The DC Condo Market, Part 3: Where the New Condos Are

September 28, 2009
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by Will Smith

UrbanTurf and McWilliams|Ballard have partnered to produce a series of articles that look at the new condo market in the DC area over the last 18 months. Below is the third article of five in the series. The report upon which this article is based is available for free download here. Also be sure to read:

The DC Condo Market, Part 1: State of the Market

The DC Condo Market, Part 2: Rebounding from the Bottom

The DC Condo Market, Part 4: The Coming Condo Shortage (Maybe)

The DC Condo Market, Part 5: The Top 20 Fastest Selling Condos

Download Part 3 of the Condo Report

It was just a couple years ago that there was much hand-wringing about the glut of new condos going up across the DC metropolitan area. But once the real estate bubble burst and the economy started turning south, construction of new condos came to a screeching halt. Since then, much of that new condo “inventory” has been gradually bought up, the economic crisis notwithstanding. Total available inventory now stands at about 6,500 condos, down from almost 18,000 at the height in 2006 and below 7,000 for the first time in over five years.

So, where exactly are the remaining new condos available for purchase? Take a look at the table below:

The District itself still has the largest supply, which is not surprising since it was where so much of the new construction occurred. But note that DC also has the least inventory in terms of years of supply, a measure of how long it would take for all the new condos to be purchased at the current sales pace. While it might seem counter-intuitive that DC has both the most unsold inventory and the least years of supply, that really just highlights how much faster new condos sell in DC versus almost everywhere else.

Much of the remaining condo inventory in DC and the close-in areas is concentrated in a few specific submarkets, namely the U Street-Logan Circle and Mount Vernon Triangle-Penn Quarter corridors in DC, the Rosslyn-Ballston corridor in Arlington, and to a lesser extent Old Town in Alexandria. Following is the remaining inventory in each of those areas:

The picture changes dramatically outside the Beltway. The new condo market in Prince William County, for example, is still reeling. While the number of unsold condos there is comparable to that of DC, actual sales are at a veritable standstill. At the current glacial pace of sales, it would take 18 years for all the new condo supply to finally be absorbed by the market.

The problem for Prince William County, and to a lesser extent Loudoun, is twofold. First, short sales and foreclosures dominate the market, dampening demand for new condos sold at market-rate. Second, the difference in price between a condo and a single-family home is much less than in close-in markets, so condos also have to compete with houses. “In Prince William County, you could pay $149,000 for a condo, but you could probably find a short-sale house for $199,000 or $249,000,” explained Mark Franceski, director of market research at real estate sales and marketing firm McWilliams|Ballard. “That’s a much easier jump to make than in DC, where a comparable price difference between a condo and a house can often be hundreds of thousands of dollars.”

In the fourth part of this series, we’ll look at what the depleting condo inventory means for the market.