January/February 2007

By Peter Clute and Fred Kendrick

The DC Big Picture

November brought some welcome good news for the DC real estate market. The overall inventory declined for the second consecutive month and the condo/coop market registered a gain for the first time in eleven months. However, the single family market still lagged behind previous years’ sales numbers. Combined new contracts on single family homes, condominiums and cooperatives fell 5% from October and 7% from November of last year. Year-to-date combined sales are 16% behind last year’s totals.Even as inventory increases have leveled off, the number of available homes and units is still 31% higher than the same point last year. The effective inventory (number of available units divided by the number of available properties) of 4.5 months is a reasonable figure however, indicating more of a market equilibrium than a buyer’s or seller’s market. The key to the 2007 market could be the direction that prices take early in the year. In 2006, single-family prices have slightly increased over 2005 while condo/co-op prices have slightly decreased. If prices start to fall early in the year, we could see a very strong spring market.

Single Family

New contracts in November were down nearly 7% from October and nearly 14% from last November. They are lower by 30% than the Novembers of 2003 and 2004 which were the years when single-family sales reached their highest levels in the six to seven year run-up which began in 1997 and 1998. In November the only price ranges to show sales increases were $200,000 to $300,000 (up 4%), $500,000 to $700,000 (up 18%) and over $1 million (up 26%). Eleven months into the year, total sales of single-family homes are off 19% from 2005 and 28% from the same point in 2004. However, they are higher than sales in all of the years between 1990 and 1997 by substantial margins. For 2006 year-to-date sales, only homes priced from $1,000,000 to $1,250,000 (up 14%) showed a gain from last year. The number of homes for sale declined 11% from October to November but is still higher than in all but four other months in recent years. There is currently a 4.25 months supply of houses on the market, which is well under the 6-month national figure. For homes over $1 million effective inventory rises to 4.9 months. The average sales price for single-family homes fell by less than 1% from the end of October, but is 4.6% higher than a year ago. The median, or mid point in the range of all housing sales, is ahead of last year by 2.2%. In previous years, price changes have lagged behind the ups and downs in the number of home sales. But the fact that home sales are still up while the volume is down is probably also a reflection of some home sellers’ reluctance to reduce their prices to accommodate a changing market. This reluctance or unwillingness is undoubtedly a factor in keeping the inventory as high as it is.

Condominiums and Cooperatives

New contracts on condominiums and cooperatives fell 3% from October to November, but were up 1.4% from November of last year. This was the third best November on record, behind 2003 and 2004, but ahead of the Novembers of 2005 and 1990 to 2002. Compared to last year, the largest gains were in the $150,000 to $200,000 range (up 82%) and the $500,000 to $600,000 range (up 65%). Through eleven months, 2006 sales are 12% behind the record-year of 2005 and 5% behind 2004, but ahead of 1990 to 2003 by margins ranging from 6% in 2003 to 208% in 1995. Compared to last year the low end and the high end have done particularly well, while the mid-range has suffered. Units priced from $150,000 to $200,000 are up 45%, units from $700,000 to $1,000,000 are up 9%, and units from $1,250,000 to $1,500,000 are up 11%. However, sales in the heart of the market (between $200,000 and $700,000) are down 15%. The number of available units fell 11% from October. While a decline in inventory at this point in the year is welcome news for sellers, the overall inventory is still historically very high — 33% higher than the same point last year. The effective inventory, after two consecutive months over the 5 month level, fell back to 4.84 months at the end of November. The average price of a condo/co-op in DC is down 4% from 2005 year-end, while median prices are down 5%. While there has only been a 1% decline since mid-year, it would not be surprising to see a larger decline in the first quarter of 2007, something that could have a positive effect on the market.