D.C. Metro Market Update - The supply is finally shrinking as sales slide

The District

Condos and co-ops

Although the number of new listings grew by 19.1 percent in August, inventory continued a downward trend that began in June. Still, there were 208.4 percent more apartments on the market at the end of the month than the year earlier, with by far the biggest proportion of the 1,474 condos and co-ops offered at prices below $600,000. Of the 474 put on the market during the month, nearly half – 234 – were listed between $200,000 and $400,000.

Sales activity declined 2.5 percent, to 316, compared with the previous August. All of the decrease in ratified contracts was for apartments between $300,000 and $800,000. The month’s sales were lower than every month since February but higher than the winter. Year-to-date volume was off 12.6 percent in most price ranges. Exceptions were at $150,000-200,000 and between $800,000 and $1 million.

The market absorbed a shabby 18 percent of the available condos and co-ops, a situation reflected by falling prices. The average sale was $406,086, and the median was $357,500. By contrast, last year’s average was $426,576 and the median, $375,000. Yet, August prices were higher than the 2004 figures - $364,460 on average and a median of $325,000.

Single-family homes

New listings dropped 6 percent below the previous August, to 516 versus 549. As a result, supply edged down after remaining on essentially a plateau since April. The only substantial growth in homes added to the market was in the $700,000-800,000 and $1.25 million-$1.5 million ranges. The inventory of unsold properties reached 1,330 by the end of the month, 93.9 percent more than August of 2005. Except for an insignificant decline below $150,000, every level posted gains no lower than 22.5 percent ($1.5 million or more) and no higher than 132.7 percent ($300,000-400,000).

The volume of sales in August was lower than in any month since December, plunging 24.9 percent from one year earlier, from 417 to 313 signed contracts. Only between $1 million and $1.5 million did sales activity rise; it went from 12 to 18 properties under contract. For the year to date, volume slipped by 19.1 percent, with the biggest declines at levels below $200,000, at which price points there were 81 sales as opposed to 252 in 2005.

The absorption rate was only 19 percent, yet prices of single-family homes continue to climb. The average has gone from $628,179 last year to $653,444 in 2006, and the median, from $489,000 to $500,000.

Montgomery County

Condos and co-ops

The supply of new listings went up 6.3 percent in August, most of them below $400,000; the bulk, 319 of 459 put on the market, was between $200,000 and $400,000. At the end of the month, inventory stood at almost the same level as it did in July and July, and the summer’s amount was higher than in the whole previous year. There were 1,030 condos and co-ops lingering on the market, 151.8 percent more than on Aug. 31, 2005. Increases were in the triple digits between $150,000 and $900,000 with the notable exception of $800,000-900,000, where 13 apartments awaiting buyers represented a 1,200 percent gain. Above $1.5 million, the four homes still on the market accounted for a 300 percent increase.

New sales fell 19.9 percent below the August 2005 activity. Of 254 ratified contracts, 120 were at the $200,000-300,000 level, but volume there was 20 percent smaller than in the previous August. Monthly volume hasn’t been so low since January. As for the year to date, sales were off 16.7 percent, dipping to 2,219 from 2,663. Between $900,000 and $1 million, seven sales so far this year represented a 250 percent rise.

Of the 1,284 apartments offered for sale during the month, 20 percent found buyers. Even with an absorption rate of one out of five, prices edged up. The average in August was $313,644 from $306,544 last year, and the median was $285,000 from $275,000.

Single-family homes

There was a 1 percent decline in new listings from August to August, with pluses and minuses spread across the market. The biggest gain was 89.3 percent, from 28 to 53, in homes offered at $1.25 million-$1.5 million. For the first time in a year, supply inched down from July’s peak. The number of properties still seeking buyers at the end of the month was 3,815, which was 119.6 percent more than at the same time last year. Growth in inventory ranged from 39.4 percent, to 251, for homes offered above $1.5 million to as high as 194.7 percent, to 828, for those at $400,000-500,000.

