Press Releases

November 2018

11/27/18 by David Howell

 

Zillow's "Zestimates" Are a Bit Better Than They Used To Be

But They Are Still Inexplicably Bad

We have just completed our fifth and most comprehensive evaluation of the accuracy of Zillow.com’s “Zestimate,” the major calling card for their website. Going back to 2010, Zillow has been able to predict the market value of the homes they evaluate within 5%, high or low, a little over half the time. Evaluating 1,000 properties late this summer, they got that “close” roughly 64% of the time.

Among the reasons for that marginal improvement is that Zillow now has a direct feed from the region’s multiple listing system, giving them more timely and comprehensive information on available and sold listings. Yet Zillow seemingly ignores the most important information of all: the list price of the property, especially when there is a pending contract. 

In the table below, you can see the evolution of Zillow’s estimates – how often they get within 20%, 10% and 5% of the market value – and they have gotten a little better over time. The last two lines show the “outliers,” just how far off the mark Zillow can be. (As an example, in one case in our most recent analysis, the Zestimate was 744% higher than the actual sales price!) The last column is Realtor® pricing, showing how close the original list price of a home was to the actual sales price.

So with just two pieces of information – the original list price and the fact that the property has a pending offer – the consumer can get closer to predicting the sales price than Zillow does. The list price is within 5% of the sales price almost 90% of the time. Zillow’s model is so reliant on their sophisticated algorithms and data scientists that they choose to ignore the power of a seller and their Realtor® evaluating the property and market conditions to decide on an offering price. And if Zillow is this far off the mark when they have list price info, just how far off do you think they are for home that aren’t on the market? 

Why does Zillow produce these estimates of market value? According to their website, “The purpose of the Zestimate is provide data in a user-friendly format to promote transparent real estate markets and allow people to make informed decisions.” We agree with the first part of that statement, but not the second. If the purpose was to help people “make informed decisions,” then Zillow wouldn’t publish such misleading and inaccurate information. The real purpose is to drive traffic to Zillow.com. We get it – that’s the business they are in and they do that exceptionally well. As Realtors®, we live in a world where accuracy and accountability matter, and Zillow doesn’t. We succeed or fail based on our knowledge and service; Zillow succeeds or fails based on their ability to sell leads to agents, and that depends on web traffic. To be clear, we have no problem with Zillow’s business model or the fact that they publish estimates of property values. We simply don’t want people to think they are making “informed decisions” based on these numbers.

 


MARKETWATCH ARCHIVE - NORTHERN VIRGINIA


 

Summer 2018

08/17/18 by David Howell

 

No One Has All The Buyers.

The Perils of "Off-market" Sales

The Washington metro area has a strong real estate market characterized by remarkably low inventory, so we’re a little puzzled by the frequency of “off market” listings – those listings that are not put in the multiple listing system (MLS). One may hear them referred to as private exclusives or pocket listings, but under either banner these are homes that are not exposed to the broadest possible market.

In a market where buyers are clamoring for choices, why would a seller intentionally choose to do that?

There are some perfectly legitimate reasons – convenience, security, privacy – and sellers should get to make those choices. But as with any marketing strategy, there are winners and losers, pros and cons.

When a property is sold by word of mouth, or can only be shown by the listing agent or agents with their company, or simply not marketed in a way that every buyer has a shot at seeing, the seller may be able to get a quick, no fuss sale. If that’s the seller’s objective, so be it. But a “private exclusive” listing – by definition – excludes people.

When supply is tight, does it really make sense to restrict the demand - the number of people who have an opportunity to buy? Because that’s really what these “off-market” listings do. They limit the pool of purchasers. Sellers run the risk of missing a better offer. If the “off market” listing strategy is so wise, let’s take it to its logical conclusion: if every seller and listing agent decided to restrict the availability of their listing, wouldn’t everyone be hurt? Buyers would have nowhere to turn for ready access to every home on the market, and sellers would not have access to all the buyers.

Sellers might be attracted to an agent’s “pitch” that they or their company have the buyer for their home. But here’s the reality: no agent, no company has all the buyers, or even most of the buyers. We see these “off market” listings a bit more often in the luxury market where some may perceive that there are dominant players. In the first four months of this year, there have been just over 1,600 homes sold in the metro area in the MLS for $1,000,000 or more. There were 1,050 different agents from over 300 different companies who brought the buyers to those homes. But is the luxury market all that different? So far this year in Fairfax County, there have been 1,650 homes sold in the MLS between $500,000 and $700,000. Over 1,100 different agents from 350 companies represented the buyers of those homes. In Prince George’s County, 2,500 homes have sold between $200,000 and $400,000, and there have been over 1,500 different agents from 550 different companies.

Before a seller decides to sell their home “off-market,” perhaps the most important question to ask is this: “How many buyers do I want to miss?”

 

 


NEW CONTRACT ACTIVITY

  • The overall number of new contracts ratified in July 2018 was up 3.3% from the number of contracts ratified in July 2017, and there were increases for three price categories.
  • Year-to-date, contract activity is down 1.8%.
  • 28.6% of all homes going under contract in July 2018 had at least one price reduction before going under contract. Last July it was 32.3%.

 

 


MONTHS' SUPPLY

  • The overall supply of homes on the market at the end of July was 1.9 months, which was a decrease of 15.4% compared to the end of July 2017, when supply stood at 2.3 months. 
  • Price category supply ranges from a low of 1.2 months for homes priced between $300,000 and $499,999 and a high of 11.2 months for homes priced $1,500,000 and higher.

 

 


AVERAGE DAYS ON THE MARKET

  • The average number of days on the market for homes receiving contracts in July was down for homes priced less than $1.5 million.
  • Overall, the average number of days on the market for homes receiving contracts in July 2018 was 35, down 14.6% from 41 days in July 2017.

 


 

MARKETWATCH ARCHIVE - NORTHERN VIRGINIA


 

Winter 2018

03/13/18 by David Howell

 

More of the Same?

2017 ended with a bit of a whimper, as contract activity on our region’s real estate market cooled off along with the weather. But it was an overall solid year, with Washington, DC continuing to outpace its suburban neighbors. What’s ahead for 2018?

We’ll put our forecast into three categories: Steady State, the Wildcard, and the Tantalizing Possibility.

Steady State – With inventory in short supply, especially inside the Beltway, we expect 2018 to look a lot like 2017. There will continue to be considerable upward price pressure close-in, but we do not expect the DC market to maintain the 8%-9% annual appreciation rates of the past three years. We think it will be more like 5%, and probably less in the upper brackets. The suburbs will still be strong, particularly as more frustrated buyers look outside the inner city because of prices and inventory. Even with those factors, we’d be very surprised if the appreciation rate exceeds 3% in those areas. And regarding mortgage interest rates, it is almost inevitable that they will (finally) rise as the overall economy improves, ending 2018 around 4.75%. That rate shouldn’t discourage homebuyers.

The Wildcard – With the ink drying on the sweeping tax reform legislation, residential real estate will be impacted in at least three ways. First, with the cap on deductibility of state and local taxes and the diminished value of the mortgage interest deduction for expensive homes, it is likely that upper end home prices won’t increase as much as they would have had reform not passed. Second, the overall tax decreases for most wage earners will put money in their pockets, particularly for millennials who may be thinking about buying their first home. This should help with student loan debt, saving for a down payment, and/or increased spending – and that’s good for real estate. And third, if the economy grows as it did after the Kennedy- and Reagan-era tax cuts, that means more jobs, more income and a much healthier economic climate. Overall, we think the tax reform legislation in 2018 will be a modest, net positive for the region’s real estate market.

The Tantalizing Possibility – Three communities in our region made the short list of 20 semi-finalists for Amazon’s HQ2, with a promise that their final decision will come in 2018. Should one of those three areas be anointed to host 50,000 new employees, acres of office space, and the traffic that will come along with it over the next several years, the whole region wins. Amazon won’t be turning dirt for their second headquarters anytime soon, but the real estate boom for some city on that list of 20 could begin later this year.


 

MARKETWATCH ARCHIVE - NORTHERN VIRGINIA

November 2017

11/22/17 by David Howell

 

Absorption Rates and Sell-by Dates

Determining the appropriate list price for a home or figuring what to offer is equal parts art and science. The “art” has a lot to do with the motivation and level of risk tolerance of the parties, as well as the degree of emotional attachment to the outcome. The focus of the “science” has typically been on knowing overall market and financing conditions, and picking the most “comparable” properties to see how the subject property stacks up. Unsurprisingly, there’s a lot more to it than that.

Among the factors to consider are absorption rates and what we call “sell-by” dates. Absorption rates simply measure the percentage likelihood a property will sell in a given month. Absorption rates above 35% are reflective of a seller’s market, and rates below 20% create more leverage for buyers. Anything in between indicates a more balanced market. Sell-by dates reflect how much of the inventory sells before list price reductions are needed. Generally, when homes sell quickly they sell closer to list price, and the discount from the original list price is greater the longer they are on the market. Let’s look at some specific examples.

We analyzed the contract activity for detached homes with a list price of $800,000 to $899,999 from July through October for three communities in the metro area: Great Falls, Virginia, Bethesda/Chevy Chase, Maryland and the Spring Valley/American University Park area of Northwest DC. Great Falls had the lowest absorption rate at just under 20%, meaning that of all the inventory of available homes, only 20% on average sold in a given month. The average number of days a home was on the market before getting a contract was 37. Advantage: Buyers. At the other end of the spectrum, almost two thirds of the available inventory sold each month in Spring Valley/AU Park. The average days on the market was a remarkably low 10 days. Advantage: Sellers.  

 

 

The “sell-by” date is the threshold for considering a list price reduction. In Great Falls, homes that sold in 30 days or less sold for an average of 99% of the original list price. Those that sold after 30 days on the market sold for an average of 92% of original list, and almost all had to lower their price before receiving an offer. In Bethesda/Chevy Chase, homes selling in 21 days or less sold for 99% of original list; those that took longer sold for just 94% and all but one had to drop their list price. In the hotter Spring Valley/AU Park market, homes on the market 25 days or less sold for 105.5% of list price, but after 25 days the average dropped to just 94.3%.  Even in this market, 75% of sellers had to drop their list price to receive an offer after their home had been on the market for 25 days.

Despite very different pricing dynamics in these markets, sellers need to understand there is a critical window of opportunity to sell for the highest price. And buyers understand that if they wait for the inventory to “age” a bit, they might be able to drive a harder bargain.

 


FULLY AVAILABLE LISTINGS

  • The month-end inventory decreased 9.6% for October 2017 compared to October 2016 – but the number of homes coming on the market increased 3.6%.
  • Inventory is down for all price categories.
  • 43.7% of all homes on the market have had at least one price reduction since coming on the market.
  • Last October, 42.6% of all homes on the market had at least one price reduction.

 



MONTHS' SUPPLY

  • The overall supply of homes on the market at the end of October was 2.3 months, which was a decrease of 12.9% compared to the end of October 2016, when supply stood at 2.6 months. 
  • Price category supply ranges from a low of 1.4 months for homes priced between $300,000 and $499,999 and a high of 10.7 months for homes priced $1,500,000 and higher.

 


 

RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON MARKET​

  • As we have noted in this space for years, initial pricing strategy is critical to sellers’ success.
  • Homes settling in October 2017 that received contracts their first week on the market sold, on average, at original list price. Those that took 4 months or longer to sell sold for 9.7% below original list price.

 

September - October 2017

09/09/17 by David Howell

 

 

Champagne, Baths – and Real Estate

Bubbles are great to have in champagne, baths, and a host of other things, but they are not good for the real estate market.

A real estate bubble generally is caused by unjustified speculation in the housing market that leads to a rapid and unsustainable increase in prices. When it bursts, prices decline quickly – often to levels lower than when the run up in prices began. The whole country experienced a painful bursting bubble almost a decade ago, and its impact was felt far beyond the real estate market.

There is no doubt that home prices have risen significantly in the metro area during the past several years and affordability, especially for first-time homebuyers, is a real concern. But are we in a bubble? The short answer is no.

From 2002 through 2005, home prices in the Washington, DC metro area skyrocketed. Demand was artificially high, driven by ridiculously low “teaser” interest rate mortgages. Prices were up 14% in 2002, 15% in 2003, 20% in 2004, and 21% in 2005. Since mortgage underwriting guidelines were essentially non-existent, more and more buyers rushed into the market to buy homes they could not afford, with the expectation they could cash in their gains later.

When those artificially low adjustable rate mortgages started to adjust and guidelines tightened, demand plummeted. There was a 40% drop in the number of home sales in 2009, compared to the peak in 2005. At the same time, the market was flooded with new inventory as homeowners rushed to sell homes they could no longer afford. With the enormous drop in demand and the jump in homes on the market, prices dropped almost 15% in 2009. Prices only started to head back up in 2012.

None of those supply and demand conditions exist today.

Let’s take a look at demand. There are three basic ways to increase the desire for housing: an upturn in economic activity, an increase in population, and generally low interest rates. To a large degree, all three of those exist today. The region’s economy is doing pretty well, especially in The District. Further, the region has grown by 1,000,000 residents in the last 14 years. Finally, low mortgage interest rates have created an extremely attractive environment for prospective home purchasers, and yet, demand has not exploded. The number of home sales this year in the metro area will be virtually identical to the number that sold in 2003. There have been significant demographic shifts – people are waiting longer to marry and form households, and student loan debt makes it harder for many to buy their first home. And despite those low interest rates, it is harder to qualify for a loan. In short, demand is reasonable, and it not being fueled by speculation.

On the supply side, inventory of available homes is at a historic low. Just as buyers are waiting longer, homeowners are staying put longer. Nationally, the median number of years sellers have been in their homes has risen from six years in 2000 to 10 years today. New construction isn’t keeping pace with household formation.  

Low inventory has certainly contributed to increasing home prices, but even in the hottest market area in The District, annual appreciation rates have been between 6% and 8% during the last three years. It is far lower in the suburbs. If demand were greater, the lack of inventory would have pushed prices much higher.

Markets seek balance over time, as long as they are not artificially stimulated or restricted. The hottest areas in our region are due for an adjustment because 6%-8% appreciation isn’t sustainable forever. In our more suburban markets, current appreciation rates are in line with historic norms. And we know that eventually, mortgage interest rates will climb, and that will ease some of the upper pressure on home prices. We believe the inevitable market adjustment will come in the form of lower appreciation rates, not a drop in prices.


 

ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for attached homes priced $500,000-$749,999 in July 2017 was 33.4%. That compares to a rate of 31.7% in July 2016, and the increase means the market was better in 2017 for that type of home. If the absorption rate was less in 2017 than in 2016, we have put the 2017 rate in red. This month there was improvement for 11 of 18 individual price categories, and one remained the same.



ABSORPTION RATES – CONDOS AND CO-OPS

The overall absorption rate for condos and co-ops for July 2017 was 34.0%, an increase from the 29.4% rate in July 2016.



ABSORPTION RATES – ATTACHED HOMES

The overall absorption rate for attached homes in July 2017 was 40.3%, an increase from the 37.7% rate in July 2016.


 

ABSORPTION RATES – DETACHED HOMES

July 2017’s absorption rate for detached homes was 24.9%, a slight increase from the 24.0% rate in July 2016.

There were five homes priced less than $300K on the market at the end of the month.

May-June 2017

05/17/17 by David Howell

 

No One Has All The Buyers.

The Perils of "Off-market" Sales

The Washington metro area has a strong real estate market characterized by remarkably low inventory, so we’re a little puzzled by the frequency of “off market” listings – those listings that are not put in the multiple listing system (MLS). One may hear them referred to as private exclusives or pocket listings, but under either banner these are homes that are not exposed to the broadest possible market.

In a market where buyers are clamoring for choices, why would a seller intentionally choose to do that?

There are some perfectly legitimate reasons – convenience, security, privacy – and sellers should get to make those choices. But as with any marketing strategy, there are winners and losers, pros and cons.

When a property is sold by word of mouth, or can only be shown by the listing agent or agents with their company, or simply not marketed in a way that every buyer has a shot at seeing, the seller may be able to get a quick, no fuss sale. If that’s the seller’s objective, so be it. But a “private exclusive” listing – by definition – excludes people.

When supply is tight, does it really make sense to restrict the demand - the number of people who have an opportunity to buy? Because that’s really what these “off-market” listings do. They limit the pool of purchasers. Sellers run the risk of missing a better offer. If the “off market” listing strategy is so wise, let’s take it to its logical conclusion: if every seller and listing agent decided to restrict the availability of their listing, wouldn’t everyone be hurt? Buyers would have nowhere to turn for ready access to every home on the market, and sellers would not have access to all the buyers.

Sellers might be attracted to an agent’s “pitch” that they or their company have the buyer for their home. But here’s the reality: no agent, no company has all the buyers, or even most of the buyers. We see these “off market” listings a bit more often in the luxury market where some may perceive that there are dominant players. In the first four months of this year, there have been just over 1,600 homes sold in the metro area in the MLS for $1,000,000 or more. There were 1,050 different agents from over 300 different companies who brought the buyers to those homes. But is the luxury market all that different? So far this year in Fairfax County, there have been 1,650 homes sold in the MLS between $500,000 and $700,000. Over 1,100 different agents from 350 companies represented the buyers of those homes. In Prince George’s County, 2,500 homes have sold between $200,000 and $400,000, and there have been over 1,500 different agents from 550 different companies.

Before a seller decides to sell their home “off-market,” perhaps the most important question to ask is this: “How many buyers do I want to miss?”

 

 


NEW CONTRACT ACTIVITY

  • The overall number of new contracts ratified in July 2018 was up 3.3% from the number of contracts ratified in July 2017, and there were increases for three price categories.
  • Year-to-date, contract activity is down 1.8%.
  • 28.6% of all homes going under contract in July 2018 had at least one price reduction before going under contract. Last July it was 32.3%.

 

 


MONTHS' SUPPLY

  • The overall supply of homes on the market at the end of July was 1.9 months, which was a decrease of 15.4% compared to the end of July 2017, when supply stood at 2.3 months. 
  • Price category supply ranges from a low of 1.2 months for homes priced between $300,000 and $499,999 and a high of 11.2 months for homes priced $1,500,000 and higher.

 

 


AVERAGE DAYS ON THE MARKET

  • The average number of days on the market for homes receiving contracts in July was down for homes priced less than $1.5 million.
  • Overall, the average number of days on the market for homes receiving contracts in July 2018 was 35, down 14.6% from 41 days in July 2017.

 


 

MARKETWATCH ARCHIVE - NORTHERN VIRGINIA


 

March-April 2017

03/30/17 by David Howell

 

THE IMPACT OF RISING MORTGAGE RATES

It finally happened – after years of speculation and expectation, mortgage interest rates have climbed since the national elections in November.

During the past forty years, the interest rate for 30-year fixed rate mortgages has averaged 8.2%. From the beginning of 2000 through 2012, the average was just under 6.0%. But from early 2013 until mid-November of last year, rates averaged an astoundingly low 3.8%. It’s a funny thing – when rates stay low for an extended period of time, people get used to them, and also tend to forget that they couldn’t stay that way forever.

 

 

In the weeks after the election, rates moved from 3.5% to 4.3%, and have since floated between 4.0% and 4.2%. To be sure, mortgage interest rates are still very low, but potential homeowners have lost about 6% of their purchasing power in just a few weeks. The monthly principal and interest payment on a $400,000 mortgage in early November was roughly $1,800. A borrower getting that same mortgage today would pay $1,925.

So a big jump in a short time is a market killer, right? In fact, at least on the short term, exactly the opposite is happening. Many buyers who have been sitting on the fence have decided to purchase before rates go much higher. During the past three months, contract activity is up 12% compared to the same time period a year earlier. This uptick in activity may seem counterintuitive, but it is what we have always seen when rates rise.

From May to August 2013 rates jumped a full percentage point from 3.5% to 4.5% – but contract activity rose 13% from the same time in 2012 when rates averaged 3.6%. It is also likely that, given the recent action by the Federal Reserve Chair raising its target rate, mortgage rates will continue to trend higher through the rest of 2017.

We’re not suggesting that rising rates are good for the real estate market, and there is no doubt that higher rates will price some out of the market and prompt others to lower their price point. Yet rising rates are not a huge negative either, at least in the short term. It is important to view these increases in a broader context. The fundamental reason that rates are climbing is that the national economy is improving. And that means household income is rising, the job market is improving and more people will be in a position to buy.

We’d like to offer one more bit of historical perspective. When John McEnearney opened the doors to our company in July 1980, mortgage rates stood at 12.0%. One year later they were 17.0%. That’s right: 17.0%. And people still bought houses. To be sure, it was a lot tougher, but owning a home was just as important then as it is now.

 


FULLY AVAILABLE LISTINGS

  • The month-end inventory decreased 12.2% February 2017 compared to February 2016 – but the number of homes coming on the market increased 5.8%.

  • Inventory is down for homes priced less than $750,000.

  • 31.3% of all homes on the market have had at least one price reduction since coming on the market.

  • In February 2016, 33.0% of all homes on the market had at least one price reduction.

 

 


CONTRACT ACTIVITY

  • The number of new contracts ratified in February 2017 was up 4.0% from the number of contracts ratified in February 2016, and was up for the top four price categories.
  • Contract activity year-to-date is up 8.6%.
  • 19.3% of all homes going under contract in February 2017 had at least one price reduction before going under contract. Last February it was 27.1%.

 

 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of February was 1.7 months, which was a decrease of 15.6% compared to the end of February 2016, when supply stood at 2.0 months.

  • Price category supply ranges from a low of 0.9 months for homes priced between $300,000 and $499,999 and a high of 9.5 months for homes priced $1,500,000 and higher.

 

 

 

November - December 2016

12/04/16 by David Howell

 

IS THERE AN INVENTORY PROBLEM?

With the number of fully available homes on the market near record lows for this time of year and with fewer new listings coming on the market, is there any relief in sight for buyers who are frustrated by their lack of choices? And why aren’t more sellers taking advantage of this low inventory by putting their homes on the market?

We don’t see any relief on the horizon. There are really only three ways to create a net increase in inventory. The first is new construction, and while construction permits have increased, there is an estimated shortfall of 50,000 units over the next 5 years just to meet new household formation. The second way inventory increases involves investors selling units that they have been holding as rental properties. With rents rising faster than home prices, there is no market pressure for that to happen. And the third way is homeowners leaving the area and selling their residences. While there is always emigration from the metro area, we are still attracting more people than we are losing.

We’re not minimizing the impact of current homeowners who sell and buy another home in the area, but that doesn’t create a net increase in inventory. On top of that, the current low inventory climate actually discourages some from moving. While they may be confident they can sell their current home, they lack confidence they can find their next one with relatively few homes on the market.

 

 

There is another undeniable fact that is keeping a lid on movement by existing homeowners: people are staying in their homes longer than they used to. In their 2016 Profile of Home Buyers and Sellers, the National Association of REALTORS® reported that the median number of years a seller remained in their home was 10 years. From 1987 – 2008 it was just six years. That is a seismic shift. A large part of that jump is the simple fact that many could not move even if they wanted to during and after the crash of the real estate market that started in 2006. But even as equity has returned to the overwhelming majority of the nation’s homeowners, they just aren’t in a big hurry to sell.

Economist Elliot Eisenberg summed up the impact of this demographic trend in a recent post: “The percentage of Americans that moved fell to an all-time low of 11.2% in 2016 from a peak of 42% in the early 1950s. Numerically, moving activity topped out in 1984 at 45 million and has steadily fallen to 35 million today, the same level as in 1962.” The population of the United States was 186,000,000 in 1962; today it is over 324,000,000.
When people don’t move as often, inventory is going to suffer.

The Washington area is certainly more transient than the nation as a whole, but we’ve seen our “seller tenure” change as well. In 2000, the median number of years a seller was in their home was 6.5 years. So far in 2016, it’s 8.5 years. We know this period of tight inventory won’t last forever, but there are some fundamental reasons it won’t change any time soon.

 

MARKETWATCH ARCHIVE - NORTHERN VIRGINIA

 


FULLY AVAILABLE LISTINGS

  • The month-end inventory decreased 20.2% in October 2016 compared to October 2015 – and the number of homes coming on the market decreased 18.2%.

  • Inventory is down for all price categories.

  • 42.6% of all homes on the market have had at least one price reduction since coming on the market.

  • In October 2015, 47.1% of all homes on the market had at least one price reduction.

 

 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of October was 2.6 months, which was a decrease of 20.9% compared to the end of October 2015, when supply stood at 3.3 months.

  • Price category supply ranges from a low of 1.7 months for homes priced between $300,000 and $499,999 and a high of 13.6 months for homes priced $1,500,000 and higher.

 

 

 


RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON THE MARKET

  • As we have noted in this space for years, initial pricing strategy is critical to sellers’ success.

  • Homes settling in October 2016 that received contracts their first week on the market sold, on average, 0.3% above original list price. Those that took 4 months or longer to sell sold for 11.6% below original list price.

 

 

September - October 2016

09/02/16 by David Howell

 

DO ELECTIONS REALLY IMPACT OUR REAL ESTATE MARKET?

32,000 jobs. Theoretically, that is how many are up for grabs in this town in our quadrennial election cycle, and that much potential turnover has to have an impact on the real estate market, doesn’t it?

Let’s take a look at the Executive Branch. Regardless of the outcome, there will be a change in the occupant of the White House, and there are roughly 3,000 presidentially appointed jobs. Let’s assume the every one of those jobs changes and a considerable number of lower level staff positions change along with them. That could be as many as 8,000 jobs. The reality of Washington’s political job market is that many who will fill those jobs already live here. People cycle in and out of public sector jobs with considerable frequency. But let’s be generous and estimate that half of those 8,000 jobs will be filled by people who relocate to the metro area. Let’s also assume that half of those will buy homes sometime in their first year here. Although our experience tells us that is a dramatic overestimate, that would be 2,000 home sales.

There are 24,000 jobs on Capitol Hill, but close to 9,000 are considered “non-partisan” and generally do not change with election cycles. So, the “political” staff on The Hill numbers about 15,000. But even with 435 House and 33 or 34 Senate seats on the line each election cycle, there is usually not an enormous amount of turnover. In 2014, 95% of the members of the House running for re-election won. 41 members retired - and their party kept the seat in each and every case. There was a significant change in the Senate, however, with a net change of 9 seats. 2010 saw the biggest party change in recent memory with a 15% change in the House and a 16% change in the Senate. So, if we take an extreme example and assume we have another major “change” election like 2010 with a 15% turnover in Congress and also assume that there was a 100% turnover in the staff of those newly-elected members, that would translate to 2,250 jobs changing hands. Most staff jobs on Capitol Hill pay less than $50,000 per year, and many newly elected officials look for rental housing or even live out of their offices. As is true with the Executive Branch positions, some of the people who will fill the new Congressional staff positions already live in the Washington area. But we’ll apply the same logic ñ let’s assume that half of the new hires come from out of town and half of those buy a home sometime in their first year in town. That would be about 560 home sales.

