DOGE Effect on the DC Housing Market

For the past few years, we’ve all experienced the impact of high mortgage rates on our local housing market. Each year, analysts came out with an optimistic view—rates would improve, and transaction volume would follow. Only, it didn’t happen. To the surprise of many, rates remained elevated, but that didn’t stop housing prices from rising throughout most of the Baltimore-DC metro region. Why was that? Easy: a strong economy, personal wealth gains through rising equity markets, and solid wage gains, all aided by our government running a $2 trillion annual deficit for the last two years.

The DC Metro economy has always bucked the trend through economic cycles. When pain existed elsewhere, DC rarely felt it. I remember talking to friends and colleagues around the U.S. as we crawled out of the financial crisis. I’d tell them how great our market was—sales steady, prices rising—and they’d tell me I lived in a bubble while they faced stagnant prices and a lackluster business environment. I’m sure you’ve heard that over the years too. When economic stress appears in the U.S., we rarely feel it here.

It’s like we’ve got some invisible shield—stable government jobs, robust military, defense, and social Gov’t contracts, fostering a vibe that keeps chugging when others stall.

When the economy slows, employers begin to cut back. It starts with future investments as they go into capital preservation mode. If you were considering expanding your operation but got spooked by the near future or found debt too expensive, you’d hold off on leasing new space, hiring new employees, or buying equipment. If stress drags on, you start slashing costs any way you can, including laying off employees. When those workers get cut, less money flows into the local economy—fewer people buying coffee and groceries or hitting local hot spots. That brings added stress to those businesses, and you can see it’s a doom loop that takes hold until stability creeps back. Most places feel this hard; DC has dodged this for decades.

For the first time in a long while, though, the DC region might experience what the rest of the U.S. has felt plenty of times.

The new administration is making it clear they want to cut government spending, including employment. Last week, we learned that DoD is planning 5,400 civilian layoffs, the Dept of Veterans Affairs laying off 1,000, Dept of Energy up to 2,000, Dept of Interior 2,300, USDA approximately 3,000…the list goes on and on.

I’ve seen it firsthand—some clients have canceled their home searches after losing jobs, others paralyzed by raw fear of an unknown future, scrapping plans they’d been set on. So, does this mean we’re doomed in 2025—housing prices dropping, inventory spiking, and struggling to find buyers? Not so fast.

This article is titled “The Optimistic Realist,” for good reason. Being a realist means acknowledging what’s happening, even if it bucks a sunny housing tale. Our market’s strength is tied tight to local economy and employment. Some reports show that for every government job lost, 2-3 private-sector jobs vanish too—think contractors, consultants, small firms living off federal dollars. On top of that, we’ve got significant cost-cutting in general spending—contracts and initiatives canceled left and right. How much of that money flowed through our local economy versus the US or even the globe? It’s hard to say for sure at this stage; the data is still fuzzy. Immigration directives muddy it more—deportation risks and slashed financial incentives like food stamps or housing vouchers yank additional cash out. Is that a DC problem, or is it hitting other regions harder? Can’t tell yet.

With all that going on, what’s there to be optimistic about? Job losses and canceled contracts can smack the local economy, no doubt. But here’s the upside: DC’s become a much more diverse employment center—over 80% of jobs now come from the private sector. Let’s not forget the past 2-3 years, almost every home contract had multiple offers, thanks to an inventory crunch. Buyers outweighed sellers by a mile; that’s why prices kept pushing higher, even with brutal rates.

If employment stress creeps in, we’d see new buyer activity dip—I’ve already had seven pull out, three from layoffs, four spooked by the future. At the same time, inventory might climb. I have clients who took government buyouts, planning to list their DC homes and move back where they grew up—DC is the land of transplants, after all. Others are eyeing selling rentals they kept when they upgraded to bigger family homes when rates dripped a few years ago.

This could finally give us a balanced housing market—buyers with more choices, not stuck buying a 7-out-of-10 house when they want a 10, giving away their firstborn, waiving all contingencies, and escalating to the moon.

That frenzy might cool. And here’s where the optimism ramps up. Work-from-Home’s unwinding—I know many people across the U.S. are tied to DC offices, and they’re being called back in person. This could spark buyer interest, especially with prices dramatically off their 2021 peak in certain sub-markets. I’m seeing many condos sell for 2014-2017 prices!

Big projects are also cooking too—the Capital One Arena’s getting an $800 million facelift and RFK might see the Commanders return, bringing jobs and buzz aplenty. Crime’s shifting too. After years of soft policies, Mayor Bowser’s getting tougher—good news for people who bolted to Maryland or Virginia over safety fears. That pendulum swinging back could pull residents back to DC.

Mortgage rates might drop faster than we think. If cost-cutting cleans up the budget and/or tips us into a brief recession, the Fed could pivot, drop rates, reduce or cease quantitative tightening and cause mortgage rates to plummet. Very few analysts are talking about this possibility right now.

There is also a commercial foreclosure event brewing. As these buildings sell at steep discounts, we could see very cheap business rents—vacant office spaces turning into startup hubs or new eateries, pumping jobs back in.

It’s too early to judge 2025 definitively, but one thing is clear:

Washington, DC, as the capital of the world’s most influential nation, is destined to shine as a global beacon over time.

We might face some temporary bumps along the way, but I’m confident the city will grow safer, more vibrant, and richer in diversity, delivering real prosperity to everyone bold enough to join the ride!