2nd Quarter Report

Don't expect a rebound any time soon

Writing in the 2nd Quarter Economic and Market Watch Report, the Metropolitan Regional Information Systems, which operates the Multiple Listing Service, economists portrayed themselves as generally upbeat about the housing market even though sales slumped and prices flattened in and around Washington.

Both supply and demand contributed to changes in the market, said Ken Fears. With respect to demand, lack of affordability dampened enthusiasm, he suggested. "Compounding this problem and exacerbating the slowdown in demand is a belief that housing fundamentals are shaky and the rapid rise in prices witnessed over the last decade necessitates a sharp decline in prices," the economist wrote. As for supply, the number of homes put on the market each month rose sharply over the last five years to meet the then-robust demand, which was driving up home prices at record rates. "But as demand diminished, the large monthly supply from builders, renovators, flippers and homeowners just looking to 'move up' has outpaced the market's ability to absorb it," Fears continued. He said many sellers placed their properties on the market earlier than they normally would have.

"Generally speaking, sales have slowed and prices have flattened," the economist observed, "but demand remains at historically strong levels" nationally. "Looking at inventory relative to the pace of sales, "the month's supply of homes or the number of months that it would take to exhaust the current month's supply has only returned to a neutral position," Fears said. In other words, "the current month's supply of homes does not favor buyers or sellers," though it has just moved in the direction of a "true" buyers' market.

He noted that many builders are scaling back and speculators are abandoning the market, causing a reduction in supply over the long term. "Furthermore," Fears said, "the rise in new inventory witnessed this spring will not be matched in the future as much of the inventory that would have come to the market over the next year came early." He said further that "rents are on the march," encouraging many would-be sellers to take their properties off the sales market.

The economist predicted that "as those fence-sitting buyers realize that a plunge in housing prices will not occur, they will succumb to the realization that housing is still an excellent long-term investment." In his view, "natural factors" will help offset the supply and demand issues that created a bulge in inventory. "As a result, the market will reach a plateau later this year with historically strong sales that will allow for robust revenues for real estate practitioners in the coming years," Fears contended.

David Lereah, chief economist of the National Association of Realtors (NAR) also commented on the persistence of unrealistically high prices. "Usually, in the early stages of such a transition, sellers continue to list their properties with large price increases, while buyers no longer have the appetite to bid on the lofty-priced homes," he wrote. "Sellers need to better read the market . . . and list their home at a more reasonable price. Unfortunately, most of these sellers are still not being realistic. As a consequence, their properties are remaining on the market longer with little interest from buyers, costing sellers lost opportunity money. If most sellers in a local market refuse to lower their price expectations, then most listing prices do not change – thus, the market continues to post a positive appreciation rate, but at reduced volume."

In his forecast, Lereah said he believed the current correction in most of the cooling real estate markets will be "short-lived' because "there is an army of households and investors waiting to get back into the housing market." Today's housing correction is unlike previous ones, the NAR official maintained. "There is no recession; no net job losses; and interest rates are not rapidly rising to historically high levels," Lereah said. "Households possess the desire and financial ability to purchase real estate – they are only waiting for the right opportunities to present themselves." Declared the economist: "The existence of pent-up demand will minimize the size of price softening."

Regarding the extensive region covered by the Multiple Listing Service, Senior Research Lawrence Yun noted that home sales were down 17.5 percent in the second quarter and that price acceleration came to a halt from the previous year. "Sales and prices are expected to steadily stabilize only from the latter months of this year," he said. "By 2007, local sales will show 1.5 percent decline. Home prices will be flat."

The District of Columbia

Between the first and second quarters of the year, the average price of properties sold soared from $506,100 to $558,700, even as inventory swelled from 2,652 to 4,296. The number of homes sold rose from 1,605 to 2,239 and the number of days that they stayed on the market actually declined, from 45 to 42.

The highest average price occurred in zip code 20007, reaching $1,043,400, a sum that was 0.6 percent lower than in the same quarter one year earlier. The only remotely close zip code was 20008, which went up 9.7 percent to $872,300. Zip codes posting the lowest prices were 20019 ($248,300); 20020 ($249,000); 20032 ($224,500); and 20055 ($210,000). Still, those zips had price increases ranging from 12.8 percent (20055) to 27.2 percent (20020). Other impressive price changes were in 20024 (up 33 percent) and 20037 (up 30.9 percent). The biggest decliners were in 20004 (down 12.2 percent) and 20010 (down 19.5 percent).

