Around these parts (D.C. area), I've heard all sorts of explanations as to why stratospheric local housing prices (despite stagnant rents) are justified. None of them take into account the fact that prices have risen as much or more in South Florida, New York, Boston, L.A., the Bay Area, etc., not to mention Sydney, London, Brussels, Rome, etc. Clearly, it's a liquidity-driven bubble, resulting from an easy money policy instituted by world central banks. The post-Russian bond market default of 1998 caused a monetary easing, which inflated prices of securities (a form of inflation); before that liquidity bubble could be completely undone, 9/11 caused a new easing, with the inflation going into real estate instead of securities. (If rising home prices were really housing demand-driven, as real estate bulls insist, rents would be rising along with housing prices.)
James Joyner at Outside the Beltway at gives us an idea as to what those prices are:
Housing in the DC area is ridiculously expensive. The 2600 square foot house that sells for $175,000 in Montgomery, Alabama would be $750,000 out in Loudoun County, Virginia and simply non-existent much closer in to D.C. without spending $500,000 to buy a property, knocking the place down, and spending another $400,000 to build it.
He compares the housing and tech-stock bubbles in the article.
Click here for the whole piece
A recent Baltiore Sun article noted that real estate in the Baltimore Washington corridor has appreciated as much as 80% since 2002 (based on sales of the same homes) in come of the more desirable counties.