August sales volume was nearly even with that of June and July, but it was 22.3 percent below August 2005, falling from 1,155 to 898. Activity was down in every price range but $900,000-1 million (up 16.7 percent) and above $1.5 million (up 47.4 percent). Year-to-date volume also was lower by 22.3 percent, recording 7,438 sales in August versus 9,578 at the same time last year. The greatest declines were registered for houses listed under $400,000, and the only increases were for those above $1 million; sales at the high end totaled 439 this year and 403 in 2005.

The market absorbed just 19 percent of all homes that were active during the month, and prices stood higher than they were last year. The average has moved from $563,491 to $601,402, and the median, from $465,000 to $490,000.

Alexandria

Condos and co-ops

The number of new listings took a 9.8 percent dive beneath last August’s 2005. Of the 185 put on the market, 139 were priced between $200,000 and $400,000. But there was an 8.8 percent increase at $200,000-300,000 and an 11 percent decrease between $300,000 and $400,000. From 12-month highs in May and June, the trend line started to turn down and continued in that direction, albeit modestly, in August. At month’s end, there remained 594 unsold apartments, 154.9 percent more than in 2005. Predictably, the biggest categories were the two levels between $200,000 and $400,000, which accounted for 418 of those condos and co-ops. Each level had more than triple the number of apartments than at the same time last year.

Sales slid by 12.6 percent, to 111 from 127; the losses in signed contracts occurred above $200,000, except for the $400,000-500,000 level, which gained 35.7 percent, to 19. Notwithstanding, the month had more sales than any month since April. Year-to-date volume plunged 28.3 percent more or less across the board, although sales activity was at least twice the previous year’s between $700,000 and $900,000, reaching 24 in comparison with 11 in 2005.

The absorption rate was, to put it charitably, an unremarkable 16 percent, and prices are beginning to level off. The average is $354,629, up from $343,872 last year and $273,560 in 2004; the median is $320,000, up from $311,000 in 2005 and $245,000 the previous year.

Single-family homes

New listings shrank 9.7 percent below the amount in August 2005, with virtually every price level posting declines. The notable departure was at $400,000-500,000, which rose 54.5 percent to 34. Supply went down for the first time since December, though it was higher than in the winter. The number of listings active at the end of the month was double that of the year before, reaching 446. There were triple-digit increases ranging from 140 percent ($300,000-400,000) and 226.7 percent ($500,000-600,000). At $400,000-500,000, the increase was 171.4 percent, and the three levels accounted for 198 of the unsold properties.

Sales activity fell 13.4 percent behind August of 2005, thanks to decreases at every single level but $600,000-700,000, which was up 166.7 percent, to 8. The month’s volume of ratified contracts was greater than July’s but below every other month since February. For the year to date, sales were down 19.9 percent, mostly in the double digits at every price point. The modest exceptions were at $900,000-$1 million, which went up 11.8 percent to 38, and at $1 million-1.25 million, up 4.2 percent to 25.

The market absorbed just 18 percent of available homes, and prices remain slightly higher than they were last year. From $666,068 last year, they have grown to $680,398 on average; the median has inched up to $603,000 from $599,999.

What it all means

There is no denying that the market has made a clear adjustment. Declining inventory is now established as a trend and sales have begun to show gathering strength in general. It seems obvious that sellers are starting to appreciate the existence of a new reality and that buyers are beginning to respond.

When it comes to buyers, the industry has lately referred to them as being on the sidelines. It’s true: They are nervous about getting into the market too fast, before, they surmise, that mythical "bubble" bursts and prices plunge. With respect to stocks and bonds, that approach is called "market timing," and the professionals all say the strategy just doesn’t work. Buyers need to bear that wisdom in mind. They are well advised to remember that interest rates will remain unusually low only for the time being. And they would do well to consider that any investment in real estate always bears fruit over a span of four or five years.

Depending on the individual’s situation - how long sellers have owned their properties, how much "profit" they could realize even now, and how much risk buyers are willing to assume that higher monthly payments won’t buy them lower housing value - this may well be the ideal time to act. The transition to a new market is not complete, but the direction is apparent.