want.”
That extraordinary degree of latitude perhaps explains the house’s 2006 assessed value: $635,470.
It’s from here that the city’s gentrification corridors extended. To the east, Logan Circle is now solidly granite-countertop territory. So are Shaw and Ledroit Park. Even Brookland and Eckington have seen some action. Heading north, Adams Morgan and Mount Pleasant have long since become established yuppieland. Columbia Heights, too, has plenty of opportunities for urban “pioneers.” Petworth? So hot right now.
But where does the speculation end? What pockets of the District have resisted the effects of an ever-climbing market?
The boom, it turns out, hit a wall at Michigan Avenue NE.
According to MRIS, a listing service for real-estate agents, as of Jan. 31, dozens of homes were for sale in Petworth at an average price of well over $400,000, many spiking into the $600,000s. Brookland has fewer listings than Petworth, but at a higher average price. Check out the neighborhoods north of there, though, and there are only six listings, none priced higher than $399,900.
Ask for a name for these neighborhoods of mostly squat, detached single-family homes, and you’ll get plenty of suggestions. In the same square mile or so, you can bounce between Riggs Park, Michigan Park, Chillum, Lamond-Riggs, and University Heights. Many residents and real-estate agents, though, just refer to the name of the closest Metro stop: Fort Totten.
Real-estate agent Marian Huish has had plenty of success selling homes in Brookland, a neighborhood anchored by a university campus and many religious institutions, as well as a quaint commercial district on 12th Street NE. “There’s been a strong market there,” she says. “Middle class.” But she’s only sold one house to the north. “I can’t say why Brookland’s been stronger than Fort Trotten [sic]. Maybe because of Main Street and Catholic [University].”
Indeed, the Fort Totten neighborhoods exhibit virtually none of the characteristics of “city living, dc style!” For one thing, the housing stock is uninspiring. There are no grand Victorian row houses like those in Shaw or even Craftsman-style bungalows as in Petworth. If you’re in the market for a decent backyard, sure, Fort Totten’s the place to go—as long as you don’t mind that it’s behind a 50-year-old red-brick box.
And the neighborhood doesn’t have many amenities to offer, either. There are plenty of places to buy booze and do laundry, often in the same strip of buildings that accommodate seedy-looking churches and check-cashing stores. Fort Totten also hosts the main Department of Public Works “transfer station,” or “temporary dump.” There’s no other major commerce nearby. Asked for comment about changes in the neighborhood, a security guard at the Mamie D. Lee School on Gallatin Street NE suggests questioning shoppers at the local Giant. That Giant is actually on Riggs Road, just across the Maryland border.
One building on North Capitol Street does stand out from all the others. It has a brick façade and vinyl siding and appears fit for Columbia Heights or another newly mended part of the District. But it isn’t a condo project—it’s a retirement-housing facility financed by the Plymouth Congregation United Church of Christ.
The neighborhood landmarks surround Fort Totten Park, where glass, plastic, garbage, and dog shit speckle the bushes and shrubs. Much of the vegetation along the sidewalks and pathways is covered with a fragrant, soiled matrix of refuse. One garbage bag has been hung up on a tree branch, perhaps by somebody who’s almost civic-minded.
But Fort Totten does have stability. Unlike, for instance, French Street NW in Shaw—a block of beautifully renovated homes surrounded by blight—Fort Totten is marked by street after street of modest, well-maintained homes that appear to have been lived in for years.
“Houses don’t go on sale very often,” says John Emerson, who has lived on Chillum Place NE since 2000. “It’s a long-term-stay part of town.” He can’t think of any neighbors claimed by gentrification—forced to move or enter into debt to pay off rising property taxes. Milford Best, who lives around the corner, above the unlikely intersection of 4th and 5th Streets NE, points to a neighbor’s house and says, “She died—Ms. Jackson—but her daughter moved in.” The people in this part of town are middle-aged or elderly, and they like their privacy. “For sale” signs are rare. No one talks about “flipping.”
Not that no one’s tried. Agent Merlin Rodriguez is listing a house at 5123 North Capitol St. NE, for $415,000. (Since the house is west of Fort Totten Park, the property’s in Petworth, as far as MRIS is concerned.) The owner bought the house two years ago for $195,000 and then put more than $60,000 into renovations. In the heart of Petworth, it would go for more than a half-million. Real-estate investors in the city’s gentrification alley might well thumb their noses at such a modest return.
Rodriguez doesn’t think he’s going to get list price—but he thinks he’ll get close. “It’s actually worth between $380,000 and $390,000,” he says. CP
The Dead Zone
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