House hunting in DC

Megan McArdle is shopping for a home:

We've been dipping our toes into the DC housing market recently, but after this weekend, I think I'm just about ready to give up. Anything that comes on the market at a decent price is snapped up almost immediately—by my count, mean time from listing to contract is under seven days.

From a supply and demand perspective, if a house is selling in seven days, it means the price is too low. It may be too high from a long-term discounted cash flow perspective, which means potential home buyers should rent instead, but on a short-term supply and demand perspective the price is too low and the sellers should raise their prices.

The only things that stay on the market long enough to look at fall into one of two categories:

1. The owner bought the house between 2004 and 2007, and wants to get their money back out, hopefully with a little profit . . . and has therefore priced their home at least $100,000 above what the market will bear.

2. The house has been rented, and the tenants, familiar with their copious rights under DC housing law, are essentially refusing to allow the house to be shown. ...

I get the sense that Megan is being unrealistic about what the market will bear. How long are these supposedly overvalued houses staying on the market? Months or years? The $100,000 figure seems dubious because, according to Zillow.com, the median value of a house in DC has fallen by only about $65,000 since the market peak. High-end homes have generally been more resistant to price declines than low-end ones.

Why can't we find anything?

In part, because that shadow inventory isn't coming on the market. There are two components to this, one DC-specific, one not. The specific part is the aforementioned tenant laws, ... The only way to break a lease is to be a single-family owner who wants to take occupancy. The bank has to let the tenant's lease run before they are evicted, as well as give them ninety days notice of the intent to vacate the property....

I don't see how this is bad, unless you're a house buyer who wants to kick someone else out of their home just so you can have it. If a bank has foreclosed on a home that is occupied by a responsible renter, why should the bank rush to sell? Isn't the bank earning rent on the home in the meantime? Renters who adhere to the conditions of their lease should be protected by the law. Besides, most leases only last for 12 months anyhow.

Note to Megan: Pay up, rent, or move to Manassas.