 

 

 

How much impact would 2,500 additional home sales have on our market? There were slightly more than 50,000 home sales in the immediate DC metro area last year, so that would be a 5% increase. But as the table shows, there is no historical correlation between home sales and election results. On the heels of the major changes in the makeup of Congress in 2010, the number of sales in the immediate DC area fell almost 5% the following year. The election of 2008 brought a change in the White House and a change of 29 seats in Congress. There was an increase of almost 20% in the number of sales in 2009 compared to 2008 - so on the surface one might be tempted to say these elections had a major impact on the region’s real estate market. However, in February of 2009 Congress passed and the new President signed into law the first round of the Homebuyer’s Tax Credit, and the number of sales jumped nationally, too. 

As we have discussed many times, there are other significant factors at play in the real estate market. Individuals do not make a decision to purchase a home in a vacuum. Just moving to the area to take a new job - even a new job on the Hill or in the Executive Branch - does not cause an individual to ignore overall market conditions or their personal circumstances. Also remember, that while there may be new occupants of these jobs, these are not “new” jobs like those we see created when a company moves to the area. National elections may make a big difference when it comes to policy, but not to the local real estate market.

 

MarketWatch Archive for Northern Virginia

 


MORTGAGE RATES

  • 30-year fixed interest rates at the end of July averaged 3.48%, compared to 3.98% at the end of July 2015.

  • One-year adjustable rate mortgages were 2.78% at the end of July 2016, which is up from 2.52% at the end of July 2015.

 


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $223,250 at the end of July, which is $13,282 more than July 2015 and $57,880 more than July 2004.

  • Just after the market’s peak in July 2006, it would have taken a monthly PI payment of $3,068 to purchase a median-priced home. Today’s lower rates have had a dramatic impact -  now it takes a payment of $2,292 to buy a median-priced home. That’s a 25.3% decrease.

 


RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON THE MARKET
  • As we have noted in this space for years, initial pricing strategy is critical to sellers’ success.

  • Homes settling in July 2016 that received contracts their first week on the market sold, on average, 0.3% above original list price. Those that took 4 months or longer to sell sold for 9.7% below original list price.

 

July - August 2016

07/26/16 by David Howell

 

A TALE OF THREE CITIES

 

With apologies to Charles Dickens, these are neither the best of times nor the worst of times for the Washington, DC metropolitan area real estate market. We’d like to take a little poetic license and discuss pricing trends in our area with “A Tale of Three Cities.”

How much have home values changed during the past year? That’s probably the question we’re most often asked. Here’s a direct answer: the average sales price in the metro DC area is up 1.2% from this time a year ago. And how does that relate to the value of your home? It doesn’t. Market conditions vary from area to area, and we think the recent market activity in three “cities” illustrates this perfectly.

Chevy Chase is a close-in community that straddles both Maryland and Washington, DC. Great Falls, Virginia is a suburban oasis between McLean and bustling Loudoun County. Potomac, Maryland is home to large estates just 15 miles from downtown DC. All three communities have average sales prices just above $1,000,000, and during the past decade all have had roughly comparable market metrics, with one exception. Those key indicators are: average days on market, the ratio of sales price to list price, the percentage of homes selling above list price, and the percentage of homes selling in a week or less. Taken together, think of these as pricing dynamics. The exception, by the way, is that Chevy Chase has always had shorter average days on the market than Potomac and Great Falls.

So far this year, the pricing dynamics in these three cities has shifted significantly, as the chart below indicates.

 

 

There has been a clear change in consumer demand, as more than one-third of the buyers in Chevy Chase have been willing to pay above list price and almost half of the homes have gone under contract in a week or less. It’s no wonder that there is upward pressure on prices. We’re seeing the opposite effect in Great Falls and Potomac. Roughly one in 20 homes sells above list price and one in four sells in the first week on the market. The pricing dynamics in these communities have changed in ways that mirror what we’re seeing elsewhere in the market. Demand has shifted more toward walkable communities convenient to employment centers and public transit.

We’d also like to make a note about “average” prices. The table above indicates that the average sales price in Chevy Chase is up 13.3% over the last year, and that’s absolutely true. Keep in mind that this is an arithmetic computation that gives a general, very positive indication of the direction of the market, not the market value of an individual home.

 

MarketWatch Archive for Northern Virginia


ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for detached homes priced $500,000-$749,999 in June 2016 was 37.0%. That compares to a rate of 32.1% in June 2015, and the increase means the market was better in 2016 for that type of home. If the absorption rate was less in 2016 than in 2015, we have put the 2016 rate in red. This month there was improvement for 12 of 18 individual price categories.

 


ABSORPTION RATES – CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for June 2016 was 29.5%, an increase from the 27.4% rate in June 2015.

 


ABSORPTION RATES – ATTACHED HOMES

  • The overall absorption rate for attached homes in June 2016 was 40.8%, an increase from the 37.2% rate in June 2015.

 


ABSORPTION RATES – DETACHED HOMES
  • June 2016’s absorption rate for detached homes was 28.5%, an increase from the 25.2% rate in June 2015.
  • There were no homes priced less than $300K on the market at the end of the month.

 

March - April 2016

04/04/16 by David Howell

 

 

Time Kills

We know from experience that most of the time, homes that sell quickly sell much closer to their original list price than those that take longer to sell. Why is that? It’s because time kills.

With the nature of the Internet, buyers know the moment a property comes on the market. In the old days, if a potential buyer was interested, they might arrange a showing to go see the property. Today, that showing is online and immediate. Based on its price, condition, and location, a home either communicates value to that consumer – or if it doesn’t, they move on and look elsewhere. Bringing them back to that property means changing the value equation – which usually means changing the price.

Think of it this way: When a home first comes on the market, everyone who is looking for that type of home in that price range and location sees it right away. If it doesn’t sell, those potential buyers have moved on and, as time goes by, only buyers new to the market are discovering the home. There are always new buyers coming into the market – but by definition, it is a smaller group than all the buyers that were looking when the house first came on the market.

The charts to the right show the web traffic for two of our listings that recently went under contract. To make sure the comparison is fair, these are homes that are in the same neighborhood, listed by the same agent and at very similar list prices.

The first property was listed in September of last year. Web traffic – online showings – spiked quickly in the first week and then began a steady decline. A price reduction in late October increased web traffic, but not to the levels seen when the house was first on the market. An early December price reduction had almost no impact on traffic, and it wasn’t until a substantial price drop in early January that traffic spiked again – and the property finally went under contract three weeks later. Total time on the market was more than 150 days, and the total price reduction was 14% before someone felt compelled to make an offer. And that offer was 3% lower than that new list price.

The second chart shows the benefits of coming on the market at the correct initial price. Just like the first example, traffic spiked and then started to taper off. The difference is that buyers perceived value at the initial list price, and in a week, a contract was successfully negotiated. The sellers came on at a compelling price, rode the online traffic wave and got their home sold at almost full list price.

We’re not suggesting that it works this way every time because there are always exceptions. But time after time, listing after listing, we see the consequences of pricing strategy – both good and bad. And far more often than not, for sellers, the wrong price means a longer time on the market, and time kills.

 

MarketWatch Archive for Northern Virginia


  • As we have noted above – time kills, and initial pricing strategy is critical to seller’s success.
  • Homes settling in February 2016 that received contracts their first week on the market sold, on average, 0.2% below original list price. Those that took 4 months or longer to sell sold for 8.5% below original list price.

  • The average number of days on the market for homes receiving contracts in February was up for five price categories.
  • Overall, the average number of days on the market for homes receiving contracts in February 2016 was 67, up 15.5% from 58 days in February 2015.

  • The overall supply of homes on the market at the end of February was 2.0 months, which was a decrease of 6.8% compared to the end of February 2015, when supply stood at 2.1 months. 
  • Price category supply ranges from a low of 1.4 months for homes priced between $300,000 and $749,999 and a high of 9.0 months for homes priced $1,500,000 and higher.

January - February 2016

02/04/16 by David Howell

WHAT’S AHEAD FOR 2016?

2015 was better than 2014 across the entire metro DC area for the two most important metrics – total settlements and new contract activity – but most other indicators were a little worse. With the exception of Washington, DC itself, homes took a little longer to sell, price appreciation was moderate at best and overall supply rose as more new listings came on the market. 

What’s ahead for 2016? We think the market is headed toward something we haven’t seen in almost 15 years: normalcy. During the past decade and a half we’ve seen some wild swings in real estate, from the pause after the horrors of September 11, to the rapid run up in home prices 10 years ago with teaser rate mortgages and people buying homes who could not possible afford them, to the crash that followed.

“Normal” means a supply of three to four months of inventory along with modest and sustainable price appreciation in the range of 1%-3%. Of course, there will continue to be regional differences, with walkable communities and those areas close to major employment centers and Metro faring better than others. And that means that DC will still outperform its suburban neighbors in 2016.

There are three fundamental reasons we think 2016 is going to look a lot like 2015:

The first is the economy, regionally and nationally. The overall news isn’t bad, but it isn’t great either. Sure, the employment numbers are very encouraging – but real incomes haven’t risen. Lower oil prices have put more money in people’s pockets, but oil producers are going to take a big hit – and so are their employees. That won’t be good for the overall economy. We just don’t see anything on the horizon that tells us things are going to be a lot better.

The second is interest rates. Today, mortgage interest rates are still under 4% and we haven’t seen anyone project rates by year-end any higher than 4.9%. There’s no doubt that rising rates will make home slightly less affordable, but the bigger hurdles for buying a home for most people are the down payment and debt-to-income ratios, not the payment. We’re not suggesting that rising rates are good for the housing market – we just don’t see a major negative impact in 2016.

The third reason: Urgency. A couple of years ago, we created a rudimentary indicator of the health of the market called the “Urgency Index.” This is simply the percentage of homes going under contract in any given month that were on the market for 30 days or less. The higher the percentage, the greater “urgency” buyers felt to act. DC has consistently had the highest Urgency Index in the region during the past several years. For all of 2015, the suburbs had a UI of about 50% while DC’s was 67%. Over the last several months, the suburban markets have seen their UI drop a bit while DC’s has held steady. But in both cases, buyers aren’t in a huge hurry to snap up homes the moment they come on the market.

In short, we think 2016 will be a good – not great - year with a return to normalcy.

One more thought: This is an election year, and every election cycle we hear the speculation that the outcome will have a major impact on the local real estate market. It won’t – regardless of the results. As we get a little closer to November, we’ll talk about why. Just don’t change your plans to sell or buy because there’s an election on the horizon – make the move when it makes the most sense for your personal circumstances.

MarketWatch Archive for Northern Virginia


New Contract Activity

  • The number of new contracts ratified in December 2015 was up 9.7% from the number of contracts ratified in December 2014, and was up for five price categories.
  • Contract activity for all of 2015 was up 9.0%.
  • 45.8% of all homes going under contract in December 2015 had at least one price reduction before going under contract.

Buying Power

  • A $1,000 principal and interest payment supported a loan of $209,209 at the end of December, which is $3,579 less than December 2014 and $24,738 more than December 2008.
  • We expect the interest rates on a 30-year fixed mortgage will increase to no more than 4.9% by the end of 2016 – and we won’t be at all surprised if they top out at 4.5% this year.

Urgency Index

  • During the past 12 years, the December Urgency Index has been as high as 77.0% and as low as 25.5%.
  • Look how much buyer expectations changed from December 2005 to 2006. The number of ratified contracts fell by 6.6%, but the UI fell by 47.6%, indicative of some real buyer pessimism.
  • The average December Urgency Index in Northern Virginia during the past 12 years is 42.4% - which is higher than where we are today.

November - December 2015

12/04/15 by David Howell

GETTING IT RIGHT THE FIRST TIME

Market Watch with David Howell from McEnearney Web Team on Vimeo.

It is critically important to price a home correctly when it first comes on the market. The reason is simple: The greatest numbers of buyers are going to see the house during the first two or three weeks.  

Sellers who price their home correctly are likely to be rewarded. Those who overreach, who think they can “just wait for the right buyer to come along,” are likely to be disappointed. That usually means sitting on the market and taking a big hit financially.

We took a look at all resale homes that went to settlement in Northern Virginia as well as the Metro DC area in October and November 2015 and broke them down into just two categories: Those that had to reduce their initial list price before receiving a ratified contract (homes with the “wrong” price); and those that came on the market at the “right” price and never had to drop their list price.

The consequences of pricing strategy were starkly different, as the tables below show. Homes that had to reduce their price before attracting a buyer in both areas were on the market three times longer – an average of 96 days in Northern Virginia and 98 days in metro DC, compared to correctly priced homes that sold in just 32 days in Northern Virginia and 30 days in metro DC. Sellers of homes with the right initial price were less likely to pay any subsidy, and when they did, it was likely to be a smaller subsidy. In both cases, fewer than half the sellers of correctly priced homes had to pay a subsidy.

But the biggest impact of pricing strategy is on the final sales price. Homes that sold without having to reduce their price sold for an average of 98.4% of the list price in the metro area and 97.8% in Northern Virginia.  Those that came on the market too high had to reduce their price by roughly 6% before a buyer was willing to make an offer. And when that offer came in, those sellers had to negotiate a further reduction, ultimately settling at an average of almost 10% below their original price.

So let’s sum it up. Homes that hit the market at a price that attracts buyers are on the market an average of just one month and sell very close to list price. The wrong price means more than 90 days on the market and a 10% discount to original price.

Buyers will move forward on homes that are priced correctly, and they will take a pass on those that aren’t. Getting the price right from the beginning is the most important thing a seller can do. It really is that simple.


MarketWatch Archive for Northern Virginia


  • The number of new contracts ratified in October 2015 was up 6.7% from the number of contracts ratified in October 2014, and was up for three price categories.
  • Contract activity year-to-date is up 9.8%.
  • 43.2% of all homes going under contract in October 2015 had at least one price reduction before going under contract.

Fully Available Listings

  • The month-end inventory increased 8.8% in October 2015 compared to October 2014 – and there was an increase of 2.4% in the number of homes coming on the market.
  • Inventory is up for all six price categories.
  • 47.1% of all homes on the market have had at least one price reduction since coming on the market.
  • In October 2014, 45.5% of all homes on the market had at least one price reduction.

RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON MARKET

  • As we have noted in this space for years, initial pricing strategy is critical to the success of sellers.
  • Homes settling in October 2015 that received contracts their first week on the market sold, on average, right at original list price. Those that took 4 months or longer to sell sold for 10.5% below original list price.

September-October 2015

10/06/15 by David Howell

A SOLID – BUT UNEVEN - RECOVERY

Market Watch with David Howell from McEnearney Web Team on Vimeo.

2015 has been a recovery year for the real estate market in metropolitan Washington, DC, with every jurisdiction seeing an increase in contract activity compared to last year. Some areas are faring better than others, and we have taken a deeper look at how different today’s market is than the real estate boom a decade ago.

The significant market expansion that occurred from the early 2000s through 2005 or 2006 started out on a very firm foundation of an expanding national economy with demand being driven by rising incomes and significant household formation. This may be a bit of an over simplification, but we all know the story of how that expansion was artificially extended by risky mortgage programs that brought millions of purchasers to the market who ultimately couldn’t afford to make payments when their interest rates rose and prices started to fall. A bust followed that boom, and it has taken the better part of 8 years to climb out of the deep trench.

We’re fortunate that today’s recovery isn’t like the boom – it has been slower, mirroring the slow pace of the national economy returning to health. And there are no “funny money” mortgages this time around to artificially create demand. In general, people are buying or selling because they need to. Another big difference is where people are buying.

A decade ago, the Northern Virginia suburbs were on fire, in no small part due to the boom in defense spending. The entire region benefited from that, but Northern Virginia especially so. Among the four jurisdictions we track most closely – Northern Virginia, Loudoun and Montgomery Counties and Washington, DC – almost 50% of home purchases in 2004 occurred in Northern Virginia. Montgomery County got about a quarter of all home sales, Loudoun was at 14% and DC was at 13%. So far this year, Northern Virginia’s share has dropped to 44% while DC’s has risen to 17%. At a quick glance, that may not seem like a lot, but that’s a 32% increase in the size of DC’s piece of the pie.

We compared contract activity for the first eight months of 2015 to the first eight months of the peak year of the last boom for each of four key areas. So far this year, The District is just 4.2% below the contract activity of its top year, 2005. The suburbs are still well off the peaks they experienced in 2004, with Montgomery County contract activity off 24.1%, Loudoun County off 27.0% and Northern Virginia off 31.5%. It’s remarkable to know that The District is seeing almost as many homes go under contract as it did at the absolute top of the market a decade ago while the suburbs are not yet seeing a commensurate number of transactions.

There isn’t any one reason for Washington, DC’s remarkable performance, but there is no doubt that suburban traffic congestion plays a role, as more people are willing to sacrifice the space of larger suburban homes for the convenience of being closer to work.

 


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $213,567 at the end of August, which is $6,613 more than August 2014 and $53,499 more than August 2008.
  • In August 2008, it would have taken a monthly PI payment of $2,424 to purchase a median-priced home in Northern Virginia. Lower rates more than offset today’s higher prices – now it takes a payment of $2,294 to buy a median-priced home. That’s a 5.3% drop.

AVERAGE NUMBER OF DAYS ON THE MARKET – NEW CONTRACTS

  • The average number of days on the market for homes receiving contracts in August was up for four of six price categories.
  • Overall, the average number of days on the market for homes receiving contracts in August 2015 was 53, up 3.9% from 51 days in August 2014.

RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON MARKET

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in August 2015 that received contracts their first week on the market sold, on average, 0.1% above original list price. Those that took 4 months or longer to sell sold for 8.9% below original list price.
     

July-August 2015

07/29/15 by David Howell

DON’T MISS YOUR PERFECT HOME

Market Watch with David Howell from McEnearney Web Team on Vimeo.

More than 90% of people start the process of looking for their next home by going online, and if one searches the term “Washington DC homes,” there are more than 134,000,000 results. How can you be sure not to miss the perfect house buried in all that info?

If you are like most Americans, you’ll skip to one or more of the big, national portals – Zillow, Trulia and/or Realtor.com. Each has assembled an enormous amount of information in a consumer-friendly interface. While we encourage you to look at these sites, we also want you to understand they simply do not have complete and accurate listing content.

We recently took a snapshot of listings in our local multiple listing system (MLS) in zip codes where we have offices. The results showed 910 listings for sale, active or pending. In Zillow, there were only 703. In Trulia, there were 706. And Realtor.com showed too many listings with 940. This is due to the enormous amount of data feeds these portals are receiving from local brokerages (like us) and MLS systems across the country. It’s a challenge for them to assimilate all the data on a timely basis. And for Zillow and Trulia, lots of sellers opt-out of having their home displayed due to the inaccuracy of the computer-generated estimate of their home’s value. We just completed our annual research project for the accuracy of Zillow’s “zestimates” and looked at the portal’s estimated value of over 450 properties across all price ranges in the Metro DC Area, before they were scheduled to settle. We then compared those estimates to the actual sales price – and, as found in our prior studies, they continue to be inaccurate. Zillow’s estimates were only within 5% high or low of the actual sales price less than half of the time. And one in 10 properties showed wildly inaccurate estimates at more than 20% high or low of actual sales price. These computer-generated estimates simply cannot take into account the condition of a specific home nor local market conditions that can and do change daily; and it is no wonder that some sellers may wish to not have their home appear side-by-side with an estimated value that is so frequently inaccurate.

What does all that mean for you, especially if you’re looking for a home? Reliance on only the national portals means you will miss listings that are on the market, and you will find listings for sale that have already sold. At best, that leads to frustration – at worst, it means missing the home that was perfect for your needs. So what should you do? By all means, look at those national portals, but remember to rely on your local brokerage for accurate information. Remember those 910 listings that were in our local MLS? On McEnearney.com, there were 911. We update our listing content every 15 minutes.


90% of people start their search online – and 85% use a REALTOR® to help them buy their home. Partnering with a great agent can give you the confidence that you will find your perfect home. Knowing what to offer, negotiating the right price, and attending to all of the details between contract and closing simply cannot be done by a national search portal. It can be done only by a great agent who knows the local real estate market and understands your interests and needs.

 

ABSORPTION RATE BY PROPERTY TYPE - NORTHERN VIRGINIA

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for detached homes priced $500,000-$749,999 in June 2015 was 32.1%. That compares to a rate of 32.4% in June 2014, and the decrease means the market was better in 2014 for that type of home. If the absorption rate was less in 2015 than in 2014, we have put the more recent absorption rate in red. This month there was improvement for just 5 of 18 individual price categories.


ABSORPTION RATES – CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for June 2015 was 27.4%, a decrease from the 30.8% rate in June 2014.

ABSORPTION RATES – ATTACHED HOMES

  • The overall absorption rate for attached homes in June 2015 was 37.2%, a modest decrease from the 38.5% rate in June 2014.

ABSORPTION RATES – DETACHED HOMES

  • June 2015’s absorption rate for detached homes was 25.2%, the same as June 2014.
  • There were only nine homes priced less than $300K on the market at the end of the month.

May-June 2015

06/04/15 by David Howell

IN A SELLER’S MARKET, EVERYTHING SELLS - RIGHT?

Market Watch with David Howell from McEnearney Web Team on Vimeo.

We’ve had a very healthy spring market in the Washington, DC area. Of course, some areas are faring better than others and pockets in DC and some of the close-in suburbs are seeing multiple offers and homes selling for more than list price. By almost every measure, this is a seller’s market. And in a seller’s market, everything sells – right?

Well, not exactly. Despite a strong spring market, there are still plenty of properties that have not sold. And there are three market indicators that can help explain why the wanna-be sellers are not getting their homes sold.

The first is the fall-through rate – those are the homes that go under contract that, ultimately, do not go to settlement. As hard as this may be to believe, 1 in every 8 homes that have received ratified contracts this year have fallen through and did not make it to settlement. This may be due to home inspection issues or purchaser financing – but whatever the cause, 13% of sellers who initially think they have their home sold find that’s not the case.

The second is homes that linger on the market. Right now, there are more than 3,000 homes on the market in the immediate Metro area that have been on the market for 90 days or longer. And it’s not just homes at the upper end of the market. More than 500 of those homes are priced less than $300,000.

And the third is homes that are removed from the Multiple Listing Service (MLS) without selling. In April, there were almost 1,000 homes that were on the market for at least 90 days that had expired as unsold or were withdrawn. Some of those may be re-listed, but to put it in perspective, there were just over 4,000 homes that went to settlement in April and 1,000 that were taken off the market.

Does this mean that the market is shifting or turning softer? No. And we continue to see positive indicators across all jurisdictions.  But it does mean that proper marketing matters. Negotiating skills matter. And above all, price matters.

The price at which a home comes on the market is critically important. That requires careful research by a knowledgeable REALTOR® and a seller who is willing to avoid the trap of believing that everything sells. It requires listening to what the market is saying and making a price adjustment sooner rather than later, if an offer doesn’t materialize.

The significant numbers of homes that have been on the market for a long time, and those that have been removed from the market, certainly stand in stark contrast to the homes that are priced right and sell quickly.

It’s still a very good market – for homes that are priced right.

While “private exclusives” exist in all price ranges, they seem to be more prevalent for upper bracket properties. There were 369 homes that sold in the District of Columbia for $1,000,000 or more in the last six months in the MLS. There were 58 different real estate firms, and even more remarkably, 258 different agents representing those buyers.

Additionally, as the table indicates, this broad diversity of firms and agents selling upper bracket homes isn’t any different in Maryland or Virginia. What’s important to note is that most of these buyers never knew about other homes for sale on the market that were tagged “private exclusive” with “quiet” or minimal marketing. Those sellers simply missed out on those buyers – and those buyers missed out on those homes.

Sellers should also consider that privately listing their home could be seen as an intention to screen interested buyers in ways that could appear to be discriminatory. Care has to be taken that no one is excluded from a “private exclusive.”

Think twice if you are a homeowner contemplating a “private exclusive” sale. Ask yourself whether going that route is best for you and whether you would get the best price for your home.

 


New Contract Activity

  • The number of new contracts ratified in April 2015 was up 9.9% from the number of contracts ratified in April 2014, and was up for all but the lowest price category.
  • Contract activity year-to-date is up 9.4%.
  • 22.9% of all homes going under contract in April 2015 had at least one price reduction before going under contract.
 

FULLY AVAILABLE LISTINGS

  • The month-end inventory increased 31.3% in April 2015 compared to April 2014 – and there was an increase of 25% in the number of homes coming on the market.
  • Inventory is up in all six price categories as well.
  • 32.1% of all homes on the market have had at least one price reduction since coming on the market.
  • In April 2014, 30.5% of all homes on the market had at least one price reduction.
 

List Price to Sales Price

  • As we have noted in this space for years, initial pricing strategy is critical to the success of sellers.
  • Homes settling in April 2015 that received contracts their first week on the market sold, on average, 0.3% above original list price. Those that took 4 months or longer to sell sold for 5.5% below original list price.
 
 

March-April 2015

04/02/15 by David Howell

ARE PRIVATE EXCLUSIVES A GOOD IDEA?

Market Watch with David Howell from McEnearney Web Team on Vimeo.

You may have heard the term “private exclusive” listing – it refers to a property that is not broadly marketed to the public, but instead, offered by word of mouth or other very limited marketing.

A seller may find this to be an attractive option for a variety of reasons, such as they think they won’t have to put up with the hassle of showing their home to a lot of people, an agent has said they have buyers in that area and price range, or they like the idea that they can enjoy privacy while their home is “quietly” marketed. However, a big disadvantage is the lack of exposure to the full market.

After all, doesn’t it make sense that any commodity is more likely to sell, and at a better price, the more people know about it? The first step for broad exposure is getting a home into the Multiple Listing Service (MLS). That is not because REALTORS® control it or want to limit access to the information – it is precisely the opposite. There are 40,000 agents in the DC Metro Area with buyer clients and the MLS is the on-ramp for the Internet to thousands of broker and agent websites and national and regional real estate search portals. More than 90% of today’s buyers across all price ranges start their home search on the net, so why wouldn’t a seller want to be there?

