By Peter Clute and Fred Kendrick
The DC Big Picture
The year ended with December posting an 11% gain over the same month a year ago, but total year-end residential sales of single-family homes and condominium/cooperative units finished 2006 at their lowest level of the last four years.
The decline on the condo/co-op side has been much smaller both in terms of numbers and duration than on the single-family side. Unit sales are off 9% from their peak in 2005 while home sales are down 26% from their high point in 2004. The sales decline on the condo/coop side is only in comparison to the last two years, while the slide on the single-family side extends back to 1998.
On a more positive note, the inventory of available homes and units for sale at the end of the year reached the lowest level of the last nine months after experiencing a sharp upward turn in the middle months of 2006. There is now a four month supply of residential properties for sale, compared to 4.18 months in both Montgomery and Fairfax Counties, 4.83 months in Prince George’s County and 6.12 months in Loudon County. The national figure is at six months of inventory.
The average and median sales prices for the year are slightly ahead for singlefamily homes and slightly off for condominiums and cooperatives, with both homes and units seeing a rare decline in the fourth quarter.
It is still too early to tell where sales and prices are headed in 2007. In the past, the market has tended to move in cycles of four to five years, which could mean another two or three years of decline or flat sales.
However, this time the downturn has been more gradual than in the past and, with current favorable interest rates and lower inventories, it seems probable that this will indeed turn out to be the mild market correction and soft landing predicted by many.
We will have to wait until spring to see whether there will be an upturn as soon as in 2007 (2008 may be more realistic), but it is entirely possible. In any case both buyers and sellers should be able to share productively in a more balanced market in 2007.
Single Family Homes
New contracts for single-family homes reached their lowest level of the year in December, although they were 10% higher than the weak December of 2005. The decline in home sales now goes back to 1998 when the most recent upturn in the single-family market began.
For the year, sales were off in all price categories compared to 2005 with the exception of those priced from $1,000,000 to $1,250,000. Houses in this range had been ahead of 2005’s pace for most of the year and finished with a gain of 17%. In December, new contracts for homes priced from $300,000 to $500,000, $800,000 to $900,000 and over $1,500,000 all showed gains over the same month of a year ago lending some support for an upturn in 2007.
New listings in December were down 10% from a year ago and, despite the 70% increase by mid-year, finished the year only 17% ahead of where it started. Total active listings actually fell for homes over $1,250,000 although here there is a 5.6 month inventory of unsold homes as compared to 4.03 months for the whole single-family market.
Average sales prices reached $644,115 by year’s end which is 3% ahead of 2005 — the highest since this report began in 1990 — but of some significance is the 2% decline during the fourth quarter. This is the first time that prices have actually declined in the last quarter of a year. Since price increases and declines tend to lag sales numbers it would not be surprising to see some softening or moderation of prices in the months ahead.
Condominiums and Cooperatives
New contracts on condominiums and cooperatives were up 2% from November to December and up 13% from December of last year. The price ranges showing the largest gains over 2005 were units under $300,000 (up 41%) and units from $600,000 to $1,000,000 (up 67%).
For 2006, contracts on condominiums and cooperatives were down 10% from 2005 (the best year on record for condos and co-ops) and 3% from 2004, but finished ahead of each year from 1990 to 2003 by margins of 8% in 2003 to 205% in 1995. Sales of units priced from $150,000 to $200,000 saw a significant gain of 52% over 2005, while units between $600,000 and $1,000,000 were up 12%. All price ranges from $200,000 to $700,000 were off from 2005, by a total of 12%.
The number of available units fell 15% from November, the fourth straight month of a decline in inventory. While the end-of-the-year number is still 43% higher than year-end 2005, it is 29% lower than the record high set in June of this year. The effective inventory at the end of December stands at 4.04 months, compared to 3.18 months a year ago and 1.62 months two years ago.
The average sales price of a condo/co-op in 2006 was $406,501, down 4.5% from 2005. The median price for the year was $354,100, down 6% from 2005. During the slowdown of the mid-1990s, the average sales price became a truer indicator of what prices were doing than the median price, but at the end of 2006 the 6% median price decline seems to be closer to what is happening in the market.