I’m in DC today and Tuesday (and Tuesday’s post will be a bit delayed as I’ll be traveling.)

You can’t help but notice the housing bubble’s impacts on the nation’s capital. I first moved to DC in 1993 and left in 1997. Back then, I lived in Crystal City, Courthouse area of Arlington, Falls Church, the Woodley Park metro stop in the District and Upper Connecticut (kind of Kalorama but also Dupont Circle.)

In 1993, you could buy a cute bungalow in Arlington for $160,000. That same house today would be around $800,000-only 14 years later. Is that the market or is that insanity speaking?

At the same time, lawyers starting salaries at large law firms in the District have gone from $75,000 to $160,000. (And one out of every 10 people in the District are lawyers.)

Do the housing prices make sense then?

I was driving through Alexandria over the weekend (a Virginia suburb.) In Old Town, the prices are as outrageous as ever ($1.225 million for an 1890s rowhouse with about 1600 square feet and no garage.) You can justify those prices as to be expected given its historic designation and the trendy shops/restaurants nearby.

But what about the other part of Alexandria- with older townhouses, split level 1960s homes and the new condo developments? These used to be starter areas but they’re not anymore. Try $600,000 for that never before remodeled split level. 1980s townhouses are going in the mid-$400,000s. New one bedroom 750 square foot condos near the metro are priced at $300,000 (but not selling- and they’re simply being rented out.)

One anecdotal story- one younger guy bought into a condo conversion along the blue line in Alexandria for around $300,000 in 2004. Has been trying to sell for two years now because he wants to buy a house with his soon to be wife.

In the District, I went to one open house of a one bedroom condo in a historic mansion not far from Dupont Circle (near Embassy Row.) The unit had 10.5 ceilings, a small washer/dryer and remodeling kitchen. No parking space. Only 725 square feet and one smallish closet.

Asking price? $498,200.

Nearly $700 a square foot. I thought you only got those prices in Manhattan- but obviously not.

The housing boom has done some amazing things to the District itself. There is construction everywhere in areas I used to consider the ghetto when I lived there (or areas where, as a woman, I would not walk alone even during the day.) And that is great for the city. A whole new neighborhood called the Penn Quarter has appeared in the downtown area and they are renovating the old buildings there into lofts and condos. It’s about time.

Too bad the one bedroom lofts routinely cost around $400,000 to $500,000 (don’t ask about the two bedrooms.)

Which can lead one to ask- outside of the lawyers, who is buying? Among my friends who continue to live in the area, all have said they could not afford to purchase their present home if they had to buy now. Which leaves…who?

In the Friday Home section of the Washington Times, there were some interesting sales numbers for the month of May.

2004: about 13,500 sales (metro area)

2005: about 14,000 sales (peak of the market)

2006: 9,280 sales

2007: 7,772 sales

Clearly, sales are approximately half what they were at the peak of the mania in 2005.

More interestingly, sales for May in 2007 are equivalent to December sales in 2004 and 2005. What will this winter’s sales numbers be then?

As the Times puts it:

“The recent jump in mortgage intrest rates surely will diminish the already lackluster enthusiasm among home buyers. Because homes in our region became so expensive in the past five years, area buyers are particularly sensitive to interest rate increases. That sensitivity is likely to slow sales, and the sluggish market could, in turn, cause home prices to remain low even longer than some expected when 2007 began.”

Slowing sales usually means that prices will begin to decline (if past history of housing booms and busts is any indicator.) Or, perhaps, DC home prices will remain flat for numerous years waiting until incomes catch up. Pick your poison.

As it is, there are anecdotal stories of some new home buyers in the Virginia suburbs cramming in as many as 15 people into one house (only way to afford it is to have extended family also living there) with, say, 8 cars in the driveway and on the street and all that that entails. There are also stories of numerous bedrooms being rented out (possibly against the city codes) in order to pay mortgages- ala boarding house style.

All I know is that unless you’re a lawyer, doctor, or highly paid lobbyist, as a first time home buyer DC isn’t going to treat you kindly. Only 10 years ago, there was sanity. Now there isn’t.

My prediction: the next few years will return the sanity.

More tomorrow on DC’s booming economy.

I know it has happened to many of you. One day you’re surfing the internet on your home computer and the next, it won’t turn on.

The horror!

I’m happy to report my recent “crash” has a happy ending as the computer repairman told me that I had a virus (which he wiped off the computer) and that was it. No hard drive malfunction for me.