Decades ago, REALTORS® created the MLS for the express purpose of sharing information. It has created a broad marketplace for the sale and leasing of homes, and most remarkably, established the rules of the road for real estate firms to cooperate with each other while still fiercely competing with each other in the marketplace. The MLS accommodates every business model, from full service to limited service to discounters to tech startups. Most importantly, buyers and sellers alike have benefited from a marketplace that fosters the wide dissemination of information and the market-based transactions that flow from that.

Can there be situations where a seller could logically choose to go the “private exclusive” route? Of course, but those situations are few and far between. Every seller should know that no real estate firm and no agent have all the buyers, or even the majority of buyers. Anyone who says otherwise simply isn’t being truthful.

While “private exclusives” exist in all price ranges, they seem to be more prevalent for upper bracket properties. There were 369 homes that sold in the District of Columbia for $1,000,000 or more in the last six months in the MLS. There were 58 different real estate firms, and even more remarkably, 258 different agents representing those buyers.

Additionally, as the table indicates, this broad diversity of firms and agents selling upper bracket homes isn’t any different in Maryland or Virginia. What’s important to note is that most of these buyers never knew about other homes for sale on the market that were tagged “private exclusive” with “quiet” or minimal marketing. Those sellers simply missed out on those buyers – and those buyers missed out on those homes.
Sellers should also consider that privately listing their home could be seen as an intention to screen interested buyers in ways that could appear to be discriminatory. Care has to be taken that no one is excluded from a “private exclusive.”

Think twice if you are a homeowner contemplating a “private exclusive” sale. Ask yourself whether going that route is best for you and whether you would get the best price for your home.

 


New Contract Activity

  • The number of new contracts ratified in February 2015 was up 8.3% from the number of contracts ratified in February 2014, and was up for all price categories.
  • Contract activity year-to-date is up 6.7%.
  • 24.8% of all homes going under contract in February 2015 had at least one price reduction before going under contract.
 

FULLY AVAILABLE LISTINGS

  • The month-end inventory increased 24.2% in February 2015 compared to February 2014 – and there was an increase of 13.5% in the number of homes coming on the market.
  • Inventory is up significantly in all six price categories.
  • 29.3% of all homes on the market have had at least one price reduction since coming on the market.
  • In February 2014, 27.3% of all homes on the market had at least one price reduction.
 

URGENCY INDEX

  • During the past 12 years, the Urgency Index has been as high as 88.9% and as low as 30.8%.
  • The average February Urgency Index in Northern Virginia during the past 12 years is 57.5% - slightly lower than where we are today.
  • There was an 8.3% increase in the number of new contracts this February compared to 2014 – but the Urgency Index dropped from 63.1% to 58.4%.
     
     

January-February 2015

02/05/15 by David Howell

HOW IS THE MARKET?

Market Watch with David Howell from McEnearney Web Team on Vimeo.

One of the questions we get asked most frequently is “How’s the market?” The simple answer is that the market in Metro DC is strong. Prices are going up and sales are steady. And that’s all true – but it’s also fairly meaningless when you get right down to it. The real question is “How’s the market for me?”

Think of it this way: if someone asked how the stock market is doing, it would be accurate to say it’s doing very well. The Dow Jones average has hit record highs, and it has been on a solid, upward path for several years after bottoming out in 2007. Sounds a lot like the real estate market. But someone who has owned Radio Shack stock – currently trading for less than one dollar after being at $20 five years ago – will have a slightly different perspective on how the market is doing than someone who has owned Apple, Google or Disney shares.

Housing Inventory Supply December 2014 for DC NoVa and Montgomery CountyFortunately, we don’t see such wild swings in value in the real estate market, and homes rarely become worthless. But there are significant differences in our local marketplace. Let’s look at months’ supply of inventory as an example. This number tells you how many months it would take for all homes currently available on the market to sell, given the current pace of new contracts.

The overall supply of homes in Washington, DC is less than two months, and in some price ranges it is considerably tighter. DC’s sweet spot – homes priced between $500,000 and $750,000 – is 1.7 months. At the other end of the local spectrum is Loudoun County, where there is a four-month supply. In that same $500,000 to $750,000 price range, there is a five-month supply. While both of these markets would be considered healthy by any historical standard, DC is a seller’s market while Loudoun’s is balanced. Conditions in Northern Virginia and suburban Maryland also differ from Loudoun and DC, with an overall supply of 2.9 months and 3.2 months respectively.

We are also frequently asked whether prices are going up or down. For all of 2014, the average sales price was up 2.7% for Metro DC compared to 2013. But once again, let’s take a look at the differences in all jurisdictions. While DC was up 5.2%, Loudoun County was up 4%, Northern Virginia rose 2%, and Montgomery County was up just 0.8%. And we want to add a cautionary note. Remember that the “average sales price” is just an arithmetic calculation and isn’t indicative of what is happening to individual properties. Let’s go back to those examples. One of the challenges in DC is that many first-time buyers are being priced out of the market, so there have been fewer lower-end sales. When there is a reduction in the number of lower-priced sales, by definition, the average sales price will go up. On the flip side, there has been an increase in lower-priced sales in Montgomery County, so that reduces the average sale down. That doesn’t mean that prices aren’t going up faster in DC – it just means that it may be a bit overstated.

Our point is simply this: market conditions can be captured by a few key stats, but those numbers do not directly relate to what is going on in a specific neighborhood, a specific type of property or a particular price range. To understand what’s going on with an individual property, one cannot rely on broad market indicators. It takes an evaluation by a knowledgeable Realtor® who can look at the factors unique to that home.

 


NEW CONTRACT ACTIVITY

  • The number of new contracts ratified in December 2014 was up 12.7% from the number of contracts ratified in December 2013, but was down for the lowest and highest price categories.
  • Contract activity for the year was down 7.9%.
  • 42.1% of all homes going under contract in December 2014 had at least one price reduction before going under contract.
 

FULLY AVAILABLE LISTINGS

  • The month-end inventory increased 29.1% in December 2014 compared to December 2013 – and there was an increase of 8.2% in the number of homes coming on the market.
  • Inventory is up significantly in all six price categories.
  • 42.1% of all homes on the market have had at least one price reduction since coming on the market.
  • This time last year, 37.4% of all homes on the market had at least one price reduction.
 

URGENCY INDEX

  • During the past 12 years, the Urgency Index has been as high as 77.0% and as low as 25.5%.
  • The average December Urgency Index in Northern Virginia during that time is 45.7% - higher than where we are today.
  • There was a 12.7% increase in the number of new contracts this December compared to last – but the Urgency Index dropped from 48.3% to 33.6%.
     
     

November-December 2014

12/04/14 by David Howell

CONTROL: YOU CAN'T LOSE SOMETHING YOU NEVER HAD

McEnearney Associates MarketWatch December 2014 from McEnearney Web Team on Vimeo.

One of the topics generating a lot of buzz - and a lot of consternation - in the real estate business these days is - control. Everyone is worried about controlling the search process, or controlling the creation, compilation and dissemination of data, and most of all, controlling the customer.

Some in our industry are wringing their hands over the fact that the overwhelming majority of home buyers identify the home they eventually buy on the Internet, and that some of the most popular online real estate portals like realtor.com and zillow.com have wrestled control of the home search process away from us. We’re worried that we’ve lost control of the listing data that we work so hard to produce and that others have repurposed or misused our data. And the biggest concern is that we have somehow lost control of the customer - they’ve turned to these national portals, or to mortgage lenders, or heaven forbid they go and do the transaction themselves!

Here’s the reality: You can’t lose something you never had. We have never controlled the search process for real estate, we’ve never controlled the data, and we certainly have never controlled the customer - and we’re kidding ourselves if we think we ever did, could or should want to control any of those things.

The process of searching for a home has changed significantly with the advent and pervasiveness of the Internet. In 2001, 13% of homebuyers identified the house they bought online - and today it’s approaching 80%. Before technology, we relied on newspaper ads, yard signs, friends, neighbors and co-workers. In 2001, 69% of homebuyers used an agent or broker - and today, that’s 88%. Surprised? You shouldn’t be. Because it isn’t about controlling the search process - it is and always has been about providing value to the transaction.

We don’t control the data. We can and should rigorously enforce our copyrights to unique information, but our listing data is just a piece of the overall real estate portfolio - tax records, insurance info, demographic records, home plans and blueprints, mortgage loans and credit reports - so we should recognize what we have and what we don’t have. And what we clearly have is accurate data. On a Friday afternoon in November, using zip codes where we have offices, we compared the number of all agent-listed, fully available listings in the MLS with those on our website, realtor.com and zillow.com. Out of almost 1,000 listings, our website was off by only one, realtor.com showed almost 28% too many properties and zillow.com showed 30% too few. Realtor.com simply doesn’t update their data on a timely basis, and zillow.com has the same problem compounded by the fact that lots of sellers request that their homes not be listed on sites with inaccurate estimates of the market value.

Most importantly, we have never met a consumer who wants to be controlled. And there is not a lack of choices in real estate service providers. In our MLS, there are more than 4,000 real estate companies and over 40,000 agents. Sellers can sell by owner and buyers can work directly with a seller. There are discount brokers and full service brokers and everything in between. 

None of us are entitled to anything - we have to earn it with every client and every transaction. If we’re good enough, if we bring enough knowledge and skill to the table, then we have a chance to earn the business, create a brand and try to build long-lasting relationships. And that’s exactly how it should be.

 


  • The number of new contracts ratified in October 2014 was down 1.9% from the number of contracts ratified in October 2013, but was up for three price categories.
  • Contract activity through the first ten months of 2014 is down 9.7%.
    42.0% of all homes going under contract in October 2014 had at least one price reduction before going under contract.
 

  • The month-end inventory increased 39.5% in October 2014 compared to October 2013 - and there was an increase of 11.7% in the number of homes coming on the market.
  • Inventory is up significantly in all six price categories
    45.5% of all homes on the market have had at least one price reduction since coming on the market.
  • This time last year, 41.1% of all homes on the market had at least one price reduction.
 

  • During the past 12 years, the urgency index in October has been as high as 78.5% and as low as 24.5%.
  • The average October urgency index in Northern Virginia during the past 12 years is 51% - higher than where we are today.
  • There was a modest 2% drop in the number of new contracts this October compared to last - but the urgency index dropped from 62% to 56%.
     
     

September-October 2014

10/10/14 by David Howell

FALL MARKET UPDATE

2014 has seen a slowdown in the DC Metro Area’s real estate market compared to the frenetic pace of 2013, and there’s no reason to believe that will change over the remaining three months of the year. However, there is no need to hit the panic button, as the overall market remains pretty solid.

Almost every major indicator is down compared to last year – there are fewer new contracts, homes are taking a bit longer to sell and they are not selling as close to list price as last year. Regionally, there has been a significant increase in the number of homes on the market, which means potential buyers who were hard-pressed to find a home of choice in last year’s exceptionally tight market are finding many more options to choose from now. This is especially true in the outer suburbs. There are 60% more homes on the market in Loudoun and Prince William Counties today than this time last year. But in the District, there has only been a 7% increase.

That highlights one undeniable fact: there is not just one set of market conditions throughout the region that will impact the likely direction of the market for the rest of the year, and there are significant differences between jurisdictions. Washington, DC has the strongest market in the region, with an overall supply of homes on the market of less than two months – although that is starting to slowly increase. That low level of supply relative to demand means that DC is still a seller’s market. At the other end of the regional spectrum, Loudoun County has a 4.5-months’ supply. It is reasonable to expect modest upward pressure on home prices in DC while the foot is coming off the gas a bit elsewhere.

We can look at the pace of new contract activity as the best indicator of short-term market direction, and every jurisdiction in the metro area has seen a decline in contract activity in August and September combined compared to last year. But we can also look at the “Urgency Index” to help us take the temperature of the market – think of it as a rudimentary consumer confidence index for housing. We look at the number of new contracts in a month and see how many of those homes were on the market for 30 days or less. In the extremes, we have seen as many as 95% of the homes sell in 30 days or less (April of 2004) and as few as 16% (December 2007). The Urgency Index today provides insight into the direction of the market over the next few months and highlights the significant differences in our region.

As the chart indicates, the District is outperforming every other jurisdiction. At just over 70%, it has the highest Urgency Index in our metro area and is even slightly ahead of last September’s Index. The other three major areas have all seen significant drops in the Urgency Index – 12% for Montgomery County, 15% for Northern Virginia, and 20% for Loudoun County.

But this is the real message behind the numbers: the lower the Urgency Index, the slower the market in will be over the next few months. That bodes well for DC, while things will be a bit slower in Northern Virginia and Montgomery County, and even slower in the outer suburbs.

 


  • The number of new contracts ratified in August 2014 was down 8.3% from the number of contracts ratified in August 2013, and was down in all but the highest price category.
  • Contract activity year-to-date is down 11.1%.
  • 37.6% of all homes going under contract in August 2014 had at least one price reduction before going under contract.
 

  • The month-end inventory increased 51.0% in August 2014 compared to August 2013 – and there was an increase of 4.5% in the number of homes coming on the market.
  • Inventory is up significantly in all six price categories.
    41.5% of all homes on the market have had at least one price reduction since coming on the market.
  • This time last year, 36.9% of all homes on the market had at least one price reduction.
 

  • The overall supply of homes on the market at the end of August was 3.1 months, which was an increase of 64.6% compared to the end of August 2013, when supply stood at just 1.9 months.
  • This is the twelfth month in a row that we have had a month-over-year increase in months’ supply.
  • Nonetheless, 3.1 months’ supply is still a fairly tight market.
     

July-August 2014

08/03/14 by David Howell

IS “COMING SOON” IN THE CLIENT’S BEST INTEREST?

 

You may have seen a sign in front of a home that says “Coming Soon,” or you may have heard the terms “pocket” or “whisper” listings. While those are not the same things, they all represent areas of possible concern when it comes to doing the right thing for a seller. 

Let’s start with some basics. 

  1. We firmly believe that a seller will get the most for their property in the shortest amount of time when it is exposed to the broadest possible market. And doesn’t that make sense? After all, you never know where that buyer is coming from. No real estate company and no real estate agent has all the buyers, so why hide a listing?
     
  2. A property receives the most traffic and the most exposure in the first few weeks on the market. We know that to be the case in good markets and bad, and everything in between. So “testing” or teasing the market in a limited way may not be the best idea.
     
  3. A home shows best when it is fully ready for the market, when all improvements or repairs have been made. You don’t see a new car showroom with a model on the sales floor that needs a paint job.
     
  4. This is the most important one: the seller of any home should give their informed consent to have their home marketed prematurely or to a limited audience.

So, with all that being said, and with inventory being tight in so many parts of the Washington, DC metropolitan area, we see a fair number of homes with a “Coming Soon” sign in the yard. There can be some very legitimate reasons for that – a home may be a couple of weeks away from being ready to go on the market and the seller wants to be sure that buyers looking in their area are aware that they will have another option in the near future, and they don’t want to run the risk they’ll lose that buyer to a home already on the market.  

But remember that the people who are aware of that sign may be limited to the people who drive by. One of them may approach the seller to see the house before it’s fully ready to be shown – or even make an offer so they get the jump on other buyers. On the surface, that may seem like a good thing: the seller gets interest and maybe even an offer before the house is fully exposed to the market, and are spared the hassle of having to make the beds every day. But that seller doesn’t know what they’re missing. They don’t know how many potential buyers there are who might have been interested in their home if they had known it was on the market. If one was interested enough to make an offer, how many more might there have been if the home had been fully marketed? If the seller wants to entertain such an offer, it is of course their prerogative to do so, and they may place a higher premium on speed and convenience than price.

Other times, that “Coming Soon” sign may be up so that the listing agent increases their chances of selling the house themselves – putting them on both sides of the transaction. And that’s especially true of a “pocket” or “whisper” listing – when the agent only tells a handful of people that a house is available with no intention to expose it to the full market. And who is best served by that? There certainly are sellers who value privacy above all else and don’t want their home “on the market.” But in most cases, it’s hard to see how a seller benefits from a stealth listing, and lots of would-be purchasers are deprived of the chance to buy at the market price.

The point is simply this: a seller should know the pluses and minuses of marketing their home to a limited audience, and it should be their decision whether to cut off part of the pool of potential purchasers.


ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for attached homes priced $500,000-$749,999 in June 2014 was 35.2%. That compares to a rate of 48.9% in June 2013, and the decrease means the market was better in 2013 for that type of home. If the absorption rate was less in 2014 than in 2013, we have put the more recent absorption rate in red. This month there was improvement for just 6 of 18 price categories, and 1 remained the same.


ABSORPTION RATES - CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for June 2014 was 30.8%, a significant decrease from the 44.1% rate in June 2013.

 

ABSORPTION RATES - ATTACHED HOMES

  • The overall absorption rate for attached homes in June 2014 was 38.5%, also a significant decrease from the 53.3% rate in June 2013.
  • An absorption rate close to 40% is still strong – just nowhere near as strong as this time last year.

 

ABSORPTION RATES - DETACHED HOMES

  • June 2014’s absorption rate for detached homes was 25.2%, a decrease from the 34.8% rate in June 2013.
  • There were just 2 homes priced less than $300K on the market at the end of the month.

May-June 2014

06/09/14 by David Howell

Valuing Your Home With The Flip of a Coin

One of the great evolutions in real estate during the past decade is the power of the Internet, and more than 90% of homebuyers begin their search there. We think that’s great, and buyers are more empowered than ever with loads of information. Some of that information can come from sites like Zillow that offer what’s called an “automated valuation model” – AVM for short – which purportedly present a great estimate of the current market value of millions of homes. It’s cool technology, amassing an enormous amount of information from publicly available sources in one place that is then scrubbed through very sophisticated algorithms to predict value. And all of the information is presented in an easy-to-use user interface. To their enormous credit, Zillow has done a tremendous job in reaching “top of mind” status with consumers. There’s just one problem: those predicted values are wildly inaccurate and inconsistent.

Beginning in 2010, McEnearney Associates has examined the accuracy of the estimates for property values that Zillow provides – their “zestimates” of value. This marks our fourth and most comprehensive analysis.

We took 500 properties in MRIS, our regional multiple listing system, which were scheduled to settle between March 24 and March 31, 2014. During that week, we looked for the zestimates of those 500 properties. Once the properties settled, we compared the actual sold price to the predicted values on Zillow.

To provide some context, we compared the results of the March 2014 research to that of our September 2012 research. Generally, Zillow’s predicted market value is not any better now than it was 18 months ago. The zestimate is within 5% of the actual sales price roughly half the time in the metro area. It is a little better in the Northern Virginia region*, close to 60%. In September 2012, the zestimate was just as likely to be too low as too high; now, it is roughly twice as likely to be too low.

As one might expect with a computer-generated value, there are always “outliers.” In September 2012, the highest zestimate was roughly 140% of the actual sales price. The lowest was 82%. In the research we just concluded, the highest predicted value was 256% of the actual sales price and the lowest was 62.8%. 

As REALTORS®, we know that one of our most difficult tasks is pricing a home. That holds true whether we are representing a seller or a buyer. Market pressures change from week to week and from neighborhood to neighborhood. The motivation of the parties is always a factor, as is the condition of a home and those around it. No algorithm, however sophisticated, can quantify the value of a kitchen that was remodeled just before a home was put on the market or a yard that is poorly maintained. It simply isn’t possible for any AVM to predict the value of a home with a level of accuracy sufficient to make a housing decision. Zillow knows that’s true – and they say as much on their website (although you have to dig a bit to find it).

Yet not a week goes by that we don’t encounter a consumer who is fixated on a particular value for a home because that’s what Zillow says it is. Kudos to Zillow for making this kind of impression on the public – it is brilliant marketing. But our research and theirs show that, on average, those “zestimates” are within 5% of the actual value of a home just half of the time. As REALTORS®, if we got within 5% of the value of a home that infrequently we’d be out of business. (A look at Zillow’s own analysis of their zestimates is on the next page.)
So if a consumer wants to base their valuation of a home purchase or sale on what they find on Zillow.com, we suggest they take out a coin and flip it. Heads – that value could be within 5% (high or low) of what the home is actually worth. Tails – that value could be 10%, 20% or more off target.

*”Northern Virginia” includes Arlington, Fairfax and Loudoun Counties and the Cities of Alexandria, Fairfax and Falls Church.


More Details on our Zillow Research

“Zestimates” are consistently inconsistent


ZILLOW'S PUBLISHED ACCURACY

We noted above that Zillow posts the accuracy of their “zestimates,” and what they publish is almost identical to what our research indicates.  In our 2012 and 2014 studies, Zillow got within 5% of the actual sales price 51% of this time – their own results say 50.9%. However, they don’t publish whether they are more likely to be high or low, nor do they indicate their high and low  “outliers.” For more details on what they have to say about their own data: zillow.com/zestimate/#acc.


RESULTS ARE BY PROPERTY TYPE

We were curious whether Zillow fared any better based on the type of property. We found that they’re a bit less accurate for condo and co-ops than for attached or detached homes. Mirroring the overall results, in all three property types Zillow is at least twice as likely to predict a value that is at least 5% lower than the actual value as predicting 5% high.



RESULTS BY PRICE RANGE

Not surprisingly, properties that sold for $1,000,000 and more were a little tougher for Zillow to estimate accurately. They got within 5% of the actual price just over one third of the time. They fared much better for homes selling between $500,000 and $999,999, getting within 5% almost 60% of the time, but for homes selling for less than $500,000 they were within 5% less than half the time.

 

March 2014

04/01/14 by David Howell

Is the Market Slower Because of the Weather?
... Or Something Else?

A recent profile on CNBC described the impact of our unusually cold and snowy winter as “frozenomics,” and there are plenty of industries and cities that have been crippled by the nasty stuff we had this year. We’ve all heard about 36-hour traffic jams in the south, and every school system in our region exhausted their supply of built-in snow days so kids will be in school well into summer. Planes were grounded, power outages were rampant, and we all added “polar vortex” to our vocabulary.

And there is no doubt that Northern Virginia’s real estate market felt the chill. New contract activity was down 10% in January and February compared to the same two-month period last year.

But it’s not just the weather – the market actually started to slow in October. After strong second and third quarters in 2013, the number of new contracts in October dropped almost 6% from October 2012. After a modest improvement in November, December took an 11% dive. All this happened before the snow and ice set in.

So if it wasn’t the weather, what was it? Well, rising mortgage interest rates have robbed purchasers of roughly 10% of their buying power compared to a year ago, and that has priced some first-time home buyers out of the market and lowered the price point for others. Home prices are rising faster than household income, and that puts a bit of a chill on demand as well.

The brief government shutdown in October and budget sequestration created some uncertainty in major employment sectors. And even though the number of available homes on the market is up a bit, supply is still tight. And here’s the irony about tight supply – at least in the short term, it helps keep some inventory off the market. There are homeowners who would like to be move-up buyers but they are still sitting on the sidelines because they aren’t confident they can find their next home. And if they aren’t sure they can purchase, they aren’t putting their homes on the market.

This isn’t all bad news by any means. Home prices are still going up, just not as rapidly as they did in mid-2013. Homes are still selling in an average of about two months, and there is still only about a two-month supply of homes on the market. What we’re seeing is the expected moderation that is heading us in the direction of a more balanced market.


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $200,405 at the end of February which is $20,041 less than this time last year, and almost $12,000 less than February 2012.
  • While mortgage rates are still very low from an historical perspective, they are roughly a full percentage point higher than this time last year, reducing buying power by about 10%.

 


NEW CONTRACT ACTIVITY

  • The number of new contracts ratified in February 2014 was down 12.6% from the number of contracts ratified in February 2013.
  • Contract activity year-to-date is
    down 10.4%.
  • 23.3% of all homes going under contract in February 2014 had at least one price reduction before going under contract. 
  • 63.1% of homes going under contract in February were on the market 30 days or less – down from the 71.7% figure in February 2013.
 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of February was 1.9 months, which was an increase of 53.4% compared to the end of February 2013.
  • This is the sixth month in a row that we have had a month-over-year increase in months’ supply.
  • Nonetheless, 1.9 months’ supply is still a tight market, and total supply for homes priced less than $300,000-$499,999 is 1.2 months.

January 2014

01/28/14 by David Howell

NORMAL

It has been said that the only normal people are the ones you don’t know very well. The same can be said for the real estate market in Northern Virginia – it’s been so long since we’ve had a “normal” real estate market that many are entirely unfamiliar with what that looks like!

During the past 10 or 12 years, we’ve seen unprecedented and rapid shifts in the real estate landscape. Starting in 2002, fueled by the enormous increases in post 9/11 defense-related spending, the market exploded. Prices started to climb, and the emerging boom went into afterburners with speculation, public policy that encouraged “everyone” to own a home, and low teaser-rate mortgage loan products that brought an enormous supply of buyers into the market hoping to cash in on the boom. 2004 and 2005 both saw annual price appreciation in excess of 20%. When home prices soared to levels that could not be supported by even the ridiculous loan products, buyers all but disappeared. Prices were flat in 2006 and 2007 and then the boom went bust – 2008 and 2009 saw significant drops in prices, and Northern Virginia had record foreclosures and short sales. There was nothing normal about that.

To bring the market back, we’ve seen everything from big tax breaks for first-time homebuyers to mortgage interest rates kept artificially low by Fed intervention, the so-called quantitative easing. We’re not suggesting those were the wrong moves – it’s just that when you look at the past decade, there’s been nothing normal about anything in this market.

For the first time in a long time, we think the market will be returning to normal in 2014. Rising mortgage interest rates, while still very low, will price some buyers out of the market, and that will keep a lid on demand. As the economy improves, there is going to be a big increase in household formation – but a significant percentage of those new, younger households are going to rent before they buy. They won’t be in a big a hurry to buy as their parents were a generation before. Rising home prices will bring more sellers into the market, but we need to remember that there are plenty of homeowners who have refinanced during the past few years and have locked in historically low rates for the long term – they won’t be in a hurry to sell unless they have a specific need. The currently tight supply of homes isn’t going to change quickly. 

All in all, we believe that we’ll see a much more balanced market as the year progresses, with sustainable – let’s call it normal – increases in home prices in the range of 5% - 7%. And by the way, as hard as this may be to believe, the average annual price appreciation in this area from the end of the Civil War until 2000 was slightly more than 6%.


MORTGAGE RATES

  • 30-year fixed interest rates at the end of December averaged 4.53%, compared to 3.35% at the end of December 2012.
  • One-year adjustable rate mortgages were 2.56% at the end of December 2013, which is the same as at the end of December 2012.
  • Expect rates to rise through 2014 as the Fed backs off buying mortgage-backed securities. Don’t be surprised if rates are near 6% by year’s end.

MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of December was 2.6 months, an increase of 35.7% compared to the end of December 2012.
  • This is the fourth month in a row that we have had a month-over-year increase in months’ supply.
  • Nonetheless, 2.6 months’ supply is still a tight market, and total supply for homes priced less than $750,000 is 2 months.
 


FULLY AVAILABLE LISTINGS

  • Month-end inventory increased 20.1% in December 2013 compared to December 2012 – and there was a slight increase in the number of homes coming on the market as well.
  • In “normal” markets with overall tight supply, we would expect that even more owners would be putting their homes on the market to take advantage of rising prices. But most are in no hurry to do so because they’re happy where they are, they have low interest rates locked in, or they are simply cautious after seeing the market’s roller coaster ride during the past decade.

November - December 2013

11/22/13 by David Howell

RESILIENT.

The best way to describe Northern Virginia’s housing market is resilient. Webster’s defines resilient as able to become strong, healthy, or successful again after something bad happens, and holy cow, we wouldn’t have to look real far to find some bad things that have happened during the past few months.

Let’s see – we had sequestration in the spring. The Federal Reserve has toyed all year with ending their quantitative easing policies that have kept interest rates low, frequently giving mixed signals to the market. More recently, we’ve seen the government shutdown, and tens of thousands of federal workers were laid off and didn’t know when they’d be going back to work or when they’d be paid – and the businesses that depended on those workers suffered as well. We witnessed the continuing battles over whether or how to extend the debt ceiling, and even more recently, we’ve seen the distraction of the launch of the Health Care Exchange created by the Affordable Care Act.

Now to be sure, every single one of these items has impact nationally, but that impact is felt disproportionately in our region. So it wouldn’t have been surprising if Northern Virginia’s housing market took a bit of a breather.

But that hasn’t really happened. While Northern Virginia has lagged a bit behind the markets on the other side of the Potomac, we’re still holding up pretty well. Contract activity during the past two months is off slightly – down 2.3% – compared to the same two months last year. 18% more new listings have come on the market, demonstrating confidence by an increasing number of sellers. Not surprisingly, inventory is 18% higher now than it was at the end of last October. The average number of days a home is on the market before receiving a contract is down by 17%. The average sales price is up almost 10%, and the overall supply of homes is slightly more than 2 months. Taken as a whole, those are indications of a healthy market.

Now we’re not trying to sugarcoat some challenges the market will face. We’ve just entered what is historically the slowest time of the year – November through January. Eventually the Fed is going to have to stop buying tens of billions of dollars of mortgage backed securities every month, and when that happens, interest rates will rise – and that will price some folks out of the market. Also, the budget and debt ceiling battles are far from over, and it isn’t a stretch to think we’ll see more bitter battles between Congress and the White House ahead. But the fundamentals are strong, and we remain convinced we’re headed to a balanced, sustainable housing market in Northern Virginia.


ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for detached homes priced $500,000-$749,999 in October 2013 was 31.7%. That compares to a rate of 35.5% in October 2012, and the decrease means the market was worse in 2013 for that type of home. If the absorption rate was less in 2013 than in 2012, we have put the more recent absorption rate in red. This month there was improvement for just 6 of 18 price categories.


ABSORPTION RATES
ACONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for October 2013 was 33.4%, a decrease from the 43.2% rate in October 2012.

 

 

ABSORPTION RATES
ATTACHED HOMES

  • The overall absorption rate for attached homes in October 2013 was 37.5%, a decrease from the 45.6% rate in October 2012.
 
 
 


ABSORPTION RATES
DETACHED HOMES

  • October 2013’s absorption rate for detached homes was 25.6%, a decrease from the 27.8% rate in October 2012.
  • There were just twelve homes priced less than $300K on the market at the end of the month.

 

October 2013

10/03/13 by David Howell

A FEW MORE CHOICES.

 

Perhaps the biggest factor in the Northern Virginia real estate market during the past 18 months is the paltry number of listings on the market. Not only has there been low inventory, but month after month fewer new listings were coming on the market. With limited choices for purchasers, prices in most price ranges have climbed.

Well, it’s funny how markets work. Those higher prices have tempted more sellers to take a stab at getting their homes sold. In the past five months, 15% more listings came on the market than during the same time period last year. That doesn’t mean there’s been a huge shift, but it’s at least noticeable. There was just one month of inventory on the market at the end of April, and that has inched up a bit month after month to just under two months’ supply now. It’s still a tight market, but there are a few more choices for buyers than in the spring.

So what does that mean? It’s really Economics 101. On the supply side, we have seen this modest increase in inventory. On the demand side, we’ve seen an increase in mortgage interest rates – up a full point over the past five months. That represents a loss of more than 13% in buying power and that, coupled with the lingering impact of sequestration, is serving to keep the number of buyers in the market a bit less than it was earlier in the year. And this will ease – but not reverse – the significant upward pressure on home prices we have seen this year.

Make no mistake: this modest increase in listings and modest decrease in buyers isn’t turning this into a buyers’ market. Any way you look at it, a less-than-two-month supply of homes tilts the odds in the favor of sellers. We’re still seeing multiple offers and escalation clauses in the hottest neighborhoods and price ranges – just not as frequently as earlier in the year. And remember that market pressures are not the same for every type of property and in every neighborhood. As the Months’ Supply chart below indicates, there is a 1.4-month supply of homes priced less than $500,000, and a 1.5-year supply for homes priced more than $1,500,000. And the seller of a detached home in Fairfax Station isn’t going to see as many prospective purchasers as a seller of a townhouse in Arlington.

What we see is a market slowly returning to normal. But for now, most sellers continue to have the upper hand.

 


MONTHS' SUPPLY

  • Although overall supply is 1.9 months, it is considerably tighter for homes priced less than $500,000 at just 1.3 months.
  • And as noted above, there is ample supply for upper brackets homes, with just over four months for homes priced between $1,000,000 and $1,499,999, and almost 18 months for homes priced more than $1,500,000.

 


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $197,130 at the end of August which is $23,118 less than this time last year.
  • That’s a 10% drop, but the drop is even more significant since April when mortgage interest rates reached a low of 3.35%. Buying power now is 13% less that it was during the peak of the spring market.
  • Even with this loss in buying power, rates are still extremely attractive June 2012.
 


RELATIONSHIP OF SALES PRICE TO LIST PRICE vs DAYS ON MARKET

  • As we have noted in this space for years, initial pricing strategy is critical to the success of sellers.
  • More often than not, sellers who price it right are rewarded with a quick sale close to list price.
  • But even in this sellers’ market, there are listings that languish and take a deeper discount to list – or don’t sell at all.

 

July 2013

07/29/13 by David Howell

MORTGAGE RATES UP A FULL POINT IN 60 DAYS. AND THE SKY ISN'T FALLING.

 

Well, we knew rates would bottom out – and they did. From a low of 3.35% for 30-year fixed mortgages at the end of April, rates jumped to 4.46% by the end of June. (Since the end of June, rates have fluctuated about 10 basis points above and below that mark.) That jump in rates means that there was a 12.6% loss of buying power. A monthly payment to support the purchase of a $400,000 home in April now only supports a $350,000 purchase.

In the past when rates have bumped up after a prolonged period of lower rates, the number of buyers has actually increased in the short term. Folks who were waiting for the absolute bottom realized that they may have waited a bit too long and jump in before rising rates price them out of the kind of home they want. And that’s exactly what has happened this time. Through the first four months of 2013, total new contract activity in Northern Virginia was up 3.6% compared to 2012, but contract activity rose 11% in May and June.

However, higher rates will undoubtedly put a damper on demand in the months ahead, simply because buyers may no longer be able to afford the home they want. Removing folks from the pool of possible homebuyers will ease some of the upward pressure on home prices. And this dampening of demand comes at a time when the number of homes coming on the market is finally beginning to increase. So, with the prospect of more supply and less demand, why are we so confident the sky isn’t falling?

First, we’ve seen this before. In July 1980 when McEnearney Associates opened for business, mortgage interest rates averaged 12.71%. By September 1981, rates had climbed to 18.45%, representing a 30% loss of buying power in just over a year. (Already feel a little better about today’s rates?) But people still bought homes, and believe it or not, home prices actually rose slightly during that period of time. Because owning a home made long-term sense, just like it does now, buyers, sellers and lenders figured out ways to make it work. Sellers offered financing, lenders wrapped assumable first trusts with second trusts - and people bought and sold houses.

Second, by any historical measure, today’s mortgage interest rates are still incredibly low, and there are very attractive alternatives as well. At the end of April, there was very little difference between the rates for 30-year fixed rate mortgages and those for adjustable rate loans. Today, a 5-year ARM averages 3.17%, well over a point lower than 30-year loans. It is further good news that there won’t be any of the ridiculous, teaser-rate, no-money-down mortgage products developed to bring unqualified buyers to the market like we saw during the boom last decade. People will buy homes because they need or want to move, and can afford to do so.

Today’s rising rates will moderate the market, not kill it.

 


MORTGAGE RATE TRENDS

  • 30-year fixed interest rates at the end of June averaged 4.46%, compared to 3.66% at the end of June 2012.
  • One-year ARMs were 2.66% at the end of June 2013 vs. 2.74% at the end of June 2012
  • While 3-year rates have jumped more than a point, one-year adjustable have barely moved. While not shown on this chart, 5-year adjustable rate mortgages have moved up less than half a point..

 


NEW CONTRACT ACTIVITY

  • The number of new contracts ratified in June 2013 was up 12.6% from the number of contracts ratified in June 2012, activity year-to-date is up 5.1%.
  • Just 20.5% of all homes going under contract in June 2013 had at least one price reduction before going under contract.
  • 77.5% of homes going under contract in June were on the market 30 days or less – up considerably from the 62.8% figure in June 2012.
 


AVERAGE SALES PRICE

  • The average sales price in June 2013 was $563,186, up 5.8% from the June 2012 average price of $532,295.
  • The median sales price was $499,900 in June 2013, up 7.5% from the median price in June 2012.
  • Remember that these indicators are arithmetic computations based on all properties sold and do not indicate the appreciation or depreciation of any individual property.

 

May 2013

06/05/13 by David Howell

THAT WAS THEN. THIS IS NOW.

To many, the current market conditions bear an eerie resemblance to the feeding frenzy of the market boom of 2004 to 2006: low inventory, multiple offers, escalation clauses, waiver of important contingencies and rapidly rising prices. And that prompts fear of a bubble burst somewhere down the road. Well, there’s no doubt the market is much improved, and the overall supply of homes hasn’t been this tight in nine years. But there are important differences.

Then: The market was powered by a strong economy, rising incomes and public policy that was geared to encourage home ownership. As home prices rose faster than the rate of increase in household income, mortgage programs were created to offer “teaser” rates to bring payments down (for a short time) for those who couldn’t afford market interest rates. Of course, that dramatically expanded the number of eligible buyers, keeping both demand and prices artificially high. And those rapidly rising prices fueled a market based largely on speculation. With back-to-back years of 20%+ home price appreciation, everyone wanted in on the act, with little concern about mortgage payments that would jump to prohibitively high levels in a couple of years. After all, at that point one could either refinance or just cash out. But the market collapsed when the pool of buyers who could afford even those unrealistic mortgages ran out.

Now: The “juice” for today’s market comes largely from the pent-up demand created by conditions in recent years, not because of a booming economy. Folks are appropriately more cautious, especially with the tempering impact of sequestration. To a large extent people are moving because they have a need for housing, not because the lure of making a quick buck. Prices are rising, but not at the break-neck pace we saw in the last hot market. Interest rates aren’t going lower because they are already at historic lows, and the Federal Reserve has recently given signals that it will slow the pace or even stop the $30 - $40 billion monthly bond purchases that have helped keep interest rates low. As a consequence, the pool of eligible buyers will grow only as the economy grows. Investors have certainly returned to the market and prices are rising, but not at the break-neck pace of the last market. And while multiple offers and escalation clauses are common in the hottest areas, it isn’t hot everywhere. Location, price and condition actually maTter now.

Those homes in areas closest to major employment centers and great transportation are faring best. In the last month, homes that sold within a half mile of the Clarendon Metro station in Arlington were on the market an average of just 8 days, and sold for an average of 1% above list price. In 2004, homes that close to the Clarendon metro were on for a similar 6 days, but sold on average 7% above list price. Last month, homes that sold in Mount Vernon were on the market an average of 78 days and sold 2% under list price. In the same month in 2004, they sold in 15 days and for 1% above list. Frankly, those market numbers in Mount Vernon are good, but they are spectacular in Arlington.

The real estate market in Northern Virginia is very healthy, but – fortunately – it’s not the same as last time.

 


MONTH'S SUPPLY

  • A $1,000 principal and interest payment supported a loan of $226,931 at the end of April which is $13,364 more than this time last year, and $70,029 more than April 2006.
  • In April 2006, it would have taken a monthly PI payment of $3,043 to purchase a median priced home. With today’s lower prices, combined with lower rates, it takes a payment of $2,027 – that’s a 33% drop.

 


FULLY AVAILABLE LISTINGS

  • Overall inventory decreased 29.8% in April 2013 compared to April 2011.
  • There are 42.3% fewer homes priced $300,000-$749,000 on the market than last year.
  • 26.7% of all homes on the market have had at least one price reduction since coming on the market.
  • This time last year, 31.2% of all homes on the market had at least one price reduction.
 


AVERAGE NUMBER OF DAYS ON THE MARKET

  • The average number of days on the market for homes receiving contracts in April was down for all price categories.
  • The average number of days on the market for all homes receiving contracts in April 2013 was 26, down 36.6% from 41 days in April 2012.

 

 

 

March 2013

04/03/13 by David Howell

CONVERGENCE

The dictionary says that “convergence” is the act of coming together from different directions – and that is exactly what is happening with three key indicators in the Northern Virginia real estate market.

In the first quarter of 2013, we’ve seen the number of new contracts, new listings, and fully available inventory converge. A specific example: in March, there were 2,270 new contracts, 2,730 new listings, and just 2,341 listings on the market at the end of the month. Two short years ago in March 2011, there were twice as many available listings and 50% more new listings than new contracts.

It’s a tight market in most prices ranges right now, and we haven’t seen these indicators so closely aligned since the peak of the market in 2004. It’s so tight that there has actually been an 8% drop in contract activity year-to-date for homes priced less than $500,000. There simply isn’t enough inventory – just a three-week supply – to support the level of demand. But the upper brackets, while still a small slice of the market, are doing well. There’s been a 22% jump in contract activity through the first three months of the year for homes priced more than $750,000.

To give you an idea about how dramatically the market has changed, the second chart at right shows the same three indicators from January 2007 through the end of 2008. The number of active listings was as much as nine times the number of new contracts, and the number of new listings coming on the market was typically double the number of new contracts.

Low inventory continues to drive the market, with 35% fewer homes on the market right now than this time last year. We see more of the same in the months ahead. Thus far, there’s no discernible negative impact from sequestration, and there’s no reason to think that the low inventory situation is going to change anytime soon. Homebuyers below $500,000 are going to find it particularly challenging to find what they’re looking for.

 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of February was 1.2 months, down from 1.8 months at the end of February 2012.
  • There’s was a 21-day supply of homes priced less than $500,000!
  • Remember that the low supply relative to last year for homes priced less than $500,000 is due entirely to the drop in inventory, not because of an increase in contracts.

 


AVERAGE NUMBER OF DAYS ON THE MARKET

  • The average number of days on the market for homes receiving contracts in February was down for four price categories and barely changed for the other two.
  • With so little inventory, listings priced less than $500,000 are selling in just about half the time as last year.
  • The average number of days on the market for all homes receiving contracts in February 2013 was 41, down 35.9% from 64 days in February 2012.
     


RELATIONSHIP OF SALES PRICE TO ORIGINAL LIST PRICE vs DAYS ON MARKET

  • As we have noted in this space for years, initial pricing strategy is critical to the success of sellers, even in this tight market.
  • Homes settling in February 2013 that received contracts their first week on the market sold, on average, for 0.5% above list. Those that took 4 months or longer to sell sold for 8.2% below original list price.

January 2013

01/27/13 by David Howell

TIME TO RE-STOCK!

If a retailer had this little inventory to sell, they’d swear someone had been shoplifting! To keep the doors open, they’d have to re-stock their shelves with saleable merchandise, and that’s exactly what needs to happen in Northern Virginia’s real estate market.

In our last issue of MarketWatch, we focused on the opportunity for buyers because of historically low interest rates. But we believe there’s an even bigger opportunity for potential sellers because there are so few listings on the market.
 
Here’s one narrow example of the acute shortage: one of our great McEnearney agents was working with a buyer during the first week of January looking for a townhouse in Arlington around $600,000. And there weren’t any. In fact, there were no townhouses priced between $500,000 and $750,000 on the market in all of Arlington County. At the end of May, there were 15. We recognize that inventory is always lower in the middle of winter than it is in the spring, but this isn’t just seasonal. Inventory is down 34% from this same time last year, and there was an 11% drop in the number of new listings coming on the market in December as well. In the past six months, 50 townhouses in that $500-$750k price range went under contract, so the demand is clearly there – but right now there’s nothing to buy. When there’s plenty of demand and little or no supply, prices are going to rise – that’s just a simple economic fact of life.
 
Anyone who is thinking about selling their home in the next year or two should really consider doing it now. This includes would-be sellers who purchased at the top of the market and think they don’t have equity. A couple of caveats: every submarket is different; the time still has to be right for your personal circumstances, and given the low inventory, finding your next house could be a bit of a challenge. Nonetheless, we know there are plenty of sellers who are in for a pleasant financial surprise in the next few months. If moving up or moving out is on your agenda, give us a call and we can help you craft a strategy to accomplish your real estate goals.
 
So what’s in store for the Northern Virginia real estate market over the next few months? We know the low-inventory issue isn’t going to be solved overnight, so expect that supply will remain very tight in significant portions of Northern Virginia through at least the first six months of 2013. The Fed has made it clear that they intend to keep interest rates low, and while we know that they can’t stay under 4% forever, they should stay there for another six months as well. 
 
So what’s really ahead is more of the same: a healthy market with tight supply, low rates and rising prices. But – and there’s always a but - we’re still keeping a watchful eye on the sequestration and budget ceiling negotiations. Some defense contractors have already started job layoffs given the uncertain situation, and folks don’t buy houses when they’re out of work. The nation’s economy - and the region’s housing market - remains vulnerable if Congress and the White House can’t find a long-term solution.

 

ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for detached homes priced $500,000-$749,999 in December 2012 was 34.2%. That compares to a rate of 22.7% in December 2011, and the increase means the market was better in 2012 for that type of home. If the absorption rate was less in 2012 than in 2011, we have put the more recent absorption rate in red. This month there was improvement for 16 of 18 price categories.



ABSORPTION RATES - CONDOS & CO-OPS

  • The overall absorption rate for condos and co-ops for December 2012 was 40.3%, an increase from the 30.4% rate in December 2011.
    Look at the dramatic difference in listing inventory – 448 in December 2012 vs 805 in December 2011.

 


Fully Available Listings - Northern Virginia October 2011 vs October 2012

ABSORPTION RATES - ATTACHED HOMES

  • The overall absorption rate for attached homes in December 2012 was 49.8%, an increase from the 34.9% rate in December 2011.
  • Again, the big difference in inventory: just 308 at the end of December 2012 vs 579 in December 2011.

 


Month's supply of housing October 2011-October 2012 Northern Virginia


ABSORPTION RATES - DETACHED HOMES

  • December 2012’s absorption rate for detached homes was 27.2%, an increase from the 20.9% rate in December 2011.
  • Inventory under $300K is virtually non-existent because prices have gone up.

November 2012

11/27/12 by David Howell

THE REAL STORY IS INVENTORY – AND THE LACK OF IT


There’s less than a two-month supply of homes on the market in Northern Virginia, the lowest we’ve seen at this time of year in almost a decade. This is due in part to an increase in new contract activity, but it’s primarily due to plummeting inventory.

The average number of fully available homes on the market for the past seven years at the end of October was 6,750. Right now, it’s less than half that, at 3,100. The shortage is particularly acute for homes priced less than $500,000 so those first-time homebuyers are finding pretty slim pickings. Believe it or not, if no new listings came on the market, at the current pace of contracts every home priced under $300,000 would be gone in less than a month.

We’re firm believers that markets seek balance. In those areas and price ranges where inventory is very low, we’ve seen the return of multiple offers, and those multiple offers bring rising prices. Rising prices will eventually bring more sellers back to the market. But that’s going to take time, so expect low inventory to prevail for at least the next several months.

The other piece of the story is affordability. With 30-year fixed rate mortgage rates continuing well below 4%, the principal and interest payment for a median-priced home is 37% lower than it was in October 2005. And that payment is also less than the median rented price for a home in Northern Virginia. We continue to believe that this is a uniquely great opportunity for buyers to lock in at these historically low interest rates precisely at the time home prices are beginning to rise.

So what’s ahead for the Northern Virginia real estate market? We expect to see steady improvement in the market over the next several months – a modest rebound in inventory as buyers continue to return to the market. But there is one major caveat: the ‘fiscal cliff.’ We’re writing this in late November, right as Congress is heading into its lame duck session. If Congress and the White House can’t reach an agreement to either postpone or avoid the expiration of the Bush-era tax cuts and the automatic sequestration of $1.2 trillion in federal spending, then all bets are off for this market. It could mean a significant loss in federal jobs, disproportionately so in Northern Virginia, and we could see the regional unemployment rate could jump a full percent virtually overnight. People who don’t have jobs don’t buy houses. We hope and trust that cooler heads will prevail.
 


New Listings, New Contracts, and Active Lstings - Northern Virginia
NEW LISTINGS, NEW CONTRACTS, AND ACTIVE LISTINGS

  • That green line tells the story – listing inventory has dropped in a big way.
  • Increasing contract activity has certainly contributed to a much tighter market, but not nearly as much as the drop in inventory.
  • As mentioned above, inventory is less than half the market average during the past 7 years, and it’s even 31% lower than it was this time last year.

 



Fully Available Listings - Northern Virginia October 2011 vs October 2012FULLY AVAILABLE LISTINGS

  • And while inventory is way down, it’s clear that’s there has been little change in available listings in the higher price categories – it’s homes priced less than $750,000 that have seen the big drops.
  • The number of homes on the market priced at $750,000 and higher is just 4% less than this time last year.
  • Total inventory under $750,000 is off 41%, and inventory under $300,000 is just about half of what it was last October, and that makes it tough for first-time buyers to find what they’re looking for.

 



Month's supply of housing October 2011-October 2012 Northern VirginiaMONTHS' SUPPLY

  • The overall supply of homes on the market at the end of October was just 1.8 months, down from 3 months at the end of October 2011.
  • There’s a 30-day supply of homes priced less than $300,000, and just a 36-day supply for homes priced between $300K and $500K.
  • Supply is considerably lower in every price range.

September / October 2012

10/02/12 by David Howell

Horseshoes and Hand Grenades!

One of the great evolutions in real estate during the past decade is the power of the Internet, and more than 90% of homebuyers begin their search there. We think that’s great, and buyers are more empowered than ever with loads of information. Some of that information can come from sites like Zillow that offer what’s called an “automated valuation model” – AVM for short – that purportedly offer a great estimate of the current market value of millions of homes. It’s cool technology, amassing an enormous amount of information from publicly available sources in one place that is then scrubbed through very sophisticated algorithms to predict value. And all of that is typically presented in an easy-to-use interface. There’s just one problem: those predicted values are wildly inaccurate and inconsistent.

We check on the accuracy, or lack thereof, of these sites every year. We identified almost 300 properties throughout the Washington, DC metro area that went to settlement in the first two weeks of September 2012, and compared their actual sales prices to the predicted values from three prominent AVMs – Zillow, Eppraisal and Chase Home Valuator – as well as the relevant taxing jurisdiction’s current assessments. To be as generous as possible, we excluded new homes since it would be unlikely that any of these AVM sites could have the details on just-completed homes. We selected all types of homes – condos, townhomes and detached – across all price ranges. To top it off, we looked at the predicted value after the properties had gone to settlement, knowing full well that the AVMs could have had the opportunity to update their models with the actual sales price. We broke the result down by area, and the chart here shows the dismal results of the 100 homes evaluated in Northern Virginia.

Chase was the “best” of the bunch, getting within 5% of the actual value 60% of the time, and the rest fared much worse than that. (Chase has also updated their records with the actual sales price for 8 of the 100 properties.) We call this the “horseshoes and hand grenades” home valuation model. You know the old cliché that close only counts in horseshoes and hand grenades – well “close” isn’t nearly good enough when it comes to valuing a home. That’s precisely why we don’t offer the estimated values from any of these sites on our website – we think our clients deserve up-to-date knowledge about the market, not just a data dump. Before you decide to put a lot of confidence in these AVMs, consider this comment in an email to us from a senior Zillow executive this summer when we complained about the problems caused by the inaccuracy of their “Zestimates” of value: “You are correct – this is nothing new for any of us. But because consumers are so fond of the Zestimate, it is not going anywhere.” OK, we get it – they know it’s inaccurate but don’t really care because it brings eyeballs to their site. But since they know they’re not accurate, we think you should too.



ABSORPTION RATES CONDOS AND CO-OPS
BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $220,248 at the end of August which is $16,243 more than this time last year, and $60,849 more than August 2006.
  • In August 2007, it would have taken a monthly PI payment of $2,983 to purchase a median priced home. With today’s lower prices, combined with lower rates, it takes a payment of $2,057 – a 31% drop.

 



Absorption Rates Attached HomesNEW CONTRACT ACTIVITY

  • The number of new contracts ratified in August 2012 was up 7.7% from the number of contracts ratified in August 2011.
  • Contract activity YTD is up 6.8%.
  • 30.2% of all homes going under contract in August 2012 had at least one price reduction before going under contract. 
  • 59.0% of homes going under contract in August were on the market 30 days or less - up considerably from what we saw all last year.

 



Absorbtion Rates Detached HomesMONTHS' SUPPLY

  • The overall supply of homes on the market at the end of August was 1.9 months, down from 2.9 months at the end of August 2011.
  • There’s a 33-day supply of homes priced less than $300,000, and only a 57-day supply of homes priced between $500,000 and $750,000.
  • Remember that the low supply has more to do with the lack of inventory than contract activity.

July 2012

07/30/12 by David Howell

 

Opportunity Knocking!

