Washington, D.C. is consistently ranked as one of the most expensive housing markets in the U.S. The nation’s capital is home to some of the wealthiest and most powerful people in the world, but its low-income residents feel the brunt of an unaffordable housing market.
In fact, 59,000 Washington, D.C. households pay more than 50% of their income on housing, effectively making them house poor.
What’s more is that 23% of the city’s home listings last month topped $1.5 million, according to Long & Foster’s Luxury Housing Market Report. The ratio increased by 2% to 3% from recent years “due to the lack of available inventory and new listings in homes below $1.5 million,” a Long & Foster spokesperson told Fortune. For the entire Washington, D.C. region, which includes northern Virginia and southern Maryland, more than 20% of home listings topped $1.5 million. That’s far more than the median sales price in D.C. of nearly $600,000—a figure that is nonetheless far out of reach for most people living in the district.
The average salary in Washington, D.C. is just $79,000, according to ZipRecruiter, so even affording a median-priced home would be a stretch for many residents. Assuming the 28/36 rule (which advises homeowners not to spend more than 28% of gross monthly income on housing costs and no more than 36% on all combined debt), a D.C. resident making an average salary shouldn’t spend more than about $1,800 per month on housing. At a 7% mortgage rate and a 20% down payment (which many new homeowners struggle to afford), the homebuyer could only afford a home in the low $300,000’s.
Housing challenges in D.C.
Although so few people can afford luxury housing in the D.C. region, this section of the market is facing similar challenges to the rest: inventory. In January, there were just 5.8 months of supply available, a 13.4% year-over-year decrease, according to Long & Foster. The mid-Atlantic region of the U.S. as a whole has faced “restricted supply which has lingered near historic lows,” according to a February report by multiple-listing-service company Bright MLS.
“Demand outpaced supply in 2023 and the trend will continue in 2024,” Lisa Sturtevant, chief economist at Bright MLS, said in a statement. “More sellers should be joining the market this year and additional new listings will be a welcome sign for buyers, but it will still be a very competitive market.”
When looking beyond luxury-home sales at overall homes, the median sales price in the Washington, D.C. area in January was $535,000, which was 7% higher than the same time last year. Prices in the region have risen “steadily” since last summer and are now 29% higher than in January 2019, according to Bright MLS.
But Washington, D.C.—like New York City and other major metropolitan areas—is a city of dreamers. People continue to move to the city for its opportunities and its clout.
“Despite affordability challenges, there remains a strong desire for homeownership in the Washington, D.C. metro,” according to Bright MLS.
The luxury real estate market
Despite mortgage rates that peaked at 8% in October 2023 and rising home prices, the luxury real estate market held on in 2023—and there’s more optimism for 2024.
Indeed, more than one third of luxury consumers think 2024 will be a better time to buy or sell a home compared to 2023, according to a Coldwell Banker Global Luxury Consumer Survey released in mid-January.
“If lower mortgage rate trends combined with the new inventory momentum continues, luxury homebuyers could be inspired to move forward with their next home purchase,” Michael Altneu, vice president of Coldwell Banker Global Luxury, said in a statement.
While mortgage rates dipped toward the end of 2023, they’ve actually been slightly ticking up for the past few weeks. As of Friday, the average 30-year fixed mortgage rate was 7.1%, according to Mortgage News Daily, up from about 6.67% at the very beginning of the year.
Even still, the number of luxury-home sales in the U.S. increased more than 4% during the last quarter of 2023. And Washington, D.C. was one of the most sought-after cities for international luxury buyers, along with New York City, Los Angeles, Miami, and San Francisco.
But 2024 could be even bigger for luxury-home sales—especially if the buyers who were holding out in 2023 decide to come to market.
“In contrast to the pandemic homebuying boom, we’re seeing luxury homebuyers more than willing to wait to find the perfect house in 2024 that meets every single one of their needs whether it’s privacy, wellness amenities, lifestyle experiences, latest technology or a combination of all those factors,” Jade Mills, president of Beverly Hills-based Jade Mills Estates and Coldwell Banker’s No. 1 agent worldwide, said in a statement. “Specifically, turn-key, move-in ready homes with easy access to the best luxury amenities provide buyers with instant gratification in attaining their desired lifestyle.”
But one thing that luxury buyers, sellers, and agents will have to look out for is the mansion tax: a darling of politicians pushing for more affordable housing support and a detriment to those close to the luxury-housing market.
Take the mansion tax in L.A., for example, which applies to property sales of at least $5 million. Properties over $5 million incur an additional 4% tax, while properties costing more than $10 million have an extra 5.5% tax—with the tax typically being paid by the seller. The cost of the tax is separate from a home’s sale price and can be a “massive amount of money,” Emma Hernan, an agent with L.A.-based brokerage the Oppenheim Group and star of hit Netflix series Selling Sunset, told Fortune.
“If I could describe the mansion tax in one word, it would be ‘nightmare,’” Hernan said. “It’s been something that is definitely a difficult thing for buyers, for sellers to navigate, and agents of course because we lose business as well.”
