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Housing Demand Outstrips Supply in Washington, DC Area;
Richmond Fed Economist Shares Forecast with Greater Washington Initiative


August 5, 2005; IRVINGTON, VA– The rapid rise in housing prices in Northern Virginia, Suburban Maryland and the District of Columbia does not constitute a “housing bubble” likely to burst in the foreseeable future, according to a top economist at the Federal Reserve Bank of Richmond.

Richmond Fed Vice President and Economist Raymond E. Owens told a meeting of the Greater Washington Initiative here this morning that rising household incomes in the Washington area, together with a demand for housing that outstrips supply, mean that housing prices will continue to rise, although at a more modest rate than during the past several years.

“Demand will remain high in the Washington area because not enough new housing is being created,” Owens told his GWI audience. “A ‘bubble’ is created when prices go up without any underlying economic reasons. But that’s not the case in the Washington area.”

“Residential building lots aren’t being created fast enough to meet the demand,” Owens said. “The need to comply with environmental requirements, zoning laws, and delays in putting the necessary infrastructure in place – roads, water, electricity and sewer lines – all this means not enough houses are being built. Developers tell us that it can take upwards of three years to take a housing project from start to finish.”

Generally speaking, the economic forecast for the Washington area is “much rosier” than it is for the rest of the country, Owens said. “Most of the nation’s job losses over the past several years have been in manufacturing, and the Washington area has the smallest manufacturing sector of any region of the country.

In addition, the growth in government spending on defense and homeland security has led to increases in jobs for firms in the Washington area that provide products and services to the federal government.

The Greater Washington Initiative (GWI) (www.greaterwashington.org) is the marketing and economic development arm of the Greater Washington area, the nation's fourth largest economic region and its fourth largest population center.  GWI is an affiliate of the Greater Washington Board of Trade.

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