When 2012 comes to a close, we believe we’ll look back on it as a year of tremendous opportunity for home buyers and sellers alike – but for some it will be a missed opportunity.

We are witnessing something for the first time in our memory in Northern Virginia real estate: the principal & interest payment for a median-priced home is now less than the median rental price. At the market’s peak in June 2006, the mortgage payment for a median priced home was 71% greater than the median rental price. We know there’s more to the cost of owning a home than the mortgage payment, and we’re certainly not suggesting that everyone should buy a home. But home prices are beginning to rise, and interest rates will almost certainly be higher a year from now – and we think that it will be a long time before we see the total cost of buying a home this low again. That also means the time is right if you’re thinking of selling – inventory is very low and buyers in some areas and price ranges are having a tough time finding what they want.

Lower inventory combined with fewer listings coming on the market is clearly putting upward pressure on home prices, especially in the lowest price ranges. One of the indicators we look at is the percentage of homes going under contract in a given month that have been on the market 30 days or less. In times other than a boom or bust, roughly 55-60% of homes going under contract are on the market for a month or less. In June 2006, at the peak of the boom, that climbed to 94% as buyers were snapping up everything in sight. In June 2009, it dropped to 24% as buyers were too nervous to do almost anything. It’s at 63% now, a sure sign that buyers are willing to buy when they see value. Buyers still remain appropriately cautious – even in multiple offer situations they are rarely waiving home inspections and appraisals, and that’s a good thing.

These unique circumstances also mean there is great opportunity if you’re thinking of selling – inventory is very low and buyers in some areas and price ranges are having a tough time finding what they want. Take a look at the absorption rates tables that follow to see the hottest price ranges and property types. Attached and detached homes priced less than $300,000 have absorption rates well in excess of 60%, and homes priced between $300,000 and $750,000 in all three property categories have rates exceeding 33%. Still, your personal circumstances have to be right to consider making a move, but if they are, this is a great time to sell.


ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for condos priced $500,000-$749,999 in June 2012 was 34.1%, indicating that one third of the homes on the market for this category of homes went under contract in June. That compares to a rate of 26.4% in June 2011, and the increase means the market was better in 2012 for that type of home. If the absorption rate was less in 2012 than in 2011, we have put the more recent absorption rate in red. This month there was improvement for 15 of 18 price categories, and one remained the same.

ABSORPTION RATES CONDOS AND CO-OPS
CONDOS & CO-OPS

  • The overall absorption rate for condos and co-ops for June 2012 was 38.4%, an increase from the 29.9% rate in June 2011.

 

 



Absorption Rates Attached HomesATTACHED HOMES

  • The overall absorption rate for attached homes in June 2012 was 43.0%, an increase from the 35.4% rate in June 2011.
  • The rate for attached homes priced less than $300,000 is 63.9% - clearly an indication of a sellers’ market for this type of home.

 



Absorbtion Rates Detached HomesATTACHED HOMES

  • June 2012’s absorption rate for detached homes was 29.2%, an increase from the 25.2% rate in June 2011.
  • The rate for detached homes priced less than $300,000 is 66.7%!

May 2012

05/31/12 by David Howell


“No Chipped Paint; All Horses Jump” - Disneyland and Your Home.

A carousel ride for his young kids spurred Walt Disney’s goal for creating the perfect customer experience when he opened Disneyland – and that goal is a great one for homeowners as well.

From a distance, that Los Angeles amusement parkRide Mac's Mercury at Clemijontri Park in McLean! ride looked great to Disney and his two young daughters, but as they drew closer they found that only the horses on the outer ring moved and the paint was shabby and peeling. He was both disappointed and inspired, determined that his guests would have an entirely different experience, and his mantra for the creation of Disneyland quickly became “No Chipped Paint; All Horses Jump.

It was a direct and passionate expression that simply meant that everything had to work, everything had to look good, and nothing should be left to chance. And Disney and his cast acted on that directive to perfection.

Creating the right customer experience when selling a home matters just as much. Making sure everything works properly and everything sparkles gives prospective purchasers the confidence that the home they are considering buying has been well cared for. Most buyers aren’t looking to take on a “project,” and those that are will drive a harder bargain. The seller will pay for maintenance and condition one way or another. If they DO the right things, and PRICE it right, they’ll be rewarded. If they don’t – well, purchasers won’t pay as much for a poorly kept house, and those homes take longer to sell.

Remodeling Magazine, in cooperation with the National Association of REALTORS®, publishes an annual “Cost vs. Value” report that directly addresses this issue. This is among the conclusions of their most recent survey: “The…research…shows that maintenance, repair, and replacement projects take precedence with homeowners. Cost vs. Value data confirm this once again this year, as replacement projects continue to perform better in resale value than other types of remodeling projects. Seven of the 10 top-ranked projects are siding-, window-, or door-replacement projects.”

Proper maintenance is the single, best way to improve the value of your home, regardless of when or if you plan to sell. Before you think about adding a room, or “granitizing” your kitchen, call your favorite McEnearney Associates REALTOR®.  We can give you advice and recommend professional contractors for projects that will ensure the best price when the time is right to sell your home. Relationships with our clients, both buyers and sellers, are for the long term. They don’t begin and end with the transaction!




ABSORPTION RATES CONDOS AND CO-OPS
FULLY AVAILABLE LISTINGS

  • Overall inventory decreased 22.4% in April 2012 compared to April 2011.
  • The drop is most significant in the two lowest price categories – taken together, there are 35% fewer homes priced less than $500K on the market than last year.
  • 31.2 % of all homes on the market have had at least one price reduction since coming on the market.
  • This time last year, 33.1% of all homes on the market had at least one price reduction.



Absorption Rates Attached HomesNEW CONTRACT ACTIVITY

  • The number of new contracts ratified in April 2012 was up 20.1% from the number of contracts ratified in April 2011, and year-to-date activity is up 9.6%.
  • Just 21.7% of all homes going under contract in April 2012 had at least one price reduction before going under contract.
  • 68.7% of homes going under contract in April were on the market 30 days or less - up considerably from what we saw all last year, and edging closer to what we saw in the “boom.”

 



Absorbtion Rates Detached HomesMONTH'S SUPPLY

  • The significant drop in available inventory combined with the increase in the number of buyers, makes for a very tight market in many areas.
  • The overall supply of homes on the market at the end of April was 1.6 months, down from 2.4 months at the end of April 2011.
  • There’s just a 1-month supply of homes priced less than $500,000, and only a 45-day supply of homes priced between $500,000 and $750,000.

March 2012

03/28/12 by David Howell

“Is it a Buyers' Market or a Sellers' Market?”

That was the question recently posed in an online forum for area REALTORS®. After five years of a very challenging market, it is encouraging that this is even a plausible question – but it is based on the false premise that market conditions are the same everywhere and for every type of property in Northern Virginia.

Absorption RatesThere are some very encouraging signs. Through the first three months of the year, contract activity is up more than 4% from the same time last year, and listing inventory is down 17%. And that means that there is less than a two-month supply of homes on the market. That looks like a sellers’ market: relatively low supply being chased by more purchasers. But let’s also put this into perspective from the low point in the market – 2008.

We took a look at the four key market indicators for the first three months of this year and compared that to the same time period of 2008. Clearly the biggest difference is the number of listings on the market. The average month-end inventory in the first quarter of 2008 was 8,560, and it has been just a little more than 3,000 so far this year. That’s a 63% drop. In 2008, the market was flooded with an overwhelming number of new listings – almost 10,000 in the first quarter – as many sellers recognized that the boom market was truly over and tried to cash in. So buyers had plenty of choices, and they took their time making a decision. The average time on the market for properties going under contract was more than 100 days. This year, only about half as many new listing have come on the market, so buyers have fewer choices and are acting more quickly when they see an appropriately priced listing. The average time on the market has been just 63 days so far this year. But note the indicator that has changed the least: contract activity. Now, we’re thrilled that more than 5,000 homes have gone under contract so far this year – that’s an almost 17% jump from 2008 – however, it’s still less than the first quarter of 2007. Buyers are incented by very, very low mortgage interest rates, but they are still cautious. The reality is that the tight market has far more to do with limited inventory than high demand.

The tight market does mean that there are hot spots, but it’s not hot everywhere. The market is absorbing almost half of the available inventory of townhomes priced between $300,000 and $500,000 every month – and less than 10% of homes priced more than $1,500,000. There’s less than a two-month supply of homes priced between $750,000 and $1,000,000 in North Arlington, and more than a year in Mount Vernon. There are areas and price ranges where short sales and foreclosures are still having a negative impact on the market, and it will take longer for those areas to recover.

Sellers in a hot spot have more negotiating power today than they have had in years, and we’ve seen a resurgence in multiple offers on some properties. But buyers are still hesitant to overpay, and we rarely see escalation clauses accompany those multiple offers. Buyers who are used to having their way may find it a lot tougher to drive a hard bargain in some areas. As we have noted many times before, market conditions are “hyper-local,” and careful and thorough research is required to evaluate any individual property before making a buying or selling decision.

Absorption Rate by Property Type

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for detached homes priced $500,000-$749,999 in February 2012 was 33.8%, indicating that one third of the homes on the market for this category of homes went under contract in February. That compares to a rate of 30.7% in February 2011, and the increase means the market was better in 2012 for that type of home. If the absorption rate was less in 2012 than in 2011, we have put the more recent absorption rate in red. This month there was improvement for 12 of 18 price categories.



ABSORPTION RATES CONDOS AND CO-OPS
ABSORPTION RATES
CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for February 2012 was 36.8%, an increase from the 31.8% rate in February 2011.





Absorption Rates Attached HomesABSORPTION RATES
ATTACHED HOMES

  • The overall absorption rate for attached homes in February 2012 was 48.9%, an increase from the 41.1% rate in February 2011.
  • The rate for attached homes priced less than $300,000 is 67.4% - clearly an indication of a sellers’ market for this type home.




Absorbtion Rates Detached HomesABSORPTION RATES
DETACHED HOMES

  • February 2012’s absorption rate for detached homes was 31.0%, an increase from the 27.5% rate in February 2011.
  • The rate for detached homes priced less than $300,000 is 78.9%!  We’ve never seen a rate this high in any one price category.

January 2012

01/31/12 by David Howell

“Lessons Learned and a Look Ahead”

We learned a lot about Northern Virginia’s market in 2011, and the most important lessons bode well for 2012

There were a number of factors at play last year. Home prices were stable at best and still declining at worst, mortgage qualification standards rose making loans more difficult to obtain, the national unemployment rate remained persistently high, and there was the looming threat of federal job losses locally. And for the first time since 2008, there were no special tax credits to incent home purchasers.  That challenging combination could have made 2011 a very difficult year, but there were positives as well. The combination of lower home prices and incredibly low interest rates meant homes were dramatically more affordable, and our regional economy remained relatively strong. So what did buyers and sellers do in this environment? They acted logically – in today’s environment, “logically” means “cautiously.”

Buyers pulled back just a bit, with the total number of properties going to settlement dropping 8.5% from 2010. Correctly understanding that there were few areas where prices were going up, buyers were generally pretty picky. If a home was overpriced, buyers were quite content to take a pass and either wait for something better – and more realistically priced – to come along, or for a price reduction that brought that home more in line with the market. But when a home was priced right, buyers knew it and would make a quick decision; almost half of what went under contract was on the market 30 days or less. By contrast, the average number of days all currently available homes have been on the market is 113, suggesting there are sellers who either won’t or can’t price their homes where buyers wants them.

Sellers were appropriately cautious as well. The number of listings coming on the market dropped more than 11% in 2011 compared to 2010, indicating that fewer folks decided to attempt to sell in a fairly flat market. For some, perhaps many, prices have not returned to acceptable levels and they will wait until market conditions are better. As noted above, those sellers who are willing and able to price their homes in line with the market are getting their homes sold – so the most motivated are seeing results. And that’s exactly what one would expect.

All these factors mean that overall supply is pretty balanced, as shown in the “Months’ Supply” chart on the following page. Fewer homes on the market for buyers empowered by historically low interest rates will eventually start to move prices higher, and we’re already seeing signs of that in lower price ranges. And when prices begin edging up, more sellers will feel like they have a better chance of selling. There are some wildcards out there including the possibility that we’ll see more foreclosures and short sales come on the market, and the ongoing battles over the federal budget could negatively impact jobs here. Markets adjust, sometimes more slowly than we’d like, but we believe the table is set for 2012 being better than 2011. Make no mistake – we don’t expect dramatic improvement, just continuation of the long climb back to “normal.”



September 2011 Interest Rates
BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $210,732 at the end of December which is $21,445 more than this time last year, and almost $50,000 more than at the peak of the market.
  • This dramatic increase in buying power, combined with significantly lower prices, means that it costs roughly 40% less to purchase a median priced home in Loudoun County today than it did in December 2005.
  • And that fact will slowly bring more buyers back to the market.



New Contract ActivityMONTHS’ SUPPLY

  • As we mentioned on page 1, overall supply is reflective of a more balanced market.
  • However, in the lower price ranges supply is tight – only about a 45-day supply of homes priced less than $300,000.
  • Basic market economics indicates that this tight supply will – slowly –cause a rise in prices. And when the sellers of those homes see higher prices, they will be better positioned to become “move-up” buyers. And that, in turn, will – even more slowly – put upward pressure on prices of more expensive homes.




Month's SupplyNEW LISTINGS, NEW CONTRACTS AND ACTIVE LISTINGS

  • We think this chart really captures what market pressures do.
  • In the white-hot market of 2005, contract activity soared, spurring more sellers to sell – and then they became buyers.
  • When buyers started to exit the market in 2006, listing inventory soared – and the market has been adjusting rather painfully ever since.
  • Other than the spring of 2010, when the homebuyers’ tax credit created a short-term surge, the market is more balanced now than any time since the bust.

December 2011

12/06/11 by David Howell

“Parts of Area Housing Market Almost Back to Pre-Recession Levels”


That’s the headline in a recent Washington Examiner article about the state of the region’s real estate market. Um...we think there are a lot of sellers who would call the veracity of that attention-grabber into question.

Slippery When Wet What the article goes on to say is that the median sales price in Arlington County is now nearly 95% of its peak in June 2006. (There were several jurisdictions mentioned that are nowhere near their peak levels, by the way.) While that may be statistically accurate, we respectfully submit that the headline confuses a mathematical calculation with a home’s value.

Remember that the “median” is simply the midpoint of a list of numbers ranked highest to lowest. As such, a change in the mix of what is selling can have a significant impact on the “median” value. The table at right shows the impact. In month 1, there are 15 homes that sold, ranging from a low of $300,000 to a high of $1,000,000. The median price is $650,000. In month 2, 13 of these same homes sell for exactly the same price as the previous month, but the two most expensive homes are dropped from the list. So even though there’s no change in the actual sales prices, the median price drops $50,000. And in month 3, 13 of these same homes sell again at the same price, but this time the two least expensive homes don’t sell – the median price increases $50,000. 

Given current market conditions and recent changes that make getting a mortgage a bit more difficult, there are fewer first-time home buyers right now. As a result, there’s been a drop in the number of lower-priced homes selling. There were 33 sales under $300,000 in Arlington in October 2010 and 22 such sales in October 2011. As is the case in our example above, the median price would rise simply because there are fewer low-priced sales on the list. Another example: the median sales price of all homes sold in Northern Virginia was 6% higher in September 2011 than the same month of 2010. Does anyone really believe that home values have risen 6% in the last year?

Anyone who has read MarketWatch over the years knows that we like statistics, and we try to use them to help educate our clients so that they can make sound real estate decisions. But we also try to be very careful about placing the numbers in context, with an effort to explain what they mean and what they don’t mean. And that’s why we don’t focus on average and median prices in our reports – they can be very misleading.

We’re as optimistic as anyone about the long-term prospects for the Northern Virginia real estate market, but the reality is that home values are nowhere near their boom-market peak. Don’t be fooled into thinking a simple arithmetic computation means anything – only a careful analysis of an individual property will give a buyer or seller a good idea of the value of that home.

Absorption Rate by Property Type

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for attached homes priced $500,000-$749,999 in October 2011 was 28.1%, indicating that slightly less than one quarter of the homes on the market for this category of homes went under contract in October. That compares to a rate of 20.9% in October 2010, and the increase means the market was better in 2011 for that type of home. If the absorption rate was less in 2011 than in 2010, we have put the more recent absorption rate in red. This month there was improvement for 10 of 18 price categories.



September 2011 Interest Rates
ABSORPTION RATES
CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for October 2011 was 29.0%, an increase from the 21.9% rate in October 2010.

 




New Contract ActivityABSORPTION RATES
ATTACHED HOMES

  • The overall absorption rate for attached homes in October 2011 was 31.9%, an increase from the 29.5% rate in October 2010.

  • The rate for attached homes priced less than $300,000 is 43.9%.

     



Month's SupplyABSORPTION RATES
DETACHED HOMES

  • October 2011’s absorption rate for detached homes was 19.8%, a decrease from the 21.6% rate in October 2010.

  • And the rate for these homes priced under $300,000 is 57.5%!

October 2011

10/27/11 by David Howell

"I’M NOT GOING TO GIVE MY HOUSE AWAY!"

Slippery When Wet

This is a common refrain from prospective home sellers in today’s market, and we understand that sentiment. No owner wants to get less than their home is worth, and when we’re representing a seller it’s our job to make sure they get full market value. An important part of that task is making sure that the homeowner is equipped with the best information about the market to help them make rational decisions. 

This can be a rough market, and sometimes sellers don’t have any choice but to sell. A job transfer, a tough time making the mortgage payments, a change in family circumstances – any of those factors and more may necessitate a sale in less than ideal market conditions. And even when the sale is by choice, sellers can get pretty ornery when confronted with what it takes to sell. It’s their home, and the prospect of making changes to accommodate an as-yet-to-materialize purchaser is just too much to handle. Along with our headline statement, here’s a sample of things we’ve heard from defensive sellers:

  • I know what the comps are, but I need to get more to buy my next house.
  • I hung that wallpaper myself 15 years ago; I love it and I’m not going to take it down.
  • My daughter loved that deep red color in her bedroom and we’re not going to change it.
  • We lived with it that way for years and it never bothered us.
  • I’m not going to take up that 20-year old carpet.
  • I don’t care that the same model sold for $50,000 less than my house – my house is better.

Here’s the best piece of advice we can offer to sellers: Buyers don’t care about any of that, and are in no mood to reward sellers who are not realistic. That’s a simple fact, and it shows up in the numbers. In September 2011, almost half of the homes in Northern Virginia that went under contract were on the market for 30 days or less. Only 8% of those homes had any reduction in their list price before receiving a contract, and those price reductions averaged just 3.8%. By contrast, of those homes that received contracts after more than 30 days on the market, 61% had to reduce their original list price before receiving a contract, and the average price reduction was 8.9% of original list. And that’s for properties that went under contract – what about those that are still on the market. At the end of September, 70% of the fully available homes had been on the market for more than 30 days, and less than half of those had reduced their price. Buyers will recognize a properly priced home and will make a move – and will happily pass by those homes that aren’t priced right.

So, if you are thinking about selling your home, ask yourself this important question: Am I a tester or a seller? Testers don’t think price and condition really matter because there will be that one buyer who will fall in love with their home and will give them what they need. Sellers adopt the attitude that they aren’t selling their home, they’re selling an asset that needs to be presented to the market in the best way possible and will do everything necessary to make that happen.



September 2011 Interest Rates
FULLY AVAILABLE LISTINGS

  • Inventory increased for three of the six price categories compared to September 2010, with significant drops in the two lowest strata.
  • 41.8 % of all homes on the market have had at least one price reduction since coming on the market, indicating that a lot of homes come on the market at an unrealistic price.

 




New Contract Activity
MONTHS’ SUPPLY

  • The overall supply of homes on the market at the end of September was 3.5 months, up slightly from 3.4 months at the end of September 2010.
  • There’s a 60-day supply of homes priced less than $300,000 – and a 22-month supply of homes priced more than $1.5 million.

 




Month's Supply

RELATIONSHIP OF SALES PRICE TO ORIGINAL LIST PRICE vs. DAYS ON MARKET

  • Homes settling in September 2011 that received contracts their first week on the market sold, on average, for 0.1% below list. Those that took 4 months or longer to sell sold for 13.5% below original list price.
  • Initial pricing really matters, and there is a great opportunity to sell a house quickly if the price is right.

September/October 2011

09/18/11 by David Howell

 

TURN INTO THE SKID AND TAKE YOUR FOOT OFF THE ACCELERATOR

Slippery When WetThat’s wise advice when driving in bad weather. When you hit a rough spot in the road and start to skid, every instinct screams out to hit the brakes and turn the steering wheel hard in the opposite direction. But Driver’s Ed 101 teaches us that gentle corrective action will let you straighten out and start heading the right way – and then equally gentle pressure on the accelerator lets you get moving again. We hope that simple lesson isn’t lost on our nation’s housing policy makers.

One of the major reasons the market is in such a significant skid is that it was driving way too fast and was ignoring some very basic rules of the road. There were times that the traffic not only looked the other way, but urged even more speed. No one in their right mind would suggest that keeping the pedal to the metal – in the form of issuing mortgages to anything that moves – is the remedy. But we’re concerned that there may be too much braking and over correcting. It’s almost certain that the conforming loan limits are going to drop, making loans more expensive for homes priced more than $750,000 – and that’s a very important segment of our market here. And there are other new traffic laws being contemplated – increasing down payment requirements, a significant reduction in Fannie and Freddie’s role, and reducing or eliminating the home mortgage interest deduction. The motivation for the latter seems to have more to do with raising new revenue than addressing the problems in the housing market. The adoption of any one of these policy initiatives could slow the market, and if all were enacted it would amount to jerking the steering wheel and stomping on the brakes of the market.

As concerned as we may be about policy decisions that are ultimately beyond our control, we are also reminded of our company’s history. When John McEnearney opened his doors for business in July 1980, mortgage interest rates were 17% and most loans required 10% or even 20% down.

And people still bought and sold houses. It wasn’t easy and it took a lot of creativity, but people still needed a place to live and were still attracted to the dream of owning their own home. In the intervening 31 years, we have witnessed just about every kind of market condition imaginable, and current conditions could certainly be better. Yet this week, and next week, and the week after, more than 400 sellers and buyers will reach agreement on contract terms to buy and sell a home in Northern Virginia, and more than 1,000 in the metro area. That’s surprising to some in the face of all the negative news, but it is reassuring to us.

This is a resilient market, and folks will find ways to adapt to whatever conditions exist, just like we always have.



September 2011 Interest Rates
MORTGAGE RATES

  • Interest rates have nothing to do with a sluggish market, as rates are lower than any time since the Eisenhower administration.
  • 30-year fixed interest rates at the end of August averaged 4.22%, compared to 4.36% at the end of August 2010.
  • That 4.22% figure represents a new historical low, besting the October 2010 number of 4.23%.

 




New Contract Activity
NEW CONTRACT ACTIVITY

  • There were almost 1,600 homes that went under contract in August, traditionally one of the slowest months of the year.
  • That includes 32 homes priced more than $1.5 million.
  • Almost half of all the homes going under contract in August were on the market for 30 days or less, suggesting that buyers will act quickly when they see well-priced homes.

 




Month's Supply
MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of August was just 2.9 months.
  • In the lower price ranges, there’s surprisingly little inventory of properly priced homes – the ones that are priced right are not staying on the market long.
  • There’s just a 48-day supply of homes priced less than $300,000.

July/August 2011

07/01/11 by David Howell

A DOUBLE-DIP IS GREAT – WHEN IT'S ICE CREAM

But not when it's the real estate market. Six months ago, the national conversation was about when the housing market recovery would start, but there's far more talk now about whether we're headed back downhill. So how likely is a double-dip in the Northern Virginia market?

Let's take a look at six key indicators: Prices, unemployment, inventory, contract activity, mortgage delinquencies, and "velocity."

PRICES:

The Case-Shiller Index says metro DC is the only region in the country where prices are going up – 4.0% in the last year. The Federal Reserve Bank of Richmond says they're down 3% in the same time frame. Who are you to believe? In our view, they're both wrong, even though they have a few more economists on their staffs than we do. Although the statistical average price is up 5.6% in Northern Virginia through the first six months of the year, that is entirely due to a significant shift in what is selling. Last year, entry-level homebuyers flocked to the market in droves and the average price dropped. Homes selling for more than $750K are a much bigger part of the market this year, and that shift accounts for the arithmetic increase in average prices. Based on our boots on the ground experience, prices are stable in most of Northern Virginia.

UNEMPLOYMENT:

The overall rate in Northern Virginia is slightly more than 4%, while the national average is 9.1%. We're adding jobs every month, albeit at a pretty slow pace. The cloud on the horizon is the potential for significant cuts in federal spending, and that would have a negative impact on this region.

INVENTORY:

There are 3.3% fewer homes on the market right now than this time last year, and there has been an 11.4% reduction in new listings through the first six month of 2011. The challenges in the market are not because of too much inventory.

MORTGAGE DELINQUENCIES:

We're fortunate that Northern Virginia had a much smaller percentage of sub-prime mortgage loans than the national average, and the delinquency and foreclosure rates are heading in the right direction. At the end of the 1st quarter of 2010, 6.36% of all mortgages were either 90+ days past due or in foreclosure; 12 months later that stood at 4.96%. So it is unlikely that we're going to see any serious uptick in distressed properties hitting the market.

CONTRACT ACTIVITY:

There's some weakness here. Contract activity is down 11% through the first six months of the year. But we clearly see that there's no sense of urgency among buyers. There's plenty of interest, but it takes a bargain to get a purchaser to put pen to paper, and we don't see anything in the near term that is likely to change that.

VELOCITY:

That's our term for how fast properties are selling, and there is an interesting split in the market. During the last several months, half of homes going under contract have been on the market for 30 days or less. That tells us that buyers will make a move when they see value. But if a property doesn't sell quickly, it is likely to languish on the market, as overall average days on the market have ticked up a bit.

So…based on these indicators, we think a double-dip in the housing market in Northern Virginia is unlikely. But so is any significant recovery or price appreciation. It is simply going to take time to pull out of the protracted slump, and we stand by our view that we won't see "normal" price appreciation until sometime next year.

ABSORPTION RATE BY PROPERTY TYPE

This is another indicator of why we believe we're not headed for a "double-dip" in Northern Virginia. As the tables below indicate, most price ranges in the three property types are better now than this time last year. The following track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for attached homes priced $750,000-$999,999 in June 2011 was 20.0%, indicating that one fifth of the homes on the market for this category of homes went under contract in June. That compares to a rate of 8.4% in June 2010, and the increase means the market was better in 2011 for that type of home. If the absorption rate was less in 2011 than in 2010, we have put the more recent absorption rate in red. This month there was improvement for 10 of 18 price categories.

