3 theories for rising home values in DC

When Daily Beast blogger and Newsweek contributor Megan McArdle first bought her home in the District several years ago, she was worried that it might not have been the wise investment she had initially expected. The first-time homebuyer's tax credit had expired and home values in the city weren't rebounding as quickly as she would have liked. In recent months, however, McArdle witnessed something that many of the other people who had bought one of the houses for sale in Washington, DC, had been experiencing - rapidly rising prices.

"So far, I have been proven spectacularly wrong in [my worries about the investment]," she wrote for The Daily Beast. "Renovated homes on our block are selling for more than 150 percent of what we paid for our (less renovated home)."

McArdle's anecdotal evidence of rising values is borne out by recent data from CBS that shows that the region's home prices rose 4.8 percent between July and August 2012. Although she was happy about the fact that neighboring properties were experiencing significant value increasing - it bodes well for when McCardle sells her own home, for one thing - she was also curious about why this was the case.

One suggestion she gives is something that many local experts have been using to explain rising prices over the past few months - income increases. McArdle points out that, relative to the rest of the country, the average salary in DC has been on a steeply rising course. With better-paying jobs, property values in the city will keep rising, she argues.

However, there is another reason to believe that property values might continue to rise in the District. In another recent blog post, Richard Layman, an urban revitalization consultant, uses London as an example of a potential course for DC. Like London, DC is known for its large population of foreign, often wealthy, non-permanent residents. These people have been increasingly buying property in the city, Layman writes, which contributes to rising property values and increased demand. There are reasons to believe that, as it has in London recently, this trend will amplify in the coming years as the District's economy improves.

A third theory for rising home prices is the increasing demand - and related price hike - for rental units in the city. According to Affordable Housing Finance, vacancy rates in the District are well below the national average as well as spiking rents in some of the city's most desirable neighborhoods.