Prices, Inventories Provide Reasons for Optimism
Market Summary
Fueled by the expiration of the Federal Homebuyer Tax Credit, a strong spring market boosted combined year-to-date sales of single-family homes, condominiums, and cooperatives to a 36% increase over 2009 at the end of the second quarter.
The inventory of available homes and units began its typical seasonal decline, falling 3% from May to June and is now 7% below June of last year. We are now statistically closer to a buyer's market than to market equilibrium or a seller's market.
Prices are down slightly for single-family homes and up slightly for condos and co-ops. This actually is the opposite of what is happening in the national market, with home sales and effective inventories in better shape for homes than for condos/co-ops. The slowdown in May probably delayed an expected increase in prices perhaps to 2011, but some neighborhoods are already starting to see prices move up a bit - certainly not to 2005 levels - but up slightly from 2009 prices.
Single Family Homes
At the end of the second quarter of 2010, sales of single-family homes were 38% ahead last year with the highest second quarter total since 2005. Year-to-date settlements were up 61% for homes priced under $300,000. Sales of homes priced between $400,000 and $500,000 were up by 50% and homes over $1,250,000 were up 44%. All price categories showed volume gains over 2009.
The inventory of available homes fell 2% from May to June, even while the number of new listings increased by 16% over June of last year. This is the first time the end-of month inventory fell since February, and it usually drops further in July and August as fewer homeowners brave what is thought to be (sometimes incorrectly) a slower summer market.
With a decline in inventory and increase in sale, the effective inventory fell slightly to 3.31 months, an indication of the strength of the single-family market in the District. Homes between $600,000 and $900,000 have an even lower number of 1.92 months, with buyers in this price range often competing for well-priced properties. At the end of the second quarter, average single-family home prices were down 2%. Median prices were down by 4%.
Condominiums and Cooperatives
The condo/co-op market has been on a roller coaster ride since April sales reached a three-year high. In May, buyers pulled back and in June rebounded with a 41% increase in pending sales. The end of the second quarter found sales 11% ahead of the same point last year. Units under $150,000 were up by 78%, units between $900,000 and $1,000,000 up by 40%, and units between $1,250,000 and $1,500,000 up 50%.
At the end of June, there was 4.77 months of condo/co-op inventory. With the swing in sales totals over the last three months, the effective inventory has also varied widely as well -- from the low for the year of 3.13 months in April to the high of 6.96 months reached the next month in May. June's 4.77 months is higher than the 3.77 months of a year ago. Units between $400,000 and $600,000 have an effective inventory of just over 3 months, while units over $1,000,000 are at 8.67 months.
Average condominium and cooperative prices are up by 1% over 2009 year-end, while median prices are up 3%.
Outlook
Sales fell sharply in May, as buyers interested only in the tax credit left the market, but recovered in June as inventories fell and buyers cautiously reentered the process. While the up-and-down nature of the second quarter is cause for concern, there are reasons for optimism in the summer and fall markets.
After Labor Day inventories can start to build rapidly, and it is important to end the summer at a low enough level that the September increase is manageable in the fall market. With low inventories in certain neighborhoods, sellers sometimes miss opportunities that are more attractive in summer months by waiting to list in a more competitive fall market.
With a 38% year-to-date increase in sales over 2009, it might be surprising to see prices fail to keep up with the market's recovery, but the last market rebound that occurred in the mid-1990s also saw price increases trail a bump in sales by more than a year. The flux in the condo market since April is a cause of concern, but with prices holding firm and inventories falling, the prospects for a good summer market are bright.
Data from the Greater Capital Area Association of REALTORS and adapted from the DC Housing Report, by Fred Kendrick
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