Condo / Co-Op Northern VirginiaFee Simple Attached Northern VirginiaFee Simple Detached Northern Virginia
Files: May/June

May/June 2011

05/01/11 by David Howell

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03/01/11 by David Howell

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01/01/11 by David Howell

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November/December 2010

11/01/10 by David Howell

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09/01/10 by David Howell

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July/August 2010

07/01/10 by David Howell

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May/June 2010

05/01/10 by David Howell

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01/01/10 by David Howell

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November/December 2009

11/01/09 by David Howell

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September/October 2009

09/01/09 by David Howell

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November 2018

11/27/18 by David Howell

 

Zillow's "Zestimates" Are a Bit Better Than They Used To Be

But They Are Still Inexplicably Bad

We have just completed our fifth and most comprehensive evaluation of the accuracy of Zillow.com’s “Zestimate,” the major calling card for their website. Going back to 2010, Zillow has been able to predict the market value of the homes they evaluate within 5%, high or low, a little over half the time. Evaluating 1,000 properties late this summer, they got that “close” roughly 64% of the time.

Among the reasons for that marginal improvement is that Zillow now has a direct feed from the region’s multiple listing system, giving them more timely and comprehensive information on available and sold listings. Yet Zillow seemingly ignores the most important information of all: the list price of the property, especially when there is a pending contract. 

In the table below, you can see the evolution of Zillow’s estimates – how often they get within 20%, 10% and 5% of the market value – and they have gotten a little better over time. The last two lines show the “outliers,” just how far off the mark Zillow can be. (As an example, in one case in our most recent analysis, the Zestimate was 744% higher than the actual sales price!) The last column is Realtor® pricing, showing how close the original list price of a home was to the actual sales price.

So with just two pieces of information – the original list price and the fact that the property has a pending offer – the consumer can get closer to predicting the sales price than Zillow does. The list price is within 5% of the sales price almost 90% of the time. Zillow’s model is so reliant on their sophisticated algorithms and data scientists that they choose to ignore the power of a seller and their Realtor® evaluating the property and market conditions to decide on an offering price. And if Zillow is this far off the mark when they have list price info, just how far off do you think they are for home that aren’t on the market? 

Why does Zillow produce these estimates of market value? According to their website, “The purpose of the Zestimate is provide data in a user-friendly format to promote transparent real estate markets and allow people to make informed decisions.” We agree with the first part of that statement, but not the second. If the purpose was to help people “make informed decisions,” then Zillow wouldn’t publish such misleading and inaccurate information. The real purpose is to drive traffic to Zillow.com. We get it – that’s the business they are in and they do that exceptionally well. As Realtors®, we live in a world where accuracy and accountability matter, and Zillow doesn’t. We succeed or fail based on our knowledge and service; Zillow succeeds or fails based on their ability to sell leads to agents, and that depends on web traffic. To be clear, we have no problem with Zillow’s business model or the fact that they publish estimates of property values. We simply don’t want people to think they are making “informed decisions” based on these numbers.

 


MARKETWATCH ARCHIVE - LOUDOUN COUNTY

 

 

Summer 2018

08/17/18 by David Howell

 

No One Has All The Buyers.

The Perils of "Off-market" Sales

The Washington metro area has a strong real estate market characterized by remarkably low inventory, so we’re a little puzzled by the frequency of “off market” listings – those listings that are not put in the multiple listing system (MLS). One may hear them referred to as private exclusives or pocket listings, but under either banner these are homes that are not exposed to the broadest possible market.

In a market where buyers are clamoring for choices, why would a seller intentionally choose to do that?

There are some perfectly legitimate reasons – convenience, security, privacy – and sellers should get to make those choices. But as with any marketing strategy, there are winners and losers, pros and cons.

When a property is sold by word of mouth, or can only be shown by the listing agent or agents with their company, or simply not marketed in a way that every buyer has a shot at seeing, the seller may be able to get a quick, no fuss sale. If that’s the seller’s objective, so be it. But a “private exclusive” listing – by definition – excludes people.

When supply is tight, does it really make sense to restrict the demand - the number of people who have an opportunity to buy? Because that’s really what these “off-market” listings do. They limit the pool of purchasers. Sellers run the risk of missing a better offer. If the “off market” listing strategy is so wise, let’s take it to its logical conclusion: if every seller and listing agent decided to restrict the availability of their listing, wouldn’t everyone be hurt? Buyers would have nowhere to turn for ready access to every home on the market, and sellers would not have access to all the buyers.

Sellers might be attracted to an agent’s “pitch” that they or their company have the buyer for their home. But here’s the reality: no agent, no company has all the buyers, or even most of the buyers. We see these “off market” listings a bit more often in the luxury market where some may perceive that there are dominant players. In the first four months of this year, there have been just over 1,600 homes sold in the metro area in the MLS for $1,000,000 or more. There were 1,050 different agents from over 300 different companies who brought the buyers to those homes. But is the luxury market all that different? So far this year in Fairfax County, there have been 1,650 homes sold in the MLS between $500,000 and $700,000. Over 1,100 different agents from 350 companies represented the buyers of those homes. In Prince George’s County, 2,500 homes have sold between $200,000 and $400,000, and there have been over 1,500 different agents from 550 different companies.

Before a seller decides to sell their home “off-market,” perhaps the most important question to ask is this: “How many buyers do I want to miss?”

 

 


NEW CONTRACT ACTIVITY

  • The overall number of new contracts ratified in July 2018 was down 1.0% from the number of contracts ratified in July 2017, and there were decreases for three price categories.
  • Year-to-date, contract activity is up 1.3%.
  • 33.2% of all homes going under contract in July 2018 had at least one price reduction before going under contract.

 

 


MONTHS' SUPPLY

  • The overall supply of homes on the market at the end of July was 2.1 months, down from 2.5 months as at the end of July 2017.
  • Supply decreased for five price categories.

 

 


AVERAGE DAYS ON THE MARKET

  • The average number of days on the market for all homes receiving contracts in July 2018 was 34 days, which is a 20.9% decrease from 43 days in July 2017.

 


 

MARKETWATCH ARCHIVE - LOUDOUN COUNTY

 

 

Winter 2018

03/13/18 by David Howell

 

More of the Same?

2017 ended with a bit of a whimper, as contract activity on our region’s real estate market cooled off along with the weather. But it was an overall solid year, with Washington, DC continuing to outpace its suburban neighbors. What’s ahead for 2018?

We’ll put our forecast into three categories: Steady State, the Wildcard, and the Tantalizing Possibility.

Steady State – With inventory in short supply, especially inside the Beltway, we expect 2018 to look a lot like 2017. There will continue to be considerable upward price pressure close-in, but we do not expect the DC market to maintain the 8%-9% annual appreciation rates of the past three years. We think it will be more like 5%, and probably less in the upper brackets. The suburbs will still be strong, particularly as more frustrated buyers look outside the inner city because of prices and inventory. Even with those factors, we’d be very surprised if the appreciation rate exceeds 3% in those areas. And regarding mortgage interest rates, it is almost inevitable that they will (finally) rise as the overall economy improves, ending 2018 around 4.75%. That rate shouldn’t discourage homebuyers.

The Wildcard – With the ink drying on the sweeping tax reform legislation, residential real estate will be impacted in at least three ways. First, with the cap on deductibility of state and local taxes and the diminished value of the mortgage interest deduction for expensive homes, it is likely that upper end home prices won’t increase as much as they would have had reform not passed. Second, the overall tax decreases for most wage earners will put money in their pockets, particularly for millennials who may be thinking about buying their first home. This should help with student loan debt, saving for a down payment, and/or increased spending – and that’s good for real estate. And third, if the economy grows as it did after the Kennedy- and Reagan-era tax cuts, that means more jobs, more income and a much healthier economic climate. Overall, we think the tax reform legislation in 2018 will be a modest, net positive for the region’s real estate market.

The Tantalizing Possibility – Three communities in our region made the short list of 20 semi-finalists for Amazon’s HQ2, with a promise that their final decision will come in 2018. Should one of those three areas be anointed to host 50,000 new employees, acres of office space, and the traffic that will come along with it over the next several years, the whole region wins. Amazon won’t be turning dirt for their second headquarters anytime soon, but the real estate boom for some city on that list of 20 could begin later this year.


 

MARKETWATCH ARCHIVE - LOUDOUN COUNTY

 

 

November 2017

11/22/17 by David Howell

 

Absorption Rates and Sell-by Dates

Determining the appropriate list price for a home or figuring what to offer is equal parts art and science. The “art” has a lot to do with the motivation and level of risk tolerance of the parties, as well as the degree of emotional attachment to the outcome. The focus of the “science” has typically been on knowing overall market and financing conditions, and picking the most “comparable” properties to see how the subject property stacks up. Unsurprisingly, there’s a lot more to it than that.

Among the factors to consider are absorption rates and what we call “sell-by” dates. Absorption rates simply measure the percentage likelihood a property will sell in a given month. Absorption rates above 35% are reflective of a seller’s market, and rates below 20% create more leverage for buyers. Anything in between indicates a more balanced market. Sell-by dates reflect how much of the inventory sells before list price reductions are needed. Generally, when homes sell quickly they sell closer to list price, and the discount from the original list price is greater the longer they are on the market. Let’s look at some specific examples.

We analyzed the contract activity for detached homes with a list price of $800,000 to $899,999 from July through October for three communities in the metro area: Great Falls, Virginia, Bethesda/Chevy Chase, Maryland and the Spring Valley/American University Park area of Northwest DC. Great Falls had the lowest absorption rate at just under 20%, meaning that of all the inventory of available homes, only 20% on average sold in a given month. The average number of days a home was on the market before getting a contract was 37. Advantage: Buyers. At the other end of the spectrum, almost two thirds of the available inventory sold each month in Spring Valley/AU Park. The average days on the market was a remarkably low 10 days. Advantage: Sellers.  

 

 

The “sell-by” date is the threshold for considering a list price reduction. In Great Falls, homes that sold in 30 days or less sold for an average of 99% of the original list price. Those that sold after 30 days on the market sold for an average of 92% of original list, and almost all had to lower their price before receiving an offer. In Bethesda/Chevy Chase, homes selling in 21 days or less sold for 99% of original list; those that took longer sold for just 94% and all but one had to drop their list price. In the hotter Spring Valley/AU Park market, homes on the market 25 days or less sold for 105.5% of list price, but after 25 days the average dropped to just 94.3%.  Even in this market, 75% of sellers had to drop their list price to receive an offer after their home had been on the market for 25 days.

Despite very different pricing dynamics in these markets, sellers need to understand there is a critical window of opportunity to sell for the highest price. And buyers understand that if they wait for the inventory to “age” a bit, they might be able to drive a harder bargain.

 


FULLY AVAILABLE LISTINGS

  • The available inventory for October 2017 was down 13.7% from October 2016. There were decreases for five price categories.
  • 35.7% of all homes on the market have had at least one price reduction since coming on the market.
  • In October 2016, 36.2% of all homes on the market had at least one price reduction.

 



MONTHS' SUPPLY

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in October 2017 that received contracts their first week on the market sold, on average, 0.22% below list. Those that took more than 120 days to sell sold 13.53% below the original price.

 


 

RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON MARKET​

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in October 2017 that received contracts their first week on the market sold, on average, 2.32% above list. Those that took 4 months or longer to sell sold for 10.13% below the original price.

 

​​

 


 

MARKETWATCH ARCHIVE - LOUDOUN COUNTY

 

 

September - October 2017

09/09/17 by David Howell

 

 

Champagne, Baths – and Real Estate

Bubbles are great to have in champagne, baths, and a host of other things, but they are not good for the real estate market.

A real estate bubble generally is caused by unjustified speculation in the housing market that leads to a rapid and unsustainable increase in prices. When it bursts, prices decline quickly – often to levels lower than when the run up in prices began. The whole country experienced a painful bursting bubble almost a decade ago, and its impact was felt far beyond the real estate market.

There is no doubt that home prices have risen significantly in the metro area during the past several years and affordability, especially for first-time homebuyers, is a real concern. But are we in a bubble? The short answer is no.

From 2002 through 2005, home prices in the Washington, DC metro area skyrocketed. Demand was artificially high, driven by ridiculously low “teaser” interest rate mortgages. Prices were up 14% in 2002, 15% in 2003, 20% in 2004, and 21% in 2005. Since mortgage underwriting guidelines were essentially non-existent, more and more buyers rushed into the market to buy homes they could not afford, with the expectation they could cash in their gains later.

When those artificially low adjustable rate mortgages started to adjust and guidelines tightened, demand plummeted. There was a 40% drop in the number of home sales in 2009, compared to the peak in 2005. At the same time, the market was flooded with new inventory as homeowners rushed to sell homes they could no longer afford. With the enormous drop in demand and the jump in homes on the market, prices dropped almost 15% in 2009. Prices only started to head back up in 2012.

None of those supply and demand conditions exist today.

Let’s take a look at demand. There are three basic ways to increase the desire for housing: an upturn in economic activity, an increase in population, and generally low interest rates. To a large degree, all three of those exist today. The region’s economy is doing pretty well, especially in The District. Further, the region has grown by 1,000,000 residents in the last 14 years. Finally, low mortgage interest rates have created an extremely attractive environment for prospective home purchasers, and yet, demand has not exploded. The number of home sales this year in the metro area will be virtually identical to the number that sold in 2003. There have been significant demographic shifts – people are waiting longer to marry and form households, and student loan debt makes it harder for many to buy their first home. And despite those low interest rates, it is harder to qualify for a loan. In short, demand is reasonable, and it not being fueled by speculation.

On the supply side, inventory of available homes is at a historic low. Just as buyers are waiting longer, homeowners are staying put longer. Nationally, the median number of years sellers have been in their homes has risen from six years in 2000 to 10 years today. New construction isn’t keeping pace with household formation.  

Low inventory has certainly contributed to increasing home prices, but even in the hottest market area in The District, annual appreciation rates have been between 6% and 8% during the last three years. It is far lower in the suburbs. If demand were greater, the lack of inventory would have pushed prices much higher.

Markets seek balance over time, as long as they are not artificially stimulated or restricted. The hottest areas in our region are due for an adjustment because 6%-8% appreciation isn’t sustainable forever. In our more suburban markets, current appreciation rates are in line with historic norms. And we know that eventually, mortgage interest rates will climb, and that will ease some of the upper pressure on home prices. We believe the inevitable market adjustment will come in the form of lower appreciation rates, not a drop in prices.


 

ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/ (# Contracts + # Available).] An example: The absorption rate for detached homes priced between $500,000 and $749,999 in July 2017 was 25.8%. That compares to a rate of 19.8% in July 2016, and the increase means the market was better in 2017 for that type of home. If the absorption rate was less in 2017 than in 2016, we have put the 2017 rate in red. This month there was improvement for 10 of 14 individual price categories with activity, and two remained the same.



ABSORPTION RATES – CONDOS AND CO-OPS

The overall absorption rate for condos and co-ops for July 2017 was 40.0%, up from 36.4% in July 2016.

Safe to say the market for condos priced more than $500,000 is limited to virtually non-existent.



ABSORPTION RATES – ATTACHED HOMES

The overall absorption rate for attached homes for July 2017 was 40.9%, up slightly from June 2016’s 39.7%.


 

ABSORPTION RATES – DETACHED HOMES

July 2017’s absorption rate for detached homes was 22.0%, an increase from the 19.8% rate from July 2016.

And as we have seen in the other property types, the absorption rates are higher for the lower-priced categories.

 

 

May-June 2017

05/17/17 by David Howell

 

MILLENNIALS FEELING THE PINCH

As millennials are entering their prime as homebuyers, they are feeling the pinch between very low inventory for entry-level priced homes and rising interest rates in the metro DC market.

Contrary to much of the conversation these days, the overall inventory of homes is not at a record low. At the end of April 2014, there were almost 5% fewer fully available homes than there are right now. However, a huge shift of the price range of homes on the market has occurred.

In April 2014, 45% of all homes on the market were priced less than $500,000, and homes in this price category constituted 67% of all sales. Today, just 33% of homes are priced less than $500,000, and the percentage of total sales has dropped to 62% of the market.

No question – inventory is down significantly from this time last year, but the decreases have not been evenly distributed. While overall inventory is down 15%, the number of homes priced less than $500,000 is down 26%. But there are 3% more homes available priced more than $1,000,000.  

In the suburban markets, the differences are even starker. In Northern Virginia and Loudoun County, there are 32% fewer homes priced less than $500K than last year, and Montgomery County is down 23%.

It isn’t just the scarcity of inventory facing millennials – or any other first-time buyer – that makes this a challenging market. Mortgage interest rates are about a half point more than they were in November, making homes slightly less affordable. And ironically, those higher rates are contributing to the relative paucity of new listings coming on the market. In our robust sellers’ market, one might expect there would be a significant jump in the number of sellers taking advantage of very favorable market conditions.

However, new listings are up only 2% in the metro area year-to-date compared to the same time last year. Plenty of homeowners who purchased or refinanced in the last few years and locked in sub-4% mortgages are in no hurry to sell their homes. The prospect of giving up those very favorable rates, only to face the prospect of buying a home in a tight market at higher rates, is keeping people in their homes longer.

Another factor preventing many millennials from buying homes is student loan debt, and that’s certainly not unique to the Washington area. In their “Student Loan Debt and Housing Report – 2016,” the National Associations of REALTORS® found that, among those who are current in their debt repayments, 71% of non-homeowners cite student loan debt as the factor delaying them from buying a home. The level of debt impacts both their ability to save for a down payment, as well as their debt-to-income ratios to qualify for a mortgage. The delay in buying a home among non-homeowners and homeowners alike is five years.

So, buyers of entry-level homes are truly feeling the pinch of low inventory and higher interest rates.  Nonetheless, perspective and patience are both virtues.  Mortgage rates are still extraordinarily low from a historical perspective, and markets seek balance over time. Millennials and anyone else can be successful buyers with planning and persistence.

 


FULLY AVAILABLE LISTINGS

  • The available inventory for April 2017 was down 22.7% from April 2016.
  • There were decreases for homes priced less than $1 million, with significant drops for homes priced less than $749,000.
  • 27.7% of all homes on the market have had at least one price reduction since coming on the market.
  • In April 2016, 28.6% of all homes on the market had at least one price reduction.

 

 


CONTRACT ACTIVITY

  • The number of new contracts ratified in April 2017 was down 10.2% from the number of contracts ratified in April 2016. 
  • Two price categories had increases in contract activity, and the lower two had significant decreases.
  • As noted on page 3, contract activity year-to-date is up just 0.4%.
  • 20.0% of all homes going under contract in April 2017 had at least one price reduction before going under contract.

 

 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of April was 1.9 months, down from 2.2 months at the end of April 2016.
  • This is the 24th month in a row with a decrease in months’ supply after twenty consecutive months with increases.

 

 

 

March-April 2017

03/30/17 by David Howell

 

THE IMPACT OF RISING MORTGAGE RATES

It finally happened – after years of speculation and expectation, mortgage interest rates have climbed since the national elections in November.

During the past forty years, the interest rate for 30-year fixed rate mortgages has averaged 8.2%. From the beginning of 2000 through 2012, the average was just under 6.0%. But from early 2013 until mid-November of last year, rates averaged an astoundingly low 3.8%. It’s a funny thing – when rates stay low for an extended period of time, people get used to them, and also tend to forget that they couldn’t stay that way forever.

 

 

In the weeks after the election, rates moved from 3.5% to 4.3%, and have since floated between 4.0% and 4.2%. To be sure, mortgage interest rates are still very low, but potential homeowners have lost about 6% of their purchasing power in just a few weeks. The monthly principal and interest payment on a $400,000 mortgage in early November was roughly $1,800. A borrower getting that same mortgage today would pay $1,925.

So a big jump in a short time is a market killer, right? In fact, at least on the short term, exactly the opposite is happening. Many buyers who have been sitting on the fence have decided to purchase before rates go much higher. During the past three months, contract activity is up 12% compared to the same time period a year earlier. This uptick in activity may seem counterintuitive, but it is what we have always seen when rates rise.

From May to August 2013 rates jumped a full percentage point from 3.5% to 4.5% – but contract activity rose 13% from the same time in 2012 when rates averaged 3.6%. It is also likely that, given the recent action by the Federal Reserve Chair raising its target rate, mortgage rates will continue to trend higher through the rest of 2017.

We’re not suggesting that rising rates are good for the real estate market, and there is no doubt that higher rates will price some out of the market and prompt others to lower their price point. Yet rising rates are not a huge negative either, at least in the short term. It is important to view these increases in a broader context. The fundamental reason that rates are climbing is that the national economy is improving. And that means household income is rising, the job market is improving and more people will be in a position to buy.

We’d like to offer one more bit of historical perspective. When John McEnearney opened the doors to our company in July 1980, mortgage rates stood at 12.0%. One year later they were 17.0%. That’s right: 17.0%. And people still bought houses. To be sure, it was a lot tougher, but owning a home was just as important then as it is now.

 


FULLY AVAILABLE LISTINGS

  • The available inventory for February 2017 was down 22.9% from February 2016. There were decreases for the three lowest price categories.

  • 26.0% of all homes on the market have had at least one price reduction since coming on the market.

  • In February 2016, 25.7% of all homes on the market had at least one price reduction.

 

 


CONTRACT ACTIVITY

  • The number of new contracts ratified in February 2017 was up 4.4% from the number of contracts ratified in February 2016.

  • Three price categories had increases in contract activity, and two remained the same.

  • Contract activity year-to-date is up 5.1%.

  • 20.6% of all homes going under contract in February 2017 had at least one price reduction before going under contract.

 

 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of February was 2.0 months, down from 2.7 months at the end of February 2016.

  • This is the 22nd month in a row with a decrease in months’ supply after twenty consecutive months with increases.

 

 

 

November - December 2016

12/04/16 by David Howell

 

IS THERE AN INVENTORY PROBLEM?

With the number of fully available homes on the market near record lows for this time of year and with fewer new listings coming on the market, is there any relief in sight for buyers who are frustrated by their lack of choices? And why aren’t more sellers taking advantage of this low inventory by putting their homes on the market?

We don’t see any relief on the horizon. There are really only three ways to create a net increase in inventory. The first is new construction, and while construction permits have increased, there is an estimated shortfall of 50,000 units over the next 5 years just to meet new household formation. The second way inventory increases involves investors selling units that they have been holding as rental properties. With rents rising faster than home prices, there is no market pressure for that to happen. And the third way is homeowners leaving the area and selling their residences. While there is always emigration from the metro area, we are still attracting more people than we are losing.

We’re not minimizing the impact of current homeowners who sell and buy another home in the area, but that doesn’t create a net increase in inventory. On top of that, the current low inventory climate actually discourages some from moving. While they may be confident they can sell their current home, they lack confidence they can find their next one with relatively few homes on the market.

 

 

There is another undeniable fact that is keeping a lid on movement by existing homeowners: people are staying in their homes longer than they used to. In their 2016 Profile of Home Buyers and Sellers, the National Association of REALTORS® reported that the median number of years a seller remained in their home was 10 years. From 1987 – 2008 it was just six years. That is a seismic shift. A large part of that jump is the simple fact that many could not move even if they wanted to during and after the crash of the real estate market that started in 2006. But even as equity has returned to the overwhelming majority of the nation’s homeowners, they just aren’t in a big hurry to sell.

Economist Elliot Eisenberg summed up the impact of this demographic trend in a recent post: “The percentage of Americans that moved fell to an all-time low of 11.2% in 2016 from a peak of 42% in the early 1950s. Numerically, moving activity topped out in 1984 at 45 million and has steadily fallen to 35 million today, the same level as in 1962.” The population of the United States was 186,000,000 in 1962; today it is over 324,000,000.
When people don’t move as often, inventory is going to suffer.

The Washington area is certainly more transient than the nation as a whole, but we’ve seen our “seller tenure” change as well. In 2000, the median number of years a seller was in their home was 6.5 years. So far in 2016, it’s 8.5 years. We know this period of tight inventory won’t last forever, but there are some fundamental reasons it won’t change any time soon.

 

MARKETWATCH ARCHIVE - LOUDOUN COUNTY

 


FULLY AVAILABLE LISTINGS

  • The available inventory for October 2016 was down 24.5% from October 2015.

  • There were decreases for four price categories.

  • 36.2% of all homes on the market have had at least one price reduction since coming on the market.

  • In October 2015, 40.2% of all homes on the market had at least one price reduction.

 

 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of October was 2.9 months, down from 4.2 months at the end of October 2015.

  • This is the eighteenth month in a row with a decrease in months’ supply after twenty consecutive months with increases.

     

 


RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON THE MARKET

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.

  • Homes settling in October 2016 that received contracts their first week on the market sold, on average, just 0.2% below list. Those that took more than 120 days to sell sold 7.2% below the original price.

 

 

September - October 2016

09/02/16 by David Howell

 

DO ELECTIONS REALLY IMPACT OUR REAL ESTATE MARKET?

32,000 jobs. Theoretically, that is how many are up for grabs in this town in our quadrennial election cycle, and that much potential turnover has to have an impact on the real estate market, doesn’t it?

Let’s take a look at the Executive Branch. Regardless of the outcome, there will be a change in the occupant of the White House, and there are roughly 3,000 presidentially appointed jobs. Let’s assume the every one of those jobs changes and a considerable number of lower level staff positions change along with them. That could be as many as 8,000 jobs. The reality of Washington’s political job market is that many who will fill those jobs already live here. People cycle in and out of public sector jobs with considerable frequency. But let’s be generous and estimate that half of those 8,000 jobs will be filled by people who relocate to the metro area. Let’s also assume that half of those will buy homes sometime in their first year here. Although our experience tells us that is a dramatic overestimate, that would be 2,000 home sales.

