A housing market on the precipice: New insights from the DMV Monitor

The first year of the second Trump administration brought economic disruption at scale to the Washington, D.C., metropolitan region (popularly known as the “DMV” region for its three components: the District of Columbia, three Maryland counties, and 11 Northern Virginia counties). This disruption comes on the heels of the COVID-19 pandemic, which also had particularly intense impacts in the DMV region, especially the scale of the surge in hybrid and remote work.

Now, the region is entering the “hot season” for housing transactions, and the rental market in particular shows a clear early warning signal that demand for housing in the region is weakening. These cumulative signs of weakness are concentrated in the region’s core (a term we use to refer to the District and one or more adjacent jurisdictions):

• DMV region jurisdictions formed a “rent donut” during the pandemic: Between January 2019 and June 2021, rents increased by up to 15% in outlying jurisdictions, while rents went down 2% to 8% in core jurisdictions.
• In the most recent year, rents in real dollars have declined by 1% to 4% in every jurisdiction, suggesting that the impact of the Trump administration is reducing demand for the region at a pace and scale comparable to the pandemic.
• After tremendous volatility during the pandemic, median regional home sale prices remain above 2019 levels in real dollars. However, for-sale home prices in the District—where condominium inventory is higher—fell notably in 2023 as interest rates rose, and fell again in the first year of the Trump administration, to a current low of -25.2% relative to 2019.

The significant softening of the rental market, especially in the District, provides some relief to renters while posing a challenge to the economics of existing rental buildings and the financing of still-needed new supply. Similarly, the overall trend in for-sale prices suggests limits to residential property tax revenue growth, such that some suburban jurisdictions may need to tweak their revenue models in order to navigate in the short term.

Yet, despite federal job losses and slight price declines, the DMV region’s housing costs remain relatively high compared to both resident incomes and other metro areas. Housing costs are still a clear barrier to new job growth, and there is an opportunity for local governments to contribute to regional economic stabilization and create conditions for future prosperity.

A post-pandemic ‘rent donut’ in the DMV region

Beginning in mid-2020 and intensifying through 2021 and 2022, asking rents in the DMV region diverged sharply across geographic areas. Figure 1 shows this “rent donut”—a ring of increasing rents in outer counties surrounding a core of declining rents. At its center, the District of Columbia experienced the greatest rent decline, with asking rents falling 10.7% between 2019 and 2025.

Initially, familiar pandemic dynamics likely drove this trend, as the rise of remote work decreased demand for proximity to downtown office space and led to net out-migration from the District. Many households moved to less densely populated counties where they could afford more square footage, driving population and rent increases in Spotsylvania, Stafford, Prince William, and Loudoun counties in Virginia, as well as Frederick and Charles counties in Maryland. Spotsylvania County saw the largest rent increase in the region, rising 13.3% between 2019 and 2025.

The District and inner counties that have long sustained demand due to access to jobs, transit, and amenities have all seen decreases in asking rents as those advantages were temporarily weakened. Rents have declined in Arlington County and Alexandria, Va., as well as Montgomery and Prince George’s counties in Maryland, with the largest decrease in the District itself.

A regionwide negative demand shock in 2025 concentrated in the core

Federal workforce reductions and heightened job uncertainty among federal contractors significantly reduced demand for housing across the DMV region between January 2025 and January 2026. While asking rents are slightly down nationwide, the DMV region’s declines are more than double the average for major metro areas as a group. Rents have declined 1% to 4% in every jurisdiction across the region in the past year since the second Trump administrated started (see Figure 2).

The scale and pace of this decline is comparable to the disruption of the pandemic, and like the pandemic, the District and adjacent counties have been disproportionately impacted. Decreases in observed rents were highest in the District and Arlington County, declining by 4.4% and 3.6%, respectively. Comparatively, counties further out from the District saw more modest reductions, with the smallest changes in Loudoun and Prince William counties.

Decreases in asking rents in real (i.e., inflation-adjusted) dollars in the last year have brought total declines in the District to 14.7% since 2019 (see Figure 3). The “asking rent” of a housing unit is the advertised cost per month that a new tenant would need to sign a lease in order to move into the unit. This differs from “contract rent” (the rent a current tenant is paying), especially in markets with rent stabilization or control policies. In nominal terms, a unit that rented for $2,110 per month in the District in 2019 would be asking $2,436 in March 2026. While to a tenant this still feels like a rent increase, the very high rate of inflation over this six-year period means this is functionally a 14.7% decline in the purchasing power of what landlords can do with the rent collected on that unit (e.g., maintenance, debt service, and so on).

While financially declining rents are a relief for renters, it also signals a weakened market with risks for building operators, property tax revenues, and future housing growth. Rents in real dollars are falling, but building operating costs are rising, driven particularly by increases in insurance costs, property taxes, and utility bills. This narrowing margin on operating cash flow discourages investment in existing buildings and makes new construction harder to underwrite, creating concerns about future housing supply.

For-sale home prices in the DMV region are showing signs of decline

During the COVID-19 pandemic, home prices in the DMV region increased by 15% over early 2019 levels, as measured by median sale price per square foot (see Figure 4). This rapid growth in prices from March 2020 to January 2022 was driven by strong price growth in suburban jurisdictions such as Prince William County, where prices increased by just over 20%. These price increases were driven by strong demand for already expensive single-family housing in suburbs during the pandemic, and further catalyzed by plummeting 30-year mortgage rates, which hit all-time lows (in the 3% range) in 2021. Meanwhile, prices in the region’s core in Washington, D.C., were slightly lower in early 2022 than they were in 2019.

