Fall Market Preview

by Tony Hain on September 9, 2010

How’s the market? The answer may surprise you.

The fact is that It’s an unusual market in DC and more complex than is being reported. Media stories continue to cover the national trends—foreclosures, 12 month supplies of inventory and an economy and housing market that has come to a screeching halt. That doesn’t match the reality in DC.┬áThe volume of transactions has been considerably lower the past few months in DC since the expiration of the federal tax incentives. However, that’s largely where the comparison to the national trends stops.

Inventory is incredibly limited in many District neighborhoods, which would traditionally be labeled a seller’s market. For example, in the 20009 and 20005 zip codes, there is only a few months supply of inventory—6 is a balanced market and we’re well below that and a far cry from the 12 months other parts of the country are seeing. This shortage isn’t just limited to sales, ask someone who has tried to rent an apartment in the city and they’ll be quick to share the difficulties they’re encountering. Vacancy rates are low and rents are on the rise again. Typically, this would put upward pressure on home prices, particularly with our relatively stable economy and record low interest rates.

So why aren’t we hearing reports of a seller’s market? Because this isn’t a typical time. Within the metro area, this phenomenon is more limited to the walkable, multi-use neighborhoods. Media stories are impacting buyers who are more cautious and nervous about the economy and the housing market. To be clear, multiple offers are happening, but it isn’t being reported and they are not escalating 20%+ over list price. Those days are over, but what is in the future?

Assuming the economy holds and continues to recover at a gradual pace, we may be entering a 2-3 year period of fewer transactions with a shortage of homes available for sale driven by continued population growth and the fact that it will take 3 years for new condo buildings to get financing and deliver units to meet pent-up demand. As media reports and word-of-mouth stories spread about the lack of homes for sale, homeowners who want to sell and were waiting for the market to rebound will begin putting their homes on the market. Prices will gradually increase and multiple offers may become the norm again, though with more reasoned bidding wars. Evidence is already showing this with prices up 5.6% even while the volume of transactions was off 19% over last year.

There is still a disconnect in perceived value between buyers and sellers on some properties, but the disconnect is shrinking. And we won’t see a return to the large appreciation of the early 2000’s, but District neighborhoods are poised for appreciation in the coming years even while other parts of the country limp along. With a relatively stable economy, limited inventory, and record low interest rates are making this the most affordable time to buy real estate in 30+ years.

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