Last week, I started looking into the Washington, DC Metropolitan Statistical Area (MSA), which consists of the District of Columbia, Northern Virginia and parts of Maryland. Given the growth in the federal budget over the last few years, I wasn’t surprised to see that the DC MSA was “the most educated and affluent metropolitan area in the United States,” according to Wikipedia.
The District of Columbia itself has made great strides in recent years, including greatly reducing the rate of violent crime. You may recall that it was known as America’s murder capital during the crack-filled 1990s. However, the city’s unemployment rate is actually fairly high, at 11.1%.
Maryland and Virginia, on the other hand, are very prosperous. Both are among the most economically successful states in the country.
Maryland’s Doing Pretty Well…
Maryland, DC’s (mostly) northeastern neighbor, has seen fairly consistent population increases and has a well-below-average unemployment rate of 7.2%. It actually has the highest median household income of any state, although this can be deceiving – the cost of living is also very high there. (The second highest median household income is in New Jersey, which is not currently an economic paradise.)
However, Maryland has many advantages. It is a transportation hub, has (as you would expect) many government agencies, and also employs many people in biotech.
Maryland unfortunately also suffers a business climate that is 34th in the nation according the Pacific Research Institute. It ranks 43rd in fiscal policy, 28th in regulatory policy, 47th in judicial policy, 26th in size of government and 19th in welfare spending. This should be considered slightly below average, and as seen by Maryland’s otherwise excellent economic performance, is not enough of a burden to cause major problems.
As in DC, Maryland’s real estate value has diminished over the last few years, but at a relatively slow rate.
But Northern Virginia’s Doing Better!
Northern Virginia is at the perfect storm of economic success. How do we know? One of the major issues in the upcoming VA governor’s election is transportation planning. Northern Virginia (also known as NoVa)’s current system of highways and public transit simply can’t cope with the extraordinary number of people moving to the region. And why do people want to move to NoVa?
One reason is unemployment that is well below average. Virginia as a whole currently has 6.5% unemployment. That’s not great in normal times, but fabulous compared to the national current average of 9.7%.
That very low unemployment is driven not only by federal government employment, but by an outstanding business climate ranking of 9th from the Pacific Research Institute.
Even better for Virginia, all neighboring states have much lower rankings. That means that many businesses that could settle anywhere in the area around Virginia will probably choose the Old Dominion.
Virginia’s population has increased by at least 10% every decade since 1940, and is now three times what it was in 1940. It also includes the nation’s fastest-growing county, Loudoun County (population up 59% from 2000-2006).
In short, everything is perfect in Virginia. What could go wrong?
Well, the state has had a nice little bubble bust. In Loudoun County, for example, prices have dropped about a third since the 2006 peak. Fairfax County has lost about 25%. Prince William County, about 40%. Those are some big drops.
In Virginia’s case, however, I’m going to call this a feature instead of a bug. Consider other states that have suffered real estate busts that, almost by themselves, caused terrible unemployment. (Florida and South Carolina, I’m looking at you.) Much of their employment was based on construction, which meant they had a continual need to keep growing. That’s not the case in Virginia because of the terrific business climate and diversified industry. I see the state coming out of this recession fast and strong – and recommend it.
I can see one major possible problem for Virginia in the future (other than the transportation mess, which is going to get resolved one way or another). That is the possibility that the real NoVa real estate bubble might still be ahead of it. In other words, people who buy now might be looking at some major declines down the road. However, it remains an excellent choice for long-term investors.