But he did remind me to always back up my data.

After all, no computer is “safe” from viruses or, simply, age.

Whew. I’m so relieved.

Chicago was supposed to have missed out on most of the housing bubble madness. Chicago’s metropolitan area saw gains of, in some places, 100% over the past five years- but they didn’t see what they saw on the coasts (for the most part.) You weren’t selling your house and downsizing to a life of leisure in some other cheaper state (like you could if you lived in, say, California and had bought your house anytime before 1998.)

Yet- there was a bubbilicious feel to the housing market in downtown Chicago nevertheless. Although there were no multiple bids and very few people waiting in line (although occasionally it happened when a new condo tower opened its sales center), prices went higher all the same.

Chicago is in the midst of its largest building boom since the 1920s. There are easily at least 30 to 40 high rises in some form of sales or construction around the city. And despite the housing slowdown, there are still new buildings being announced nearly every week. The developers don’t seem fazed by the building inventory (up 30% from a year ago) or the slowing sales.

Crain’s Chicago Business reports on the carnage:

City sales, which held up better than the suburban market last year, plummeted to 1,170 units, a 44% drop from the year-earlier period and the lowest volume in 15 quarters.

“Everybody was waiting for spring,” when buyers re-emerge, but “it just didn’t come,” says Tracy Cross, president of the firm. “This is definitely the steepest downturn we’ve seen” since the early 1980s.

Is it really as bad as these numbers say? I went out this last weekend to investigate myself. I started at a new condo development in the Gold Coast called Walton on the Park which is marketing itself to the upscale crowd. Prices on one bedrooms with 945 square feet start around $480,000. I looked at floor plans for two bedroom units that faced south- towards the Sears Tower- of 1370 square feet for in the $700,000s.

Their sales center has been open several months. They are only 30% sold (yet the sales agent assured me that construction was going to begin this summer.) How do you figure? How will they get financing? From the tooth fairy?

But I wondered- as I left- who is buying all of these $700,000 units? Not many have the salaries to afford that. And make no mistake- the condos are marketed towards young childless buyers (who want the downtown city lifestyle) and suburbanites (whose kids have fled the nest.) But aren’t all the highrises?

There were people in the sales center but it was a lovely spring day and I can’t say it was hopping. The development is advertising in the Chicago area on CNBC during the morning segments. Clearly, the slowdown has hit them already.

The second development I went to was a loft conversion in Streeterville called Lofts of River East. One side of the building would have units with views of the Chicago River (highly prized now even though 10 years ago the River was thought of as a toxic dump). Two bedroom 1350 square foot units on that side of the building were selling for around $750,000. The sales center had just opened on the week before. It wasn’t crowded either. There were only two other people there and I lingered for quite some time. The one bedroom units also started close to $500,000.

I could have visited at least 25 other developments last weekend if I had wanted to. That is how much product is now out there on the market. But where are all the buyers?

It is a housing bust waiting to happen. And it will. Sure, Miami and Las Vegas will get hit harder. But Chicago’s housing boom is extraordinary as well. The cranes are still dotting the skyline. The developers can’t turn back now. Some clearly recognize the danger. From Crain’s again:

The supply of unsold condominiums in downtown high-rises under construction is growing even as demand is declining. Speculators €” investors who buy condos to flip them for quick profit €” fueled the boom but have all but disappeared from the market. And developers are likely to face stiff competition from the resale market, as thousands of owners of recently built condos put their units back up for sale, Mr. Cross says.

“You should see continued erosion in the city,” he says.

Erosion? How about massive price declines?

The feel in the sales centers was clear. The urgency to buy something just wasn’t there. (Though many of the sales center are still marketing the condos as investment- I saw it on the form you fill out when you “check in”. They wanted to know why I was buying the unit- and “investment” was listed.) I’m sure there will be one last greater fool (who will buy to flip it or whatever- who hasn’t read the Wall Street Journal lately.)

Any guesses on how far prices will come down? Only last year in Chicago, 30% of sales were to speculators. Most of those have dried up. One of the developers, of the soon to be completed Columbian in the South Loop, has offered to buy down interest rates for 6 years to get you in a unit. They have dozens of units still for sale in the building.

I’m thinking that some serious price cuts will soon be coming.

Condos anyone?

I’m sorry for the problems. The server has been down for about 24 hours. It’s back to the usual commentary now though!