November/December 2005

Prepared by Peter Clute and Fred Kendrick Coldwell Banker Residential Brokerage

September saw the largest single-month gain in inventory in the 15-year history of this housing report. The number of available single-family homes, condominiums and cooperative jumped 52% from August and is now at the highest combined level since November of 1998. The condo/co-op side registered a much larger increase of 76%, compared to 36% on the single-family side. The number of new contracts on homes and units failed to keep pace with the inventory gain, falling 5% from August and 11% from September of last year.

Going into the fall market, the question arises whether buyer demand will be strong enough to consume this extra inventory. The DC market was able to recover nicely from a 30% increase in inventory in September 2004 and a 31% increase in September 2001, but is this particular increase too large to overcome?

The increase could actually be good news on the single-family side. After seeing its inventory fall to a historic low in the first quarter of this year, the extra inventory could give opportunities to buyers priced out of the spring market. And on the condo/co-op side the largest inventory increases occurred for units priced from $300,000 to $500,000, a more “affordable” range where demand has traditionally been higher.

There will certainly be more articles written about a real estate “bubble,” but what we might be seeing is a shift in the market. Instead of an overheated climate that continues uninterrupted throughout the year, we might be seeing more a seasonal market with peaks and valleys. October and November are two historically strong sales months, so we will have a better idea of where the market is headed as we get closer to the new year.

SINGLE-FAMILY HOMES

In a somewhat surprising development, new contracts for single-family homes in September fell 5% from the August level and recorded the lowest level of monthly sales for the year since January. Compared to a year ago overall sales were down 10% from last September and 7% for the year-to-date.

Once again these overall single-family numbers were dragged down by the 20% portion of the market priced under $300,000, where the inventory for the month was down 49% and sales were down 51%. Above $300,000, with inventories showing major gains, sales are ahead of last September by 12.5% and ahead of last year at this time by 19%.

For the year-to-date, there have been double digit gains in sales for most homes over $300,000, although September experienced a 2.5% decline in sales of homes priced over one million dollars. The brighter side of this picture is that these higher priced homes showed a 26% sales gain over August but with the inventory up 11% from a year ago there will be more competition this fall.

The inventory of all homes for sale jumped 36% from August and is at its highest level since November of 2000. The inventory under $300,000 is 23% lower than one year ago but over $300,000 it is up 39%. For the first time in over four years the effective inventory for all homes is as high as 2.6 months. Last month, which was the then high for the year, it was 1.79 months. The average sale price of single-family homes declined marginally from the end of August, the first time this has happened this year. But sales are still up strongly for the year — ahead of the 3rd quarter of last year by 23% and all of last year by 21%. For comparison, the annual appreciation figure last year was 15% so even with some expected moderation over the last quarter, 2005 will easily set new price levels.

CONDO/COOPS

The number of new contracts on condominiums and cooperatives fell 5% from August to September and registered the lowest monthly sales total of the year. This was still the second best September performance on record, however — trailing only the very strong September of 2004 by 13%, while leading the Septembers of the previous ten years by margins of 1% (in 2003) up to 285% (in 1995). For the month, sales of units over $400,000 (42% of the market) were up 39% compared to last year, while sales of units below $400,000 (58% of the market) were down 31%.

Through the first nine months of the year, sales of condos and co-ops are ahead of 2004’s record pace by 12%, with third quarter sales 17% ahead of the same period last year. For the year-to-date, new contracts on units over $500,000 had a 102% gain compared to last year. New contracts on units priced between $400,000 and $500,000 were up 48%.

The number of available units jumped 76% from August to September, the largest monthly gain on record (the 65% gain in September of 2001 was the second largest), to reach the highest level since May of 1998. Surprisingly, the largest gains for the month were in the $300,000 to $400,000 range (22% of the market, up 107%) and the $400,000 to $500,000 range (17% of the market, up 89%). The inventory in the $500,000 and over range (37% of the market) was up 75% from the end of August.

The effective inventory at the end of September stands at 2.94 months (compared to 1.42 months a year ago), the highest level since December of 1998. With a below average sales month and the spike in overall inventory it is not surprising that the effective inventory now approaches 3 months, but with the traditionally strong sales months of October and November ahead it will not be surprising to see this number drop closer to 2 months.

The average and median prices of condos/co-ops remained unchanged from August. The average sales price is 16% ahead of the 2004 year-end price. The gain in the median price compared to last year is 15%. With the state of the market at the end of September it is likely that these gains will moderate toward the end of the year rather than move upward and fall short of the 23% gain in 2004.