The Slow Return of DC’s Housing Inventory

• September 6, 2013
• 2 Comments

by UrbanTurf Staff

For the past week, UrbanTurf has been publishing the predictions and trends that local industry professionals believe will play out in the fall housing market.

However, if there is one ongoing trend that seems to be on the mind of most DC area homebuyers it is the region’s chronically low inventory of homes for sale.

Today, Jonathan Hill and Corey Hart of local data firm RealEstate Business Intelligence lay out the reasons why they think inventory will be coming back, albeit slowly, in the coming months.

Click to enlarge.

The Slow Return of Inventory

By Jonathan Hill and Corey Hart of RealEstate Business Intelligence

The DC area housing market bottomed out pricing-wise in 2009, two years before most U.S. markets started turning around. On a monthly basis, the annual appreciation in median sale price has averaged +5.4% since January 2010. One might assume that the consistent price improvements over the last 42 months would lead to an uptick in listing activity. This did not happen. In 2012, the average year-over-year change in new listings each month fell 7 percent, even though the average year-over-year change in closed sales increased 7 percent. The result? Inventory rapidly declines and the median sale price in 2012 was up 8 percent over 2011. Supply was getting trounced by demand.

Fortunately for frustrated buyers, this trend has shifted of late. Possibly due to increased awareness of favorable local market conditions, new listing activity in the DC area has finally begun to outpace the previous year. In fact, there were over 25 percent more newly listed homes in July 2013 than in July 2012 and new listing activity has now been increasing by double-digits for four consecutive months. While the total housing inventory in the area at the end of July was 13 percent below last year’s level (and contract activity continues to outpaced 2012 levels), the inventory nosedive has begun to flatten out.

What could this mean for the fall? After 25 consecutive months of double-digit annual declines, we predict inventory will finally begin to grow, albeit modestly. New contracts should continue to outpace last year’s levels, but the year-over-year growth in new listing activity should put the brakes on our incredibly shrinking inventory. While any potential increase in inventory is a positive indicator for buyers, they’ll need to stay on their toes. It’s unlikely we’ll approach the sub-2 months-of-supply level reached in the first half of the year. None of the housing metrics we see indicate the market will be balanced (~around 6 months of supply) anytime soon. Sellers will remain in the dominant position at most negotiating tables throughout the region and modest appreciation will continue as a result of the supply/demand imbalance.

See below for more fall predictions.

• More Choices, More Concessions For Renters
• The Private Sector Will Sustain DC’s Economy
• Cash is King and A Buyer’s Market?

This article originally published at http://dc.urbanturf.com/articles/blog/fall_market_predictions_the_slow_return_of_inventory/7521

2 Comments

1. JD said at 5:37 pm on Friday September 6, 2013:
   Thanks for the interesting perspective. Can you describe the data that's leading you to the conclusion that inventory will grow modestly in the near term? Just trying to understand why we wouldn't see a rush of sellers to the market pretty quickly, now that word is out that prices have recovered. It would seem to me that current homeowners have refrained from selling their properties over the last few years ("repressed supply") because they believed they were underwater due to the downturn. Now that folks understand they're not underwater, wouldn't this repressed supply come to market quickly? Why wouldn't we see a rapid return to more normalized listing levels quickly in the face of dramatic price growth, a clear seller's market, falling rents (lower returns to holding properties), and rising interest rates?

1. Corey said at 11:35 pm on Friday September 6, 2013:
   Good question JD...I took a stab at answering it in full on our blog, replete with more charts to illustrate the data that lead us to the conclusion that gains in inventory will be modest. You can find the full response here: http://www.rbintel.com/blog/about-tight-inventory-dc-metro-area In a nutshell, consistent y-o-y gains in demand have neutralized (and should continue to neutralize) the impact that rapid gains in new listings have had on overall supply levels. Also, if you look at the last chart on our post, you'll see we're actually back to inventory levels seen before the '05 buildup began. Barring unforeseen disruptions to the local or national economy,the area should remain a seller's market (IMO).