There are 24,000 jobs on Capitol Hill, but close to 9,000 are considered “non-partisan” and generally do not change with election cycles. So, the “political” staff on The Hill numbers about 15,000. But even with 435 House and 33 or 34 Senate seats on the line each election cycle, there is usually not an enormous amount of turnover. In 2014, 95% of the members of the House running for re-election won. 41 members retired - and their party kept the seat in each and every case. There was a significant change in the Senate, however, with a net change of 9 seats. 2010 saw the biggest party change in recent memory with a 15% change in the House and a 16% change in the Senate. So, if we take an extreme example and assume we have another major “change” election like 2010 with a 15% turnover in Congress and also assume that there was a 100% turnover in the staff of those newly-elected members, that would translate to 2,250 jobs changing hands. Most staff jobs on Capitol Hill pay less than $50,000 per year, and many newly elected officials look for rental housing or even live out of their offices. As is true with the Executive Branch positions, some of the people who will fill the new Congressional staff positions already live in the Washington area. But we’ll apply the same logic ñ let’s assume that half of the new hires come from out of town and half of those buy a home sometime in their first year in town. That would be about 560 home sales.

 

 

 

How much impact would 2,500 additional home sales have on our market? There were slightly more than 50,000 home sales in the immediate DC metro area last year, so that would be a 5% increase. But as the table shows, there is no historical correlation between home sales and election results. On the heels of the major changes in the makeup of Congress in 2010, the number of sales in the immediate DC area fell almost 5% the following year. The election of 2008 brought a change in the White House and a change of 29 seats in Congress. There was an increase of almost 20% in the number of sales in 2009 compared to 2008 - so on the surface one might be tempted to say these elections had a major impact on the region’s real estate market. However, in February of 2009 Congress passed and the new President signed into law the first round of the Homebuyer’s Tax Credit, and the number of sales jumped nationally, too. 

As we have discussed many times, there are other significant factors at play in the real estate market. Individuals do not make a decision to purchase a home in a vacuum. Just moving to the area to take a new job - even a new job on the Hill or in the Executive Branch - does not cause an individual to ignore overall market conditions or their personal circumstances. Also remember, that while there may be new occupants of these jobs, these are not “new” jobs like those we see created when a company moves to the area. National elections may make a big difference when it comes to policy, but not to the local real estate market.

 

MarketWatch Archive for Loudoun County

 


MORTGAGE RATES

  • 30-year fixed interest rates at the end of July averaged 3.48%, compared to 3.98% at the end of July 2015.

  • One-year adjustable rate mortgages were 2.78% at the end of July 2016, which is up from 2.52% at the end of July 2015.

 


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $223,250 at the end of July, which is $13,282 more than July 2015 and $57,880 more than July 2004.

  • Just after the market’s peak in July 2006, it would have taken a monthly PI payment of $3,068 to purchase a median-priced home. Today’s lower rates have had a dramatic impact - now it takes a payment of $2,292 to buy a median-priced home. That’s a 25.3% decrease.

 


RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON THE MARKET
  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.

  • Homes settling in July 2016 that received contracts their first week on the market sold, on average, 0.39% below list. Those that took more than 120 days to sell sold 7.76% below the original price.

 

July - August 2016

07/26/16 by David Howell

 

A TALE OF THREE CITIES

 

With apologies to Charles Dickens, these are neither the best of times nor the worst of times for the Washington, DC metropolitan area real estate market. We’d like to take a little poetic license and discuss pricing trends in our area with “A Tale of Three Cities.”

How much have home values changed during the past year? That’s probably the question we’re most often asked. Here’s a direct answer: the average sales price in the metro DC area is up 1.2% from this time a year ago. And how does that relate to the value of your home? It doesn’t. Market conditions vary from area to area, and we think the recent market activity in three “cities” illustrates this perfectly.

Chevy Chase is a close-in community that straddles both Maryland and Washington, DC. Great Falls, Virginia is a suburban oasis between McLean and bustling Loudoun County. Potomac, Maryland is home to large estates just 15 miles from downtown DC. All three communities have average sales prices just above $1,000,000, and during the past decade all have had roughly comparable market metrics, with one exception. Those key indicators are: average days on market, the ratio of sales price to list price, the percentage of homes selling above list price, and the percentage of homes selling in a week or less. Taken together, think of these as pricing dynamics. The exception, by the way, is that Chevy Chase has always had shorter average days on the market than Potomac and Great Falls.

So far this year, the pricing dynamics in these three cities has shifted significantly, as the chart below indicates.

 

 

There has been a clear change in consumer demand, as more than one-third of the buyers in Chevy Chase have been willing to pay above list price and almost half of the homes have gone under contract in a week or less. It’s no wonder that there is upward pressure on prices. We’re seeing the opposite effect in Great Falls and Potomac. Roughly one in 20 homes sells above list price and one in four sells in the first week on the market. The pricing dynamics in these communities have changed in ways that mirror what we’re seeing elsewhere in the market. Demand has shifted more toward walkable communities convenient to employment centers and public transit.

We’d also like to make a note about “average” prices. The table above indicates that the average sales price in Chevy Chase is up 13.3% over the last year, and that’s absolutely true. Keep in mind that this is an arithmetic computation that gives a general, very positive indication of the direction of the market, not the market value of an individual home.

 

MarketWatch Archive for Loudoun County


ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/ (# Contracts + # Available).] An example: The absorption rate for detached homes priced between $500,000 and $749,999 in June 2016 was 22.1%. That compares to a rate of 18.2% in June 2015, and the increase means the market was better in 2016 for that type of home. If the absorption rate was less in 2016 than in 2015, we have put the 2016 rate in red. This month there was improvement for 8 of 14 individual price categories with activity, and one remained the same.

 


ABSORPTION RATES – CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for June 2016 was 29.8%, up from 26.5% in June 2015.
  • Safe to say the market for condos priced more than $500,000 is virtually non-existent.

 


ABSORPTION RATES – ATTACHED HOMES

  • The overall absorption rate for attached homes for June 2016 was 42.5%, up significantly from June 2015’s 32.0%.

 


ABSORPTION RATES – DETACHED HOMES
  • June 2016’s absorption rate for detached homes was 19.3%, a slight increase from the 18.2% rate from June 2015.
  • And as we have seen in the other property types, the absorption rates are higher for the lower-priced categories.

 

March - April 2016

04/04/16 by David Howell

 

 

Time Kills

We know from experience that most of the time, homes that sell quickly sell much closer to their original list price than those that take longer to sell. Why is that? It’s because time kills.

With the nature of the Internet, buyers know the moment a property comes on the market. In the old days, if a potential buyer was interested, they might arrange a showing to go see the property. Today, that showing is online and immediate. Based on its price, condition, and location, a home either communicates value to that consumer – or if it doesn’t, they move on and look elsewhere. Bringing them back to that property means changing the value equation – which usually means changing the price.

Think of it this way: When a home first comes on the market, everyone who is looking for that type of home in that price range and location sees it right away. If it doesn’t sell, those potential buyers have moved on and, as time goes by, only buyers new to the market are discovering the home. There are always new buyers coming into the market – but by definition, it is a smaller group than all the buyers that were looking when the house first came on the market.

The charts to the right show the web traffic for two of our listings that recently went under contract. To make sure the comparison is fair, these are homes that are in the same neighborhood, listed by the same agent and at very similar list prices.

The first property was listed in September of last year. Web traffic – online showings – spiked quickly in the first week and then began a steady decline. A price reduction in late October increased web traffic, but not to the levels seen when the house was first on the market. An early December price reduction had almost no impact on traffic, and it wasn’t until a substantial price drop in early January that traffic spiked again – and the property finally went under contract three weeks later. Total time on the market was more than 150 days, and the total price reduction was 14% before someone felt compelled to make an offer. And that offer was 3% lower than that new list price.

The second chart shows the benefits of coming on the market at the correct initial price. Just like the first example, traffic spiked and then started to taper off. The difference is that buyers perceived value at the initial list price, and in a week, a contract was successfully negotiated. The sellers came on at a compelling price, rode the online traffic wave and got their home sold at almost full list price.

We’re not suggesting that it works this way every time because there are always exceptions. But time after time, listing after listing, we see the consequences of pricing strategy – both good and bad. And far more often than not, for sellers, the wrong price means a longer time on the market, and time kills.

 

MarketWatch Archive for Loudoun County


  • As we have noted above – time kills, and initial pricing strategy is critical to seller’s success.
  • Homes settling in February 2016 that received contracts their first week on the market sold, on average, 0.31% below list. Those that took more than 120 days to sell sold 8.22% below the original price.

  • The average number of days on the market for all homes receiving contracts in February 2015 was 73 days, which is a 2.7% decrease from 75 days in February 2015.
  • Average days on the market in Loudoun were higher than Northern Virginia at 67, but lower than Montgomery County at 78 days. The District had the shortest at 46 days.

  • The overall supply of homes on the market at the end of February was 2.7 months, down from 3.4 months at the end of February 2015.
  • This is the tenth month in a row with a decrease in months’ supply after twenty consecutive months with increases.
  • At 2.7 months, Loudoun has the lowest supply it has seen since April 2014.

January - February 2016

02/04/16 by David Howell

WHAT’S AHEAD FOR 2016?

2015 was better than 2014 across the entire metro DC area for the two most important metrics – total settlements and new contract activity – but most other indicators were a little worse. With the exception of Washington, DC itself, homes took a little longer to sell, price appreciation was moderate at best and overall supply rose as more new listings came on the market. 

What’s ahead for 2016? We think the market is headed toward something we haven’t seen in almost 15 years: normalcy. During the past decade and a half we’ve seen some wild swings in real estate, from the pause after the horrors of September 11, to the rapid run up in home prices 10 years ago with teaser rate mortgages and people buying homes who could not possible afford them, to the crash that followed.

“Normal” means a supply of three to four months of inventory along with modest and sustainable price appreciation in the range of 1%-3%. Of course, there will continue to be regional differences, with walkable communities and those areas close to major employment centers and Metro faring better than others. And that means that DC will still outperform its suburban neighbors in 2016.

There are three fundamental reasons we think 2016 is going to look a lot like 2015:

The first is the economy, regionally and nationally. The overall news isn’t bad, but it isn’t great either. Sure, the employment numbers are very encouraging – but real incomes haven’t risen. Lower oil prices have put more money in people’s pockets, but oil producers are going to take a big hit – and so are their employees. That won’t be good for the overall economy. We just don’t see anything on the horizon that tells us things are going to be a lot better.

The second is interest rates. Today, mortgage interest rates are still under 4% and we haven’t seen anyone project rates by year-end any higher than 4.9%. There’s no doubt that rising rates will make home slightly less affordable, but the bigger hurdles for buying a home for most people are the down payment and debt-to-income ratios, not the payment. We’re not suggesting that rising rates are good for the housing market – we just don’t see a major negative impact in 2016.

The third reason: Urgency. A couple of years ago, we created a rudimentary indicator of the health of the market called the “Urgency Index.” This is simply the percentage of homes going under contract in any given month that were on the market for 30 days or less. The higher the percentage, the greater “urgency” buyers felt to act. DC has consistently had the highest Urgency Index in the region during the past several years. For all of 2015, the suburbs had a UI of about 50% while DC’s was 67%. Over the last several months, the suburban markets have seen their UI drop a bit while DC’s has held steady. But in both cases, buyers aren’t in a huge hurry to snap up homes the moment they come on the market.

In short, we think 2016 will be a good – not great - year with a return to normalcy.

One more thought: This is an election year, and every election cycle we hear the speculation that the outcome will have a major impact on the local real estate market. It won’t – regardless of the results. As we get a little closer to November, we’ll talk about why. Just don’t change your plans to sell or buy because there’s an election on the horizon – make the move when it makes the most sense for your personal circumstances.

MarketWatch Archive for Loudoun County


New Contract Activity

  • The number of new contracts ratified in December 2015 was up 2.5% from the number of contracts ratified in December 2014. 
  • Three price categories had a decrease in contract activity and one remained the same.
  • Contract activity for all of 2015 was up 12.4%, the best in the Metro Area.
    43.3% of all homes going under contract in December 2015 had at least one price reduction before going under contract.

Buying Power

  • A $1,000 principal and interest payment supported a loan of $209,209 at the end of December, which is $3,579 less than December 2014 and $24,738 more than December 2008.
  • We expect the interest rates on a 30-year fixed mortgage will increase to no more than 4.9% by the end of 2016 – and we won’t be at all surprised if they top out at 4.5% this year.

Urgency Index

  • During the past 12 years, the December Urgency Index has been as high as 79.4% and as low as 23.8%.
  • Look how much buyer expectations changed from December 2005 to 2006.
  • The number of ratified contracts fell by 26.5%, and the Urgency Index fell by 56.4%, indicative of some real buyer pessimism.
  • The average December Urgency Index during the past 12 years is 44.6% - higher than where we are today.

November - December 2015

12/04/15 by David Howell

GETTING IT RIGHT THE FIRST TIME

Market Watch with David Howell from McEnearney Web Team on Vimeo.

It is critically important to price a home correctly when it first comes on the market. The reason is simple: The greatest numbers of buyers are going to see the house during the first two or three weeks.

Sellers who price their home correctly are likely to be rewarded. Those who overreach, who think they can “just wait for the right buyer to come along,” are likely to be disappointed. That usually means sitting on the market and taking a big hit financially.

We took a look at all resale homes that went to settlement in Loudoun County as well as the Metro DC area in October and November 2015 and broke them down into just two categories: Those that had to reduce their initial list price before receiving a ratified contract (homes with the “wrong” price); and those that came on the market at the “right” price and never had to drop their list price.

The consequences of pricing strategy were starkly different, as the tables below show. Homes that had to reduce their price before attracting a buyer in both areas were on the market an average of three times longer – an average of 114 days in Loudoun County and 98 days in metro DC, compared to correctly priced homes that sold in just 34 days in Loudoun County and 30 days in metro DC. Sellers of homes with the right initial price were less likely to pay any subsidy in the metro area as a whole, but slightly more likely in Loudoun.

But the biggest impact of pricing strategy is on the final sales price. Homes that sold without having to reduce their price sold for an average of 97.5% of the list price in Loudoun County and 98.4% in the metro area.  Those that came on the market too high had to reduce their price by roughly 6% before a buyer was willing to make an offer. And when that offer came in, those sellers had to negotiate a further reduction, ultimately settling at an average of 10% below their original price.

So let’s sum it up. Homes that hit the market at a price that attracts buyers are on the market an average of just one month and sell very close to list price.  The wrong price means much longer time on the market and a very deep discount off the original price.

Buyers will move forward on homes that are priced correctly, and they will take a pass on those that aren’t. Getting the price right from the beginning is the most important thing a seller can do. It really is that simple.


MarketWatch Archive for Loudoun County


NEW CONTRACT ACTIVITY

  • The number of new contracts ratified in October 2015 was up 7.3% from the number of contracts ratified in October 2014.
  • Only one of six price categories had a decrease in contract activity.
  • Contract activity year-to-date is up 13.1%, the best in the Metro Area.
  • 50.1% of all homes going under contract in October 2015 had at least one price reduction before going under contract.

Fully Available Listings

  • The available inventory for October 2015 was down 8.3% from October 2014, but there were increases for two of the six price categories.
  • 40.2% of all homes on the market have had at least one price reduction since coming on the market.
  • In October 2014, 44.6% of all homes on the market had at least one price reduction.

RELATIONSHIP OF SALES  PRICE TO ORIGINAL PRICE vs. DAYS ON MARKET

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in October 2015 that received contracts their first week on the market sold, on average, 0.35 below list. Those that took more than 120 days to sell sold 12.17% below the original price.

September-October 2015

10/07/15 by David Howell

A SOLID – BUT UNEVEN - RECOVERY

Market Watch with David Howell from McEnearney Web Team on Vimeo.

2015 has been a recovery year for the real estate market in metropolitan Washington, DC, with every jurisdiction seeing an increase in contract activity compared to last year. Some areas are faring better than others, and we have taken a deeper look at how different today’s market is than the real estate boom a decade ago.

The significant market expansion that occurred from the early 2000s through 2005 or 2006 started out on a very firm foundation of an expanding national economy with demand being driven by rising incomes and significant household formation. This may be a bit of an over simplification, but we all know the story of how that expansion was artificially extended by risky mortgage programs that brought millions of purchasers to the market who ultimately couldn’t afford to make payments when their interest rates rose and prices started to fall. A bust followed that boom, and it has taken the better part of 8 years to climb out of the deep trench.

We’re fortunate that today’s recovery isn’t like the boom – it has been slower, mirroring the slow pace of the national economy returning to health. And there are no “funny money” mortgages this time around to artificially create demand. In general, people are buying or selling because they need to. Another big difference is where people are buying.

A decade ago, the Northern Virginia suburbs were on fire, in no small part due to the boom in defense spending. The entire region benefited from that, but Northern Virginia especially so. Among the four jurisdictions we track most closely – Northern Virginia, Loudoun and Montgomery Counties and Washington, DC – almost 50% of home purchases in 2004 occurred in Northern Virginia. Montgomery County got about a quarter of all home sales, Loudoun was at 14% and DC was at 13%. So far this year, Northern Virginia’s share has dropped to 44% while DC’s has risen to 17%. At a quick glance, that may not seem like a lot, but that’s a 32% increase in the size of DC’s piece of the pie.

We compared contract activity for the first eight months of 2015 to the first eight months of the peak year of the last boom for each of four key areas. So far this year, The District is just 4.2% below the contract activity of its top year, 2005. The suburbs are still well off the peaks they experienced in 2004, with Montgomery County contract activity off 24.1%, Loudoun County off 27.0% and Northern Virginia off 31.5%. It’s remarkable to know that The District is seeing almost as many homes go under contract as it did at the absolute top of the market a decade ago while the suburbs are not yet seeing a commensurate number of transactions.

There isn’t any one reason for Washington, DC’s remarkable performance, but there is no doubt that suburban traffic congestion plays a role, as more people are willing to sacrifice the space of larger suburban homes for the convenience of being closer to work.

 


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $213,567 at the end of August, which is $6,613 more than August 2014 and $53,499 more than August 2008.
  • In August 2008, it would have taken a monthly PI payment of $2,155 to purchase a median-priced home in Loudoun County. With today’s lower rates, it takes a payment of $2,013 - that’s a 6.6% drop.

AVERAGE NUMBER OF DAYS ON THE MARKET – NEW CONTRACTS

  • The average number of days on the market for all homes receiving contracts in August 2015 was 65 days, which is a 14.0% increase from 57 days in August 2014.
  • Average days on the market in the metro area for August ranged from a low of 43 for DC to a high of 65 for Loudoun County.

RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON MARKET

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in August 2015 that received contracts their first week on the market sold, on average, 0.25% below list. Those that took more than 120 days to sell sold 10.8% below the original price.
     
     

July-August 2015

07/29/15 by David Howell

DON’T MISS YOUR PERFECT HOME

Market Watch with David Howell from McEnearney Web Team on Vimeo.

More than 90% of people start the process of looking for their next home by going online, and if one searches the term “Washington DC homes,” there are more than 134,000,000 results. How can you be sure not to miss the perfect house buried in all that info?

If you are like most Americans, you’ll skip to one or more of the big, national portals – Zillow, Trulia and/or Realtor.com. Each has assembled an enormous amount of information in a consumer-friendly interface. While we encourage you to look at these sites, we also want you to understand they simply do not have complete and accurate listing content.

We recently took a snapshot of listings in our local multiple listing system (MLS) in zip codes where we have offices. The results showed 910 listings for sale, active or pending. In Zillow, there were only 703. In Trulia, there were 706. And Realtor.com showed too many listings with 940. This is due to the enormous amount of data feeds these portals are receiving from local brokerages (like us) and MLS systems across the country. It’s a challenge for them to assimilate all the data on a timely basis. And for Zillow and Trulia, lots of sellers opt-out of having their home displayed due to the inaccuracy of the computer-generated estimate of their home’s value. We just completed our annual research project for the accuracy of Zillow’s “zestimates” and looked at the portal’s estimated value of over 450 properties across all price ranges in the Metro DC Area, before they were scheduled to settle. We then compared those estimates to the actual sales price – and, as found in our prior studies, they continue to be inaccurate. Zillow’s estimates were only within 5% high or low of the actual sales price less than half of the time. And one in 10 properties showed wildly inaccurate estimates at more than 20% high or low of actual sales price. These computer-generated estimates simply cannot take into account the condition of a specific home nor local market conditions that can and do change daily; and it is no wonder that some sellers may wish to not have their home appear side-by-side with an estimated value that is so frequently inaccurate.

What does all that mean for you, especially if you’re looking for a home? Reliance on only the national portals means you will miss listings that are on the market, and you will find listings for sale that have already sold. At best, that leads to frustration – at worst, it means missing the home that was perfect for your needs. So what should you do? By all means, look at those national portals, but remember to rely on your local brokerage for accurate information. Remember those 910 listings that were in our local MLS? On McEnearney.com, there were 911. We update our listing content every 15 minutes.


90% of people start their search online – and 85% use a REALTOR® to help them buy their home. Partnering with a great agent can give you the confidence that you will find your perfect home. Knowing what to offer, negotiating the right price, and attending to all of the details between contract and closing simply cannot be done by a national search portal. It can be done only by a great agent who knows the local real estate market and understands your interests and needs.

 

ABSORPTION RATE BY PROPERTY TYPE - LOUDOUN COUNTY

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/ (# Contracts + # Available).] An example: The absorption rate for detached homes priced between $500,000 and $749,999 in June 2015 was 18.2%. That compares to a rate of 16.3% in June 2014, and the increase means the market was better in 2015 for that type of home. If the absorption rate was less in 2015 than in 2014, we have put the more recent absorption rate in red. This month there was improvement for 8 of 14 individual price categories with activity, and one remained the same.


ABSORPTION RATES – CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for June 2015 was 26.5%, up from 24.7% in June 2014.
  • It's safe to say the market for condos priced more than $500,000 is virtually non-existent.

ABSORPTION RATES – ATTACHED HOMES

  • The overall absorption rate for attached homes for June 2015 was 32.0%, up from June 2014’s 27.8%.

ABSORPTION RATES – DETACHED HOMES

  • June 2015’s absorption rate for detached homes was 18.2%, an increase from the 15.4% rate from June 2014.
  • And as we have seen in the other property types, the absorption rates are higher for the lower-priced categories.

May-June 2015

06/04/15 by David Howell

IN A SELLER’S MARKET, EVERYTHING SELLS - RIGHT?

Market Watch with David Howell from McEnearney Web Team on Vimeo.

We’ve had a very healthy spring market in the Washington, DC area. Of course, some areas are faring better than others and pockets in DC and some of the close-in suburbs are seeing multiple offers and homes selling for more than list price. By almost every measure, this is a seller’s market. And in a seller’s market, everything sells – right?

Well, not exactly. Despite a strong spring market, there are still plenty of properties that have not sold. And there are three market indicators that can help explain why the wanna-be sellers are not getting their homes sold.

The first is the fall-through rate – those are the homes that go under contract that, ultimately, do not go to settlement. As hard as this may be to believe, 1 in every 8 homes that have received ratified contracts this year have fallen through and did not make it to settlement. This may be due to home inspection issues or purchaser financing – but whatever the cause, 13% of sellers who initially think they have their home sold find that’s not the case.

The second is homes that linger on the market. Right now, there are more than 3,000 homes on the market in the immediate Metro area that have been on the market for 90 days or longer. And it’s not just homes at the upper end of the market. More than 500 of those homes are priced less than $300,000.

And the third is homes that are removed from the Multiple Listing Service (MLS) without selling. In April, there were almost 1,000 homes that were on the market for at least 90 days that had expired as unsold or were withdrawn. Some of those may be re-listed, but to put it in perspective, there were just over 4,000 homes that went to settlement in April and 1,000 that were taken off the market.

Does this mean that the market is shifting or turning softer? No. And we continue to see positive indicators across all jurisdictions.  But it does mean that proper marketing matters. Negotiating skills matter. And above all, price matters.

The price at which a home comes on the market is critically important. That requires careful research by a knowledgeable REALTOR® and a seller who is willing to avoid the trap of believing that everything sells. It requires listening to what the market is saying and making a price adjustment sooner rather than later, if an offer doesn’t materialize.

The significant numbers of homes that have been on the market for a long time, and those that have been removed from the market, certainly stand in stark contrast to the homes that are priced right and sell quickly.

It’s still a very good market – for homes that are priced right.

While “private exclusives” exist in all price ranges, they seem to be more prevalent for upper bracket properties. There were 369 homes that sold in the District of Columbia for $1,000,000 or more in the last six months in the MLS. There were 58 different real estate firms, and even more remarkably, 258 different agents representing those buyers.

Additionally, as the table indicates, this broad diversity of firms and agents selling upper bracket homes isn’t any different in Maryland or Virginia. What’s important to note is that most of these buyers never knew about other homes for sale on the market that were tagged “private exclusive” with “quiet” or minimal marketing. Those sellers simply missed out on those buyers – and those buyers missed out on those homes.

Sellers should also consider that privately listing their home could be seen as an intention to screen interested buyers in ways that could appear to be discriminatory. Care has to be taken that no one is excluded from a “private exclusive.”

Think twice if you are a homeowner contemplating a “private exclusive” sale. Ask yourself whether going that route is best for you and whether you would get the best price for your home.

 


New Contract Activity

  • The number of new contracts ratified in April 2015 was up 12.7% from the number of contracts ratified in April 2014. 
  • Contract activity year-to-date is up 13.0%, the best in the Metro Area.
  • 31.1% of all homes going under contract in April 2015 had at least one price reduction before going under contract.
 

FULLY AVAILABLE LISTINGS

  • The available inventory for April 2015 was up 31.2% from April 2014.
    There was an increase for all but the highest price category.
  • 32.6% of all homes on the market have had at least one price reduction since coming on the market.
  • In April 2014, 24.8% of all homes on the market had at least one price reduction.
 

List Price to Sales Price

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in April 2015 that received contracts their first week on the market sold, on average, 0.32% below list. Those that took more than 120 days to sell sold 6.11% below the original price.
 
 

March-April 2015

04/02/15 by David Howell

ARE PRIVATE EXCLUSIVES A GOOD IDEA?

Market Watch with David Howell from McEnearney Web Team on Vimeo.

You may have heard the term “private exclusive” listing – it refers to a property that is not broadly marketed to the public, but instead, offered by word of mouth or other very limited marketing.

A seller may find this to be an attractive option for a variety of reasons, such as they think they won’t have to put up with the hassle of showing their home to a lot of people, an agent has said they have buyers in that area and price range, or they like the idea that they can enjoy privacy while their home is “quietly” marketed. However, a big disadvantage is the lack of exposure to the full market.

After all, doesn’t it make sense that any commodity is more likely to sell, and at a better price, the more people know about it? The first step for broad exposure is getting a home into the Multiple Listing Service (MLS). That is not because REALTORS® control it or want to limit access to the information – it is precisely the opposite. There are 40,000 agents in the DC Metro Area with buyer clients and the MLS is the on-ramp for the Internet to thousands of broker and agent websites and national and regional real estate search portals. More than 90% of today’s buyers across all price ranges start their home search on the net, so why wouldn’t a seller want to be there?

