An article in a May 20, 2008 issue of the Wall Street Journal, reported that despite the mortgage crisis and falling house prices, downtown properties have seemed to be unaffected by the housing downturn.
The article explains that in the bigger cities, the closer that residential properties are to the center of the city, the better they are maintaining their value. Of the three metro areas the article examines, all show resilience to tumbling prices and may serve as a great option for those buyers who are looking for an investment that is already gaining value and sure to surge even more once the economy begins to recover.
What are the reasons for this phenomenon? Many speculate that gas prices have something to do with it. Yesterday, CNN reported that according to AAA, the national average of gas is up 9% from a month ago and 19% from a year ago. Yesterday, the nationwide average for regular unleaded hit $3.831 a gallon.
As the price of crude oil continues to affect the price Americans are paying at the pump, it is also having a direct affect on the charm of living in the suburbs. In the Washington, D.C. area, like many other metropolitan areas, the average house price has plummeted. While the average of the area is an 11 percent decrease, the price decrease in parts of the housing bubble magnet, Ashburn, Va. of Loudoun County, has seen a much steeper plunge. Ashburn’s 40 mile distance from the center of D.C. is a good reason that foreclosed houses in northern Virginia and the Maryland suburbs of D.C. are not getting many bidders at house auctions.
In addition, NPR reported that the median home price for inside the city of Washington is actually up 3.5 percent from a year ago. Economists are seeing this trend in others cities as well, such as Los Angeles, San Francisco, New York, Chicago, Miami and Boston.
According to CEOs for Cities, a Chicago based pro-urban nonprofit, the price of gas tends to get overlooked as a factor when evaluating the reasons behind the mortgage crisis. In their recent report, Driven to the Brink, the decline of house prices have been more severe in the metropolitan and suburbs that require lengthy commutes and where there is a lack of public transportation alternatives.
The same conclusion was drawn from the Urban Land Institute’s (ULI) report on U.S. infrastructure investment, Infrastructure 2008: A Competitive Advantage. The report shows that since 1980, the number of vehicles on U.S. roads has increased 95 percent while road capacity has grown by only 4 percent. This has resulted in longer commute times and more money spent on gas. Living further from the center of the city and work has created a car dependence that has become chokingly expensive for property owners in the suburbs. According to the report, Washington, D.C. is one of 23 large U.S. metro areas that are having problems dealing with this increase.
What this means to buyers and investors is that gas prices are changing the urban housing market. Now, people are not only looking at where a house is located, but they are also taking the price of gas, commute time, and the amount of time loss for driving into consideration before purchasing. No longer will buyers be taking their commutes for granted as living further out from the city has become an additional expense rather than a luxury.
Among the other factors that are driving people to downtown areas are the array of amenities, retail, restaurants, arts and culture and fast-paced lifestyle that downtowns offer. This is not only attractive to younger generations, but also empty nesters and baby boomers who are beginning to retire that make a person feel young, despite your age.
Buying a property closer to the city is one way for people to combat the consequences of drivable suburban development. Living in a mix use and pedestrian-friendly area are definitely gaining in popularity due to not only changing social and generational tastes, but also as a way of avoiding traffic congestion, helping reduce greenhouse gas emissions, and reducing the number of times people need to stop at the gas station. Downtown homes are a sure bet and low risk investment for those who want to buy during the current down cycle.