New Condo Supply in DC Area Hits Record Low As Sales Pace Accelerates

• January 7, 2013
• 7 Comments

by UrbanTurf Staff

Courtesy of Delta Associates

Real estate research firm Delta Associates released its fourth quarter 2012 report on the DC metro area condo market on Monday, which revealed that the inventory of new condos in the region has reached a record low as the sales pace for new buildings has skyrocketed. Following are a few of the key findings from the report:

• In the DC region, there are currently 2,577 new condo units under construction or being marketed. What that translates to is just 12 months of new condo inventory, based on current sales pace. This is down notably from last July when the inventory stood at 3,629 units, and a fraction of the inventory from five years ago, when the area’s inventory of new condos was near 20,000.

• As was the case when Delta released its numbers for the third quarter of 2012, inventory varies drastically based on sub-market: “In upper NW DC, there is virtually no new inventory available, but in Loudoun County, there is 2.0 years of inventory.”

• One of the reasons that inventory is so low is due to the fact that the sales pace at new buildings has increased exponentially over the last year. Specifically, projects that have been introduced to the market in the prior 12 months have sold at a pace of 10.5 units per month; in contrast, projects that have sold out since 2011 averaged 2.8 sales per month. (It is important to note when looking at this differential that the final units to sell in a project are usually the least desirable. Still, the increased sales pace is noteworthy.)

• New condo prices have risen 3.7 percent across the DC area on average, but the numbers vary based on sub-market. For example, prices rose by double digits in Arlington/Alexandria, but fell 3.2 percent in a wide swath of DC that includes Capitol Hill, NoMa, Capitol Riverfront and communities East of the River. One of the authors of the report explained to UrbanTurf that prices dropped in this section of the city because “most of the actively marketing inventory in Capitol East is stale product [that is] units that have been selling for over five years.”

• The aggregate number of new condo sales across the DC metropolitan area in 2012 was 2,046, up from 1,617 in 2011.

This article originally published at http://dc.urbanturf.com/articles/blog/new_condo_supply_in_dc_area_hits_record_low_as_sales_pace_accelerates/6485

7 Comments

1. Keith said at 4:18 pm on Monday January 7, 2013:

   I’m not tracking this data. If demand is so high, why are fewer projects being built (reference the first chart)?

1. UrbanTurf said at 4:31 pm on Monday January 7, 2013:

   Keith,

   The first chart doesn’t really tell the story. The Delta report states that 1,900 condo units could start construction in 2013, which would be the highest number of starts for a year in the DC area since 2005-06. And even that number of starts would not keep up with demand.
   
   The Editors

1. Condo Joe said at 5:51 pm on Monday January 7, 2013:

   @Keith, this is a question that more people should ask.  There are a variety of reasons for the lack of supply some of which is expensive land costs, the lengthy period which it takes to purchase land and then work through the local governmental process to get things approved and then built -the market just started turning about 1 year ago so if a developer were to move quick then they would still have at least another 2-3 years before a project could be complete- and brought to market and finally the big kicker; buyer financing.  By now all developers know that the federal government has botched the entire system completely.  In an overzealous attempt to regulate, they shut down the ability to get new projects approved by the big 3 (FHA, FNMA and VA.)  It doesn’t matter where your loan comes from e.g. bank, it will end up with one of these and so new projects have to be approved by these 3 before you can get a loan to buy there.  New projects have to go through a massive amount of bureaucracy to get approval from these 3 and realize that the rules change constantly and that is a HUGE liability that they cannot control.  Even if demand is high and the product is great, if the building does not have approval or has to go through a myriad of hurdles to get that approval then time is your enemy as a seller.  Case and point, FHA requires a building be 30% presold in order to have its first settlement but FNMA (Fannie Mae) requires that a building be 50% presold before the first conventional loan can close so then you have 2 big problems:
   1) How do you find buyers to put down a deposit and wait for you to reach that threshold to close.  Imagine a 200 unit building which is not very big for DC standards has to presell 100 units (10 months) before the first conventional loan can close.  Would you plunk down a deposit with a promise from a developer that you can finally move into your house a year from now?
   2) where do you find buyers to fill the gap between the 30% that FHA requires and the 50% FNMA requires?  I’d like to know where one can find a developer who can underwrite 20% of the building as seller financed!  Not in today’s economy. 
   Sorry for the boring lecture but that is reality and the reality is that the government has a very bad habit of taking a crisis and making it worse through regulations.

   Incidentally, if you are a condo owner consider yourself lucky and potentially rich.  If nothing is being built and demand is significant that means that prices must go up and go up they will.

1. kob said at 9:40 pm on Monday January 7, 2013:

   Regarding this:

   >For example, prices rose by double digits in Arlington/Alexandria, but fell 3.2 percent in a wide swath of DC that includes Capitol Hill, NoMa, Capitol Riverfront and communities East of the River<

   Interesting? Any reason? What is this telling us?

1. UrbanTurf said at 9:56 am on Tuesday January 8, 2013:

   kob,

   We were also curious about this stat and reached out to the authors of the report to see if they can offer an explanation.

   The Editors

1. warystatistician said at 10:31 am on Tuesday January 8, 2013:

   1. as for the swath in capital hill and adjacent - given how few new condos there are there, it could be just a change in mix due to one or two new buildings, I guess.

   2.  @condo joe
   while the fed regs may be slowing the market, its a response to the exposure that they have had on marginal RE loans overall and their experience during the crash.  Would you prefer they got out of the market entirely? 

   I would suggest that in addition to the financing issues, the land acquisition costs also matter, and in addition both the development process, and LOCAL regs tend to cause the market to lag - we are just now seeing big projects again, after price recovery.

1. UrbanTurf said at 10:39 am on Tuesday January 8, 2013:

   kob,

   From the authors of the report as to why prices dropped in the swath of DC that includes Capitol Hill, NoMa, Capitol Riverfront and communities East of the River.

   “Most of the actively marketing inventory in Capitol East is stale product [that is] units that have been selling for over five years.”

   The Editors

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