As mortgage rates rapidly rose to 6% or above during the inflationary period that occurred in 2022 and 2023, increases in home prices cooled off, and prices began to decline slightly. Geography has continued to play a role: While regionally, prices are still slightly above 2019 levels, in the region’s core in the District, prices per square foot have dropped by 25% since 2019. In Prince William County, prices are still approximately 15% over 2019 levels; this strong divergence between the core and suburban and exurban areas has grown over time. Other core jurisdictions such as Arlington County and Alexandria have seen declines or roughly stagnant prices, but prices in exurban counties such as Stafford and Loudoun remain 10% above 2019 levels.

Most recently, there was a modest regionwide decline in prices during the first year of the second Trump administration—though unlike rents, 2026 sales prices are showing signs of a spring recovery (see Figure 4).

The steeper decline in prices in the District, particularly for condominiums, is potentially related to the weakened rental market. While just over a third of condominiums are owner-occupied, over a third are rented, and the remaining share (27%) move between rentals and owner-occupied units. Declining demand for rental housing, combined with rising monthly fees and insurance costs for condominium owners, could be contributing to the rising number of condominium listings on the market as well as the decline in prices. The change in interest rates also plays a role: The difference in monthly payments from historically low rates to current ones could add over $1,200 a month to mortgage payments for a $400,000 loan. Such an increase matters more to entry-level buyers with lower purchasing power, who are a significant share of the condo buyer market.

Conclusion

Declining rents can be interpreted as reduced demand for the DMV regional core and can have serious implications for the economic development of the region. When asking rents fall, it reflects a market that fewer people are competing to live in. This has direct consequences for jurisdictional budgets as well as the region’s ability to attract the next generation of residents. The same young singles age 25 to 34 who have anchored the District’s growth in recent years may reconsider their location if employers shrink, job opportunities narrow, and the region’s economic identity becomes less certain. Declining rents may offer short-term relief, but a market that matches supply to demand by losing people is not a market that is recovering.

If interest rates stay high and job losses mount, we can anticipate stagnation in most DMV exurbs and potentially more price decreases in core and some adjacent suburban markets. Supply-constrained, desirable neighborhoods with in-demand housing types may continue to see high and potentially increasing prices if job losses remain moderate.

Local governments cannot expect property valuations, particularly for condos, to continue rising as they have in recent years. This has major implications for local public finance, as property tax revenue will not experience the strong growth it has recently seen. Montgomery County estimates it will raise 48.3% of its revenue from property taxes ($2.67 billion) in fiscal year 2027. Ten years ago, in fiscal year 2017, the county raised approximately $2.3 billion in real terms from property taxes. These gains in property tax revenue have enabled, for example, increased spending on wages for county employees, additional spending on construction of affordable housing through the county’s trust fund, free Ride On bus service, and school maintenance and construction. Without future revenue growth, the county will have to make do with the status quo, even as it ages.

Despite recent price decreases, homebuyers in the DMV region continue to face high prices and high interest rates. Policymakers face tough choices when trying to attract young families and moderate-income buyers: Subsidies don’t go far, and few people can qualify to cover high monthly payments. Without additional lower-priced home options, the current environment is unlikely to change. This is a challenge not only for residents of the region, but also employers, because it limits their access to workers unless they can pay salary or wage premiums to cover the costs themselves. Additional housing supply—across a variety of densities and housing types such as condos, townhouses, duplexes and triplexes, and densely located single-family homes—will continue to be key to reducing pressure on the region’s already in-demand housing stock and diversifying and growing the future economy.

The current conditions present an opportunity for the DMV region’s local jurisdictions to adjust housing policies related to both for-sale production and the deployment of subsidies to create more housing, including:

• Make it easier to build “missing middle” housing. Within the “missing middle,” small to midsized condominiums are among the most flexible forms of housing, offering attainable ownership opportunities to everyday people who are not accredited investors and flexing into rental supply. Arlington County, the city of Alexandria, and Montgomery County have all completed recent studies or plans that identify policy reforms needed to make it easier and more attractive to build this kind of housing. Yet the region is far from implementation at scale: The District and Prince George’s County are still in the study or planning stages, Arlington County’s zoning changes needed for implementation are headed to the Virginia Supreme Court, and Montgomery County’s implementation touches only 1.1% of its current detached single-family homes. A bright spot is the city of Alexandria, where recent reforms have already blossomed over 100 new housing units, mostly accessory dwellings.
• Use the current market window to create affordable housing through preservation. Softening sale prices and declining rents create a time-limited opportunity to protect or even expand the local affordable housing stock at below-peak cost through preservation. For example, the D.C. Policy Center’s recent analysis of the District’s housing system found that preservation is substantially more affordable than new construction on a per-unit basis. Affordable units can be secured across the region through housing covenants or by purchasing units and buildings to make them permanently affordable, as the Washington Housing Conservancy’s work demonstrates. With building incomes currently falling, even more is possible. Jurisdictions should move aggressively to acquire units or secure long-term affordability covenants while prices remain soft, giving property owners upfront capital in exchange for deed restrictions that make units permanently affordable. This approach has the dual benefit of locking in affordability quickly and across neighborhoods while reducing the per-dollar cost of public investment.
• In the District, where rent declines are greatest, scale up operating subsidies and portable vouchers to create affordable housing. The subsidy tools the District has relied on most heavily—deep capital subsidies, complex layered financing through the Housing Production Trust Fund (HPTF) and the Low-Income Housing Tax Credit, and project-based rental assistance—were calibrated for a market of rising rents and strong private investment. As market rents fall, operating subsidies and shallow rent supplements become more cost-effective tools for reaching low- and moderate-income households. Policymakers should use this period of fiscal pressure and market softening to restructure the HPTF and related programs toward subsidies that stretch further per dollar and respond more quickly to market demand.