When real estate was booming, the mantra of people in the business of selling homes was that the DC market was “recession resistant.” The theory went that since the federal government is here, house prices would stabilize or continue to rise. While it is true that the DC economy is buoyed by the government’s presence, the region is not immune from the unwinding of real estate speculation and tightening of lending standards.

Prices are still falling in the most distant suburbs. This lower end of the housing market is where the subprime lending standards took their heaviest toll. There is still land to develop in these suburbs, which has also added to the supply of homes. When I asked John McClain of GMU’s Center for Regional Analysis if the problems were from overbuilding, he described it as “overbought.” There was a time when builders couldn’t keep up with buyer demand. Prices escalated as a result. But that’s over. Buyers backed out as lending standards tightened and prices stopped rising.

Some of the decline in housing is due to the near disappearance of the speculative buyer. Some has to do with homes no longer being affordable. And some of the troubles in the distant suburbs may also have to do with rising energy prices. When gas prices were lower, 40-50 mile commutes were not as expensive. $3.65 (and rising) a gallon gas makes that no longer true. Now a smaller home, closer to the city or public transportation, that buyers will live in (as opposed to flip), is the choice of buyers now.

Of course, this is just the housing story in the D.C. region – one of the many regions we focus on in our “A Tale of 5 Cities” series.