Stability in real estate prices in the Washington Metropolitan area (or any area for that matter) is primarily predicted on the economy in which the real estate exists. This qualifier explains the geographical differences in pricing as it relates to market valuations. If you buy a car, the prices are generally the same no matter where you live, and that’s because the cost of production primarily dictates the price of the product. In real estate the cost of development may bare no relationship to market valuation.

 Why? It’s really the old notion of supply and demand.  Unlike cars, you can’t produce additional geography. Real estate is finite.  Which brings forth the old law of supply and demand.  People primarily live in relative proximity to their work.  The old real estate adage of location, location, location is really about the economies that exist within given geographies.   What really supports high real estate valuations in the Washington metropolitan area is the economy of the Federal Government. Not only do we have a stable workforce, but we also have a workforce that is well paid.  This explains why a 6000 square ft. custom home built with all the bells and whistles in the hills of the Blue Ridge Mountain has less value than 1200 ft. row home that is structurally and visually scary in certain locations within the Washington Metropolitan area.  In real estate investments, always develop your models in terms of supply and demand relative to the existing and future economy within geographical areas.  I’ve seen beautiful investment homes in breath taking locations having far less market value than the cost of development.