By far the greatest number of homes sold was in 20009, which had 315 of them. Following behind were 20001 (143); 20002 (198); 20007 (181); and 20001 (162). Sales were up significantly from the same quarter last year in 20005 (38.7 percent); 20010 (34.4 percent); 20012 (23.3 percent); 20015 (31 percent); and 20032 (106.9 percent). They plunged in 20001 (32.3 percent); 20002 (34.4 percent); 20003 (42.9 percent); 20004 (45 percent); 20007 (75 percent, to 2 homes sold); and 20036 (41.5 percent).

The most time on the market was spent by properties in 20001 (60 days on average); 20006 (71 days); 20010 (45); 20001 (48); 20017 (54); 20020 (79); and 20024 (45).

The vast majority of zip codes had sales prices that were below asking, as low as 96.1 percent (zip 20037) of the sellers' offering price. But most were at around 98 or 99 percent. Zips with selling prices above asking were 20006 (104.4 percent); 20015 (101.2 percent) and 20032 (100.7 percent).

Montgomery County

The average price of properties sold in the county climbed from $507,400 to $543,600 year to year, despite an increase from 3,980 to 6,637 in the number on the market during the second quarter. The number of homes sold went up too, from 2,774 to 4,026. Properties typically spent only 36 days before going to contract in contrast to 42 days the year before.

Zip code 20854 had the highest average price, $1,163,900, by a healthy margin, and it was 2.13 percent greater than in the second quarter of 20005. Only 20896 approached that amount, but its average was $922,100, 12.1 percent higher than the year earlier. At the low end were zips 20874 ($371,200); 20886 ($339,400); and 20906 ($360,000). That 20874 zip code had 393 homes sold, more than any other. Behind it were 20906 (307) and 20878 (259).

Experiencing the biggest price changes were 20842 (down 22.9 percent on the sale of four homes); 20862 (down 53.1 percent on the sale of just one home); 20866 (up 23 percent); and 20895 (up 14.3 percent).

With the majority of zip codes recording decreases in sales, those that were off more than 20 percent from the same quarter last year were 20841, 20850, 20852, 20853, 20855, 20862, 20871, 20874, 20877, 20878, 20879, 20882, 20895, 20901 and 20905. Gainers included 20842 (33.3 percent); 20886 (10.7 percent); 20896 (66.7 percent); 20903 (27.6 percent); and 20910 (6 percent).

Average days of the market worth noting were, at the low end, 20855 (26); 20862 (10, for one home); 20868 (28); 20896 (22) and 20903 (25). At the opposite extreme were zip codes 20838 (95, for two homes); 20839 (146, for one); 20842 (54); 20860 (60); 20861 (85); 20871 (63); and 20882 (62).

Properties generally sold within 99 percent of the asking price. Among the exceptions were zip 20850, where 176 homes sold for an average of 98.2 percent of the offering price; 20854, were 175 sold for 98.2 percent of asking; and 20912, where the percentage was 100.1 on the sale of 50 homes.

Arlington County

Between the first and second quarters of 2006, prices rose on average from $559,500 to $592,700. With the supply of homes on the market mushrooming from 937 to 1,732, sales failed to keep pace; the number sold went from 616 to 806. Days on the market fell from an average of 42 to 32.

The costliest zip for home buyers was 22207, in which prices went up 11.9 percent from the second quarter of 2005 to $900,800. The next highest was in 22213, attaining $792,000, 46.5 percent more than the year earlier and the zip code with the biggest price change. Zip 22205 was $735,500, just 0.6 percent higher. The most affordable zip code was 22206, with an average price of $398,900, a drop of 2.1 percent. Zip 22203 also registered a decline, 6.9 percent to $407,100.

More homes, 161 of them, found buyers in 22201 than any other. The totals in 22204 were 146 and in 22207, 136. Every zip code had decreases in the homes sold; they ranged from 3 percent in 22201 to 49 percent in 22209. Properties sold most quickly in 22201 (27 days on the market); 22205 (26); and 22206 (26). The longest time on the market was in zips 22209 and 22203, with 41 days. Zips 22202 and 22204 were 40 days on the market.

Sale prices tended to be around 99 or 98 percent of asking prices, but 22202 was 97.6 percent and 22209 was 97.1 percent.