Market Update - Growth in supply continues to outpace sales

D.C. condos and co-ops

New listings in December were 53 percent greater than in the same month of 2004, with much of the growth, surprisingly, at more moderate price levels. Of the 332 apartments put on the market during the month, 129 were offered between $150,000 and $300,000. The $150,000-200,000 level had a 123.1 percent gain, to 29, while the $200,000-300,000 level posted an increase of 112.8, to 100. Every other price level but the one at $100,000-150,000, which declined from eight to four units, had double-digit increases below 50 percent.

By month's end, 878 condos and co-ops remained on the market, 131.1 percent more than at the end of 2004. But the total was lower than the 12-month peaks post last fall. Most remarkable were jumps in supply at $200,000- 300,000, up 243.8 percent to 165 apartments and at $300,000-400,000, up 251.9 percent to 190. At the two higher levels, there also were triple-digit increases. In the case of those priced at more than $500,000, the change in available units was from 138 in 2004 to 284 now.

Yet sales grew during the month and year. They climbed 8.6 percent December to December, reaching 265 ratified contracts, with the entire rise in activity at levels above $150,000. The biggest increase was 41.2 percent, to 24 apartments, at $150,000-200,000. There was single-digit growth between $200,000 and $400,000, and modest double-digit growth above $400,000. Volume was close to even with September and November but about half that of October and significantly lower than in every month since the end of 2004.

The market absorbed 23.2 percent of available apartments, somewhat higher than the 20.7 percent in November and 22.6 percent in October. In September, the market absorbed 25.4 percent of the 1,212 homes available. That rate compares with 53 percent in April and lower rates in each of the successive months, dropping to 43.5 percent in July and 38.7 percent in August.

In 2005, the average price of an apartment ballooned from $364,425 in 2004 to $425,525. In 2001, it was $231,744. Going up somewhat more slowly, the median last year was $375,000 in comparison with $325,000 in 2004 and 185,000 in 2001.

Single-family homes

The transition to a new market advanced further, with supply growing and sales falling. There were 9.3 percent more new listings, or 360, during December than in December, 2004. In absolute terms, the 104 homes put on the market at $300,000-450,000, were the most newly listed, but there were only 4 percent more than in the previous year. Below that level, there were small declines in inventory. Above that level, supply was up, ranging from 13.6 percent at $450,000-600,000, to 75 homes, as high as 78.9 percent, to 34 homes offered at a $1 million or more.

Inventory reached 945 by the end of the month, 61.3 percent more than in 2004, with high double-digit gains at every level above $150,000. At $300,000-400,000, the 251 homes on the market represented the biggest component, and it was 70.7 percent higher than in 2004 at the same time. The smallest increase was 30.8 percent, to 140 homes listed at $1 million or more, still seeking buyers.

Sales statistics for December were striking, below every month of the preceding 12. Volume was 23.2 percent lower than in the previous December, with the only rise in the slim single-digits at $600,000-750,000 and at above $1 million. In all, 251 homes found buyers, resulting in a 10.1 percent decrease of sales activity for the year, to a total of 4,887 versus 5,438 in 2004.

Only a few more than one in five homes went to contract during the month. The 21 percent rate of absorption was significantly lower than it was all year. In November, it was 24.9 percent. It was 26 percent in October, 28.1 percent in September, 35.8 percent in August and 35.5 percent in July. Earlier in 2005, the rates were far higher.

Despite the foregoing, prices ascended steeply. The average in 2005 was $627,502 in comparison with $510,262 in 2004, $412,127 in 2003 and $349,653 in 2001. The 2005 median was $490,000; it was $361,800 in 2004 and $224,500 in 2001.

What it all means

Clearly, the condo boom continues, though its days likely are numbered. (See Items of Interest above for more on that situation.) Apartment listings are spending more time on the market than in the heyday of recent years, and buyers have the luxury of shopping longer than at that time. But there is a mismatch between percentage increases in sales activity and percentage increases in supply - 9.1 percent growth in sales at $200,000-300,000, 112.8 percent in new listings and 243.8 percent in listings still active at that same level. There is a much closer parallel at the top levels, so it is possible that the asking prices – not necessarily the sales prices – of apartments will start to drop, especially between $200,000 and $400,000.

With respect to single-family homes, the disconnect between sales volume and inventory cannot be ignored. Buyer price resistance is palpable, and there is no reason to expect a change. Buyers are demonstrating unequivocally that many properties listed at almost every level are priced too high, but especially so those offered between $150,000 and $600,000 and $750,000-$1 million. The wise sellers will hear the message and act accordingly.

When it comes to purchasing a property, buyers are far more sensitive to monthly costs than to prices. It appears that they are adjusting to the truly modest rise in mortgage interest rates and changing market conditions more quickly than are sellers. At the same time, they are enjoying for the first time in years the opportunity to take the time to check out the market thoroughly, make a reasoned decision and bargain hard.