March 20 (Bloomberg) -- The U.S. housing recession has arrived literally on the doorstep of Federal Reserve Chairman Ben S. Bernanke.
Bernanke lives in Washington's Capitol Hill area in a four- bedroom, 2,600-square-foot house he bought new in May 2004 for $839,000. Almost four years later, it may not be worth any more, according to real estate records and local agents.
Bernanke's timing wasn't the best -- values in the area peaked a year later -- and he is hardly alone among Americans living in an investment that's turned cold. His situation shows that the slump that began with distress in the subprime market is now engulfing wealthier neighborhoods, including some in the nation's capital.
``Even though he's the Fed chairman, he's going to get hit -- but I think lot of people will in Washington,'' said William Wheaton, an economist at the Massachusetts Institute of Technology. The value of Bernanke's home ``probably went up to $1.1 million and it's probably back down to $840,000,'' because prices in Washington just a couple years ago ``got out of control,'' Wheaton said.
Bernanke, 54, started working in Washington in 2002, when he joined the Fed's board of governors under then-Chairman Alan Greenspan. His home purchase two years later may have occurred just before prices peaked on the Hill.
In an area of mostly brick row houses, some dating from the 19th century, Bernanke bought a new townhouse within Capitol Hill's historic district.
As Bernanke surveys the breadth of the housing slump, he won't have to venture far from home.
Sales Prices Fall
Real estate records show Bernanke's next-door neighbor's house sold in July 2007 for $880,000, 4.9 percent more than Bernanke's purchase three years earlier. A home four doors down and comparable in size and condition to Bernanke's has been on the market for five weeks at $899,000, after a failed attempt to sell for $988,000 in 2006.
That still leaves the homes of Bernanke and his neighbors worth about four times more than the median home price in the District of Columbia, as measured by S&P/Case-Shiller.
The District had been among the hottest real estate markets in the country, with its steady turnover of residents, proximity to government employers and fewer newly constructed homes than in the suburbs of Virginia and Maryland.
Home values in the U.S. capital were up 96 percent in the five-year period to the third quarter of 2007, the second- fastest pace in the country after Hawaii's 100 percent appreciation, according to figures from the Office of Federal Housing Enterprise Oversight.
`The Hill Stumbled'
Now, the nation's capital is no longer insulated from the downturn. The median home price on Capitol Hill last year fell to $545,000, from $550,000 a year earlier.
``Nearly all the Hill stumbled last fall,'' said Joel Nelson, an agent on Capitol Hill with Keller Williams Capital Property. ``There were people who feared in 2005 that things on the Hill would just collapse like they did elsewhere in the country, but I think it's better described as reaching a plateau.''
Still, values in exclusive Washington neighborhoods such as Georgetown and Cleveland Park have held up better than in other parts of the District or elsewhere in the country.
The average sales price in the Washington area dropped to $217,780 in December, a decline of 13 percent from a record of $251,070 in May 2006, S&P/Case-Shiller data show. Washington's home prices had gained an average of 15.9 percent a year in the 10-year period ending in 2005, according to Case-Shiller figures.
No More `Froth'
Nationally, prices fell in every month in the second half of 2007, according to the S&P Case-Shiller index. The average price of a house in the U.S. was $170,640 in December, down 10 percent from a record high of $189,940 in June 2006.
``The froth's come off from the standpoint that we've got a lot fewer buyers than we did last year,'' said Don Denton, branch vice president of Coldwell Banker on Capitol Hill. ``Prices have leveled off and we may have lost 3, 4 or 5 percent -- not bad considering the incredible run-up that we have had over the past decade.''
The health of real estate on Bernanke's block will get tested as the peak sales season gets under way next month. About 90 homes were for sale on the Hill at the start of this year, 50 percent more than the beginning of 2007, according to Coldwell Banker's figures.
It's a supply-demand equation that Bernanke himself is all too familiar with. ``The current crisis has many roots,'' Bernanke said in a March 14 speech in Washington. ``The drop in home prices in many once-hot markets is among the most significant.''
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