When my kids were in elementary school at a posh private enclave in Washington, I was subjected to an annual ritual: reading through a dense and detailed analysis of the results of the standardized tests the kids’ had taken. The opaque report spent most of its time educating me on the performance of the “cohort” of which my child was a part. Though I could understand why the school cared about the performance of the group, I didn’t care about it at all. I cared only about the performance of MY CHILD.
In much the same way, an individual homeowner should be unconcerned about the performance of the national real estate market. A national average is irrelevant to any individual situation. In many neighborhoods in and around Washington, DC, one is hard pressed to find a negative result in analyzing actual results. Here are three examples of homes that sold in the last 90 days.
1405 21st Street, NW. This home, a six bedroom, 3 bathroom Victorian in Dupont Circle, sold in January of 2001 for $679,000. It was sold again “as is” in October of 2008 for $1,550,000. That is an increase of $871,000 over about eight years or $108,875 per year – not a bad tax-free income.
3263 N Street, NW. Located in Georgetown, this is a 6 bedroom, 6 bath, 2 half bath home that sold in March of 2003 for $2,900,000. It sold again in November of 2008 for $4,600,000. That is an increase of $1,700,000 over five and a half years or $309,090 per year – WOW, that’s a nice tax-free income.
5081 Little Falls Road. This home in Arlington, VA, is a six bedroom, five bath, one half bath home that sold in December of 2002 for $989,000. It sold again in October of 2008 for $1,245,000. That is an increase of $245,000 over about six years or $42,666 per year – a respectable part-time income.
Homeowners may have valued these homes higher on paper in the “bubble” years of 2005 and 2006, but they did not suffer actual losses when they sold in 2008. These examples prove that sellers in this market are more likely to book gains, not losses, when they have owned a property for at least five years.
If a purchaser bought at the absolute high mark for prices here, she might have to keep that property for five years or so before trying to sell at a profit. But that hardly justifies the schadenfreude of those gleefully saying “I told you so” about what they call the real estate bubble.
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A reader had this comment: Kim - The examples you offered do tell a story that the newspapers haven't been telling lately because that story wouldn't sell papers the same way that writing about a "collapse" would. While the gains you noted are indeed respectable, I'd suggest that your description of these gains as "tax-free" probably is not quite accurate for the first two examples you noted. These gains would likely be, at least, partly taxable on sale. "Tax-deferred" or "partially tax-free" would probably be a more accurate description. Please consider this suggestion for future use -- I believe the point you make remains a valid one.
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