Decades ago, REALTORS® created the MLS for the express purpose of sharing information. It has created a broad marketplace for the sale and leasing of homes, and most remarkably, established the rules of the road for real estate firms to cooperate with each other while still fiercely competing with each other in the marketplace. The MLS accommodates every business model, from full service to limited service to discounters to tech startups. Most importantly, buyers and sellers alike have benefited from a marketplace that fosters the wide dissemination of information and the market-based transactions that flow from that.

Can there be situations where a seller could logically choose to go the “private exclusive” route? Of course, but those situations are few and far between. Every seller should know that no real estate firm and no agent have all the buyers, or even the majority of buyers. Anyone who says otherwise simply isn’t being truthful.

While “private exclusives” exist in all price ranges, they seem to be more prevalent for upper bracket properties. There were 369 homes that sold in the District of Columbia for $1,000,000 or more in the last six months in the MLS. There were 58 different real estate firms, and even more remarkably, 258 different agents representing those buyers.

Additionally, as the table indicates, this broad diversity of firms and agents selling upper bracket homes isn’t any different in Maryland or Virginia. What’s important to note is that most of these buyers never knew about other homes for sale on the market that were tagged “private exclusive” with “quiet” or minimal marketing. Those sellers simply missed out on those buyers – and those buyers missed out on those homes.
Sellers should also consider that privately listing their home could be seen as an intention to screen interested buyers in ways that could appear to be discriminatory. Care has to be taken that no one is excluded from a “private exclusive.”

Think twice if you are a homeowner contemplating a “private exclusive” sale. Ask yourself whether going that route is best for you and whether you would get the best price for your home.

 


New Contract Activity

  • The number of new contracts ratified in February 2015 was up 8.4% from the number of contracts ratified in February 2014. 
  • Contract activity year-to-date is up 11.9%, the best in the Metro area.
  • 32.7% of all homes going under contract in February 2015 had at least one price reduction before going under contract.
 

FULLY AVAILABLE LISTINGS

  • The available inventory of the end of February 2015 was up 36.3% from February 2014.
  • There was an increase for every price category as well.
  • 28.1% of all homes on the market have had at least one price reduction since coming on the market.
  • In February 2014, 40.9% of all homes on the market had at least one price reduction.
 

URGENCY INDEX

  • During the past 12 years, the February Urgency Index has been as high as 84.9% and as low as 22.4%.
  • The average February Urgency Index in Loudoun County during the past 12 years is 53.3% - higher than where we are today.
  • Note that contract activity is up 8.4% from last February – but the Urgency Index dropped from 59.3% to 47.8%.
     
     

January-February 2015

02/05/15 by David Howell

HOW IS THE MARKET?

Market Watch with David Howell from McEnearney Web Team on Vimeo.

One of the questions we get asked most frequently is “How’s the market?” The simple answer is that the market in Metro DC is strong. Prices are going up and sales are steady. And that’s all true – but it’s also fairly meaningless when you get right down to it. The real question is “How’s the market for me?”

Think of it this way: if someone asked how the stock market is doing, it would be accurate to say it’s doing very well. The Dow Jones average has hit record highs, and it has been on a solid, upward path for several years after bottoming out in 2007. Sounds a lot like the real estate market. But someone who has owned Radio Shack stock – currently trading for less than one dollar after being at $20 five years ago – will have a slightly different perspective on how the market is doing than someone who has owned Apple, Google or Disney shares.

Housing Inventory Supply December 2014 for DC NoVa and Montgomery CountyFortunately, we don’t see such wild swings in value in the real estate market, and homes rarely become worthless. But there are significant differences in our local marketplace. Let’s look at months’ supply of inventory as an example. This number tells you how many months it would take for all homes currently available on the market to sell, given the current pace of new contracts.

The overall supply of homes in Washington, DC is less than two months, and in some price ranges it is considerably tighter. DC’s sweet spot – homes priced between $500,000 and $750,000 – is 1.7 months. At the other end of the local spectrum is Loudoun County, where there is a four-month supply. In that same $500,000 to $750,000 price range, there is a five-month supply. While both of these markets would be considered healthy by any historical standard, DC is a seller’s market while Loudoun’s is balanced. Conditions in Northern Virginia and suburban Maryland also differ from Loudoun and DC, with an overall supply of 2.9 months and 3.2 months respectively.

We are also frequently asked whether prices are going up or down. For all of 2014, the average sales price was up 2.7% for Metro DC compared to 2013. But once again, let’s take a look at the differences in all jurisdictions. While DC was up 5.2%, Loudoun County was up 4%, Northern Virginia rose 2%, and Montgomery County was up just 0.8%. And we want to add a cautionary note. Remember that the “average sales price” is just an arithmetic calculation and isn’t indicative of what is happening to individual properties. Let’s go back to those examples. One of the challenges in DC is that many first-time buyers are being priced out of the market, so there have been fewer lower-end sales. When there is a reduction in the number of lower-priced sales, by definition, the average sales price will go up. On the flip side, there has been an increase in lower-priced sales in Montgomery County, so that reduces the average sale down. That doesn’t mean that prices aren’t going up faster in DC – it just means that it may be a bit overstated.

Our point is simply this: market conditions can be captured by a few key stats, but those numbers do not directly relate to what is going on in a specific neighborhood, a specific type of property or a particular price range. To understand what’s going on with an individual property, one cannot rely on broad market indicators. It takes an evaluation by a knowledgeable Realtor® who can look at the factors unique to that home.

 


LOUDOUN cOUNTY VA NEW CONTRACT ACTIVITY

  • The number of new contracts ratified in December 2014 was up 24.9% from the number of contracts ratified in December 2013.
  • Contract activity for the full year was down 6.7%.
  • 40.6% of all homes going under contract in December 2014 had at least one price reduction before going under contract.
 

Loudoun County VA Dec 2014 FULLY AVAILABLE LISTINGS

  • The available inventory for December 2014 was up 42.9% from December 2013.
  • There was an increase for every price category as well.
  • 36.2% of all homes on the market have had at least one price reduction since coming on the market.
  • This time last year, 29.3% of all homes on the market had at least one price reduction.
 

Loudoun County, VA December 2014 URGENCY INDEX

  • During the past 12 years, the Urgency Index has been as high as 81.4% and as low as 23.8%.
  • The average December Urgency Index in Loudoun County during that same time period is 48.3% - considerably higher than where we are today.
  • Note that contract activity is up 24.9% from last December – but the Urgency Index dropped from 48.3% to 39.9%.
     

November-December 2014

12/04/14 by David Howell

CONTROL: YOU CAN'T LOSE SOMETHING YOU NEVER HAD

McEnearney Associates MarketWatch December 2014 from McEnearney Web Team on Vimeo.

One of the topics generating a lot of buzz - and a lot of consternation - in the real estate business these days is - control. Everyone is worried about controlling the search process, or controlling the creation, compilation and dissemination of data, and most of all, controlling the customer.

Some in our industry are wringing their hands over the fact that the overwhelming majority of home buyers identify the home they eventually buy on the Internet, and that some of the most popular online real estate portals like realtor.com and zillow.com have wrestled control of the home search process away from us. We’re worried that we’ve lost control of the listing data that we work so hard to produce and that others have repurposed or misused our data. And the biggest concern is that we have somehow lost control of the customer - they’ve turned to these national portals, or to mortgage lenders, or heaven forbid they go and do the transaction themselves!

Here’s the reality: You can’t lose something you never had. We have never controlled the search process for real estate, we’ve never controlled the data, and we certainly have never controlled the customer - and we’re kidding ourselves if we think we ever did, could or should want to control any of those things.

The process of searching for a home has changed significantly with the advent and pervasiveness of the Internet. In 2001, 13% of homebuyers identified the house they bought online - and today it’s approaching 80%. Before technology, we relied on newspaper ads, yard signs, friends, neighbors and co-workers. In 2001, 69% of homebuyers used an agent or broker - and today, that’s 88%. Surprised? You shouldn’t be. Because it isn’t about controlling the search process - it is and always has been about providing value to the transaction.

We don’t control the data. We can and should rigorously enforce our copyrights to unique information, but our listing data is just a piece of the overall real estate portfolio - tax records, insurance info, demographic records, home plans and blueprints, mortgage loans and credit reports - so we should recognize what we have and what we don’t have. And what we clearly have is accurate data. On a Friday afternoon in November, using zip codes where we have offices, we compared the number of all agent-listed, fully available listings in the MLS with those on our website, realtor.com and zillow.com. Out of almost 1,000 listings, our website was off by only one, realtor.com showed almost 28% too many properties and zillow.com showed 30% too few. Realtor.com simply doesn’t update their data on a timely basis, and zillow.com has the same problem compounded by the fact that lots of sellers request that their homes not be listed on sites with inaccurate estimates of the market value.

Most importantly, we have never met a consumer who wants to be controlled. And there is not a lack of choices in real estate service providers. In our MLS, there are more than 4,000 real estate companies and over 40,000 agents. Sellers can sell by owner and buyers can work directly with a seller. There are discount brokers and full service brokers and everything in between. 

None of us are entitled to anything - we have to earn it with every client and every transaction. If we’re good enough, if we bring enough knowledge and skill to the table, then we have a chance to earn the business, create a brand and try to build long-lasting relationships. And that’s exactly how it should be.

 


  • The number of new contracts ratified in October 2014 was up 7.3% from the number of contracts ratified in October 2013.
  • Contract activity through the first ten months of 2014 is down 9.1%.
  • 35.5% of all homes going under contract in October 2014 had at least one price reduction before going under contract.
 

  • The available inventory at the end of October 2014 was up 54.5% from October 2013.
  • There was an increase for every price category as well.
  • 44.6% of all homes on the market have had at least one price reduction since coming on the market.
  • This time last year, 32.9% of all homes on the market had at least one price reduction.
 

  • During the past 12 years, the urgency index in October has been as high as 76.3% and as low as 16.4%.
  • The average October urgency index in Loudoun County during the past 12 years is 47.5% - more than 33% higher than where we are today.
  • Note that contract activity rose 7.3% from last October - but the urgency index dropped from 54% to 36%.
     
     

September-October 2014

10/10/14 by David Howell

FALL MARKET UPDATE

2014 has seen a slowdown in the DC Metro Area’s real estate market compared to the frenetic pace of 2013, and there’s no reason to believe that will change over the remaining three months of the year. However, there is no need to hit the panic button, as the overall market remains pretty solid.

Almost every major indicator is down compared to last year – there are fewer new contracts, homes are taking a bit longer to sell and they are not selling as close to list price as last year. Regionally, there has been a significant increase in the number of homes on the market, which means potential buyers who were hard-pressed to find a home of choice in last year’s exceptionally tight market are finding many more options to choose from now. This is especially true in the outer suburbs. There are 60% more homes on the market in Loudoun and Prince William Counties today than this time last year. But in the District, there has only been a 7% increase.

That highlights one undeniable fact: there is not just one set of market conditions throughout the region that will impact the likely direction of the market for the rest of the year, and there are significant differences between jurisdictions. Washington, DC has the strongest market in the region, with an overall supply of homes on the market of less than two months – although that is starting to slowly increase. That low level of supply relative to demand means that DC is still a seller’s market. At the other end of the regional spectrum, Loudoun County has a 4.5-months’ supply. It is reasonable to expect modest upward pressure on home prices in DC while the foot is coming off the gas a bit elsewhere.

We can look at the pace of new contract activity as the best indicator of short-term market direction, and every jurisdiction in the metro area has seen a decline in contract activity in August and September combined compared to last year. But we can also look at the “Urgency Index” to help us take the temperature of the market – think of it as a rudimentary consumer confidence index for housing. We look at the number of new contracts in a month and see how many of those homes were on the market for 30 days or less. In the extremes, we have seen as many as 95% of the homes sell in 30 days or less (April of 2004) and as few as 16% (December 2007). The Urgency Index today provides insight into the direction of the market over the next few months and highlights the significant differences in our region.

As the chart indicates, the District is outperforming every other jurisdiction. At just over 70%, it has the highest Urgency Index in our metro area and is even slightly ahead of last September’s Index. The other three major areas have all seen significant drops in the Urgency Index – 12% for Montgomery County, 15% for Northern Virginia, and 20% for Loudoun County.

But this is the real message behind the numbers: the lower the Urgency Index, the slower the market in will be over the next few months. That bodes well for DC, while things will be a bit slower in Northern Virginia and Montgomery County, and even slower in the outer suburbs.

 


  • The number of new contracts ratified in August 2014 was down 10.9% from the number of contracts ratified in August 2013, but there were increases for homes priced between $750,000 and $1,499,999.
  • Contract activity year-to-date is down 10.7%.
  • 47.1% of all homes going under contract in August 2014 had at least one price reduction before going under contract.
 

  • The available inventory for August 2014 was up 58.3% from August 2013.
  • There was an increase for every price category as well.
  • 40.2% of all homes on the market have had at least one price reduction since coming on the market.
  • This time last year, 28.5% of all homes on the market had at least one price reduction.
 

  • The overall supply of homes on the market at the end of August was 4.5 months, up considerably from 2.6 months at the end of August 2013.
  • This is the twelfth month in a row that we have had a month-over-year increase in months’ supply.
  • Loudoun’s supply is the highest in the region by a full month, and buyers have a bit more leverage than in other areas of Metro DC.
     

July-August 2014

08/03/14 by David Howell

IS “COMING SOON” IN THE CLIENT’S BEST INTEREST?

 

You may have seen a sign in front of a home that says “Coming Soon,” or you may have heard the terms “pocket” or “whisper” listings. While those are not the same things, they all represent areas of possible concern when it comes to doing the right thing for a seller. 

Let’s start with some basics. 

  1. We firmly believe that a seller will get the most for their property in the shortest amount of time when it is exposed to the broadest possible market. And doesn’t that make sense? After all, you never know where that buyer is coming from. No real estate company and no real estate agent has all the buyers, so why hide a listing?
     
  2. A property receives the most traffic and the most exposure in the first few weeks on the market. We know that to be the case in good markets and bad, and everything in between. So “testing” or teasing the market in a limited way may not be the best idea.
     
  3. A home shows best when it is fully ready for the market, when all improvements or repairs have been made. You don’t see a new car showroom with a model on the sales floor that needs a paint job.
     
  4. This is the most important one: the seller of any home should give their informed consent to have their home marketed prematurely or to a limited audience.

So, with all that being said, and with inventory being tight in so many parts of the Washington, DC metropolitan area, we see a fair number of homes with a “Coming Soon” sign in the yard. There can be some very legitimate reasons for that – a home may be a couple of weeks away from being ready to go on the market and the seller wants to be sure that buyers looking in their area are aware that they will have another option in the near future, and they don’t want to run the risk they’ll lose that buyer to a home already on the market.  

But remember that the people who are aware of that sign may be limited to the people who drive by. One of them may approach the seller to see the house before it’s fully ready to be shown – or even make an offer so they get the jump on other buyers. On the surface, that may seem like a good thing: the seller gets interest and maybe even an offer before the house is fully exposed to the market, and are spared the hassle of having to make the beds every day. But that seller doesn’t know what they’re missing. They don’t know how many potential buyers there are who might have been interested in their home if they had known it was on the market. If one was interested enough to make an offer, how many more might there have been if the home had been fully marketed? If the seller wants to entertain such an offer, it is of course their prerogative to do so, and they may place a higher premium on speed and convenience than price.

Other times, that “Coming Soon” sign may be up so that the listing agent increases their chances of selling the house themselves – putting them on both sides of the transaction. And that’s especially true of a “pocket” or “whisper” listing – when the agent only tells a handful of people that a house is available with no intention to expose it to the full market. And who is best served by that? There certainly are sellers who value privacy above all else and don’t want their home “on the market.” But in most cases, it’s hard to see how a seller benefits from a stealth listing, and lots of would-be purchasers are deprived of the chance to buy at the market price.

The point is simply this: a seller should know the pluses and minuses of marketing their home to a limited audience, and it should be their decision whether to cut off part of the pool of potential purchasers.


ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/ (# Contracts + # Available).] An example: The absorption rate for detached homes priced between $500,000 and $749,999 in June 2014 was 16.3%. That compares to a rate of 27.0% in June 2013, and the decrease means the market was better in 2013 for that type of home. If the absorption rate was less in 2014 than in 2013, we have put the more recent absorption rate in red. This month there was improvement for 5 of 14 individual price categories with activity, and one remained the same.


ABSORPTION RATES - CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for June 2014 was 24.7%, down significantly from 42.6% in June 2013.
  • Safe to say the market for condos priced more than $500,000 is virtually non-existent.

 

ABSORPTION RATES - ATTACHED HOMES

  • The overall absorption rate for attached homes for June 2014 was 27.8%, down significantly from June 2013’s 47.6%.

 

ABSORPTION RATES - DETACHED HOMES

  • June 2014’s absorption rate for detached homes was 15.4%, a decrease from the 23.9% rate from June 2013.
  • And as we have seen in the other property types, the absorption rates are higher for the lower-priced categories.
     

 

May-June 2014

06/09/14 by David Howell

Valuing Your Home With The Flip of a Coin

One of the great evolutions in real estate during the past decade is the power of the Internet, and more than 90% of homebuyers begin their search there. We think that’s great, and buyers are more empowered than ever with loads of information. Some of that information can come from sites like Zillow that offer what’s called an “automated valuation model” – AVM for short – which purportedly present a great estimate of the current market value of millions of homes. It’s cool technology, amassing an enormous amount of information from publicly available sources in one place that is then scrubbed through very sophisticated algorithms to predict value. And all of the information is presented in an easy-to-use user interface. To their enormous credit, Zillow has done a tremendous job in reaching “top of mind” status with consumers. There’s just one problem: those predicted values are wildly inaccurate and inconsistent.

Beginning in 2010, McEnearney Associates has examined the accuracy of the estimates for property values that Zillow provides – their “zestimates” of value. This marks our fourth and most comprehensive analysis.

We took 500 properties in MRIS, our regional multiple listing system, which were scheduled to settle between March 24 and March 31, 2014. During that week, we looked for the zestimates of those 500 properties. Once the properties settled, we compared the actual sold price to the predicted values on Zillow.  

To provide some context, we compared the results of the March 2014 research to that of our September 2012 research. Generally, Zillow’s predicted market value is not any better now than it was 18 months ago. The zestimate is within 5% of the actual sales price roughly half the time in the metro area. It is a little better in the greater Northern Virginia region*, close to 60%. In September 2012, the zestimate was just as likely to be too low as too high; now, it is roughly twice as likely to be too low.

As one might expect with a computer-generated value, there are always “outliers.” In September 2012, the highest zestimate was roughly 140% of the actual sales price. The lowest was 82%. In the research we just concluded, the highest predicted value was 256% of the actual sales price and the lowest was 62.8%. 

As REALTORS®, we know that one of our most difficult tasks is pricing a home. That holds true whether we are representing a seller or a buyer. Market pressures change from week to week and from neighborhood to neighborhood. The motivation of the parties is always a factor, as is the condition of a home and those around it. No algorithm, however sophisticated, can quantify the value of a kitchen that was remodeled just before a home was put on the market or a yard that is poorly maintained. It simply isn’t possible for any AVM to predict the value of a home with a level of accuracy sufficient to make a housing decision. Zillow knows that’s true – and they say as much on their website (although you have to dig a bit to find it).

Yet not a week goes by that we don’t encounter a consumer who is fixated on a particular value for a home because that’s what Zillow says it is. Kudos to Zillow for making this kind of impression on the public – it is brilliant marketing. But our research and theirs show that, on average, those “zestimates” are within 5% of the actual value of a home just half of the time. As REALTORS®, if we got within 5% of the value of a home that infrequently we’d be out of business. (A look at Zillow’s own analysis of their zestimates is on the next page.)
So if a consumer wants to base their valuation of a home purchase or sale on what they find on Zillow.com, we suggest they take out a coin and flip it. Heads – that value could be within 5% (high or low) of what the home is actually worth. Tails – that value could be 10%, 20% or more off target.

*”Northern Virginia” includes Arlington, Fairfax and Loudoun Counties and the Cities of Alexandria, Fairfax and Falls Church.


More Details on our Zillow Research

“Zestimates” are consistently inconsistent


ZILLOW'S PUBLISHED ACCURACY

We noted above that Zillow posts the accuracy of their “zestimates,” and what they publish is almost identical to what our research indicates.  In our 2012 and 2014 studies, Zillow got within 5% of the actual sales price 51% of this time – their own results say 50.9%. However, they don’t publish whether they are more likely to be high or low, nor do they indicate their high and low  “outliers.” For more details on what they have to say about their own data: zillow.com/zestimate/#acc.


RESULTS ARE BY PROPERTY TYPE

We were curious whether Zillow fared any better based on the type of property. We found that they’re a bit less accurate for condo and co-ops than for attached or detached homes. Mirroring the overall results, in all three property types Zillow is at least twice as likely to predict a value that is at least 5% lower than the actual value as predicting 5% high.



RESULTS BY PRICE RANGE

Not surprisingly, properties that sold for $1,000,000 and more were a little tougher for Zillow to estimate accurately. They got within 5% of the actual price just over one third of the time. They fared much better for homes selling between $500,000 and $999,999, getting within 5% almost 60% of the time, but for homes selling for less than $500,000 they were within 5% less than half the time.

 

March 2014

04/02/14 by David Howell

Is the Market Slower Because of the Weather?
... Or Something Else?

A recent profile on CNBC described the impact of our unusually cold and snowy winter as “frozenomics,” and there are plenty of industries and cities that have been crippled by the nasty stuff we had this year. We’ve all heard about 36-hour traffic jams in the south, and every school system in our region exhausted their supply of built-in snow days so kids will be in school well into summer. Planes were grounded, power outages were rampant, and we all added “polar vortex” to our vocabulary.

And there is no doubt that Loudoun County's real estate market felt the chill. New contract activity was down 12% in January and February compared to the same two-month period last year.

But it’s not just the weather – the market actually started to slow in October. After strong second and third quarters in 2013, the number of new contracts in October dropped almost 13% from October 2012. There was a drop of 3% in November and December took a 22% dive. All this happened before the snow and ice set in.

So if it wasn’t the weather, what was it? Well, rising mortgage interest rates have robbed purchasers of roughly 10% of their buying power compared to a year ago, and that has priced some first-time home buyers out of the market and lowered the price point for others. Home prices are rising faster than household income, and that puts a bit of a chill on demand as well.

The brief government shutdown in October and budget sequestration created some uncertainty in major employment sectors. The outer suburbs like Loudoun aren’t as appealing to millenials who are looking at more urban, close-in areas. And even though the number of available homes on the market is up a bit, supply is still tight. And here’s the irony about tight supply – at least in the short term, it helps keep some inventory off the market. There are homeowners who would like to be move-up buyers but they are still sitting on the sidelines because they aren’t confident they can find their next home. And if they aren’t sure they can purchase, they aren’t putting their homes on the market.

This isn’t all bad news by any means. Home prices are still going up, just not as rapidly as they did in mid-2013. Homes are still selling in an average of about two months, and there is only about a three month supply of homes on the market. What we’re seeing is the expected moderation that is heading us in the direction of a more balanced market.


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $200,405 at the end of February which is $20,041 less than this time last year, and almost $12,000 less than February 2012.
  • While mortgage rates are still very low from an historical perspective, they are roughly a full percentage point higher than this time last year, reducing buying power by about 10%.

 


NEW CONTRACT ACTIVITY

  • The number of new contracts ratified in Feb. 2014 was down 12.9% from the
    number of contracts ratified in Feb. 2013.
  • Contract activity year-to-date is down 11.8%.
  • 28.9% of all homes going under contract in February 2014 had at least one price reduction before going under contract. 
  • And 59.3% of all homes going under contract in February were on the market 30 days or less. This time last year it was 66.3%.
 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of February was 2.7 months, up from 2.0 months at the end of February 2013.
  • This is the sixth month in a row that we have had a month-over-year increase in months’ supply.
  • While 2.7 months is still indicative of a seller’s market, it is the highest in the
    region.

January 2014

01/28/14 by David Howell

NORMAL

It has been said that the only normal people are the ones you don’t know very well. The same can be said for the real estate market in Loudoun County – it’s been so long since we’ve had a “normal” real estate market that many are entirely unfamiliar with what that looks like!

During the past 10 or 12 years, we’ve seen unprecedented and rapid shifts in the real estate landscape. Starting in 2002, fueled by the enormous increases in post 9/11 defense-related spending, the market exploded. Prices started to climb, and the emerging boom went into afterburners with speculation, public policy that encouraged “everyone” to own a home, and low teaser-rate mortgage loan products that brought an enormous supply of buyers into the market hoping to cash in on the boom. The average annual price appreciation from 2002 through 2005 was more than 19%, the largest in the region. When home prices soared to levels that could not be supported by even the ridiculous loan products, buyers all but disappeared. Prices were flat in 2006 and then dropped by more than 30% during the next three years – also the largest in the region. Loudoun County also had record foreclosures and short sales.  There was nothing normal about that.

To bring the market back, we’ve seen everything from big tax breaks for first-time homebuyers to mortgage interest rates kept artificially low by Fed intervention, the so-called quantitative easing. We’re not suggesting those were the wrong moves – it’s just that when you look at the past decade, there’s been nothing normal about anything in this market.

For the first time in a long time, we think the market will be returning to normal in 2014. Rising mortgage interest rates, while still very low, will price some buyers out of the market, and that will keep a lid on demand. As the economy improves, there is going to be a big increase in household formation – but a significant percentage of those new, younger households are going to rent before they buy. They won’t be in a big a hurry to buy as their parents were a generation before. Rising home prices will bring more sellers into the market, but we need to remember that there are plenty of homeowners who have refinanced during the past few years and have locked in historically low rates for the long term – they won’t be in a hurry to sell unless they have a specific need. The currently tight supply of homes isn’t going to change quickly.

All in all, we believe that we’ll see a much more balanced market as the year progresses, with sustainable – let’s call it normal – increases in home prices in the range of 5% - 7%. And by the way, as hard as this may be to believe, the average annual price appreciation in this area from the end of the Civil War until 2000 was slightly more than 6%.


MORTGAGE RATES

  • 30-year fixed interest rates at the end of December averaged 4.53%, compared to 3.35% at the end of December 2012.
  • One-year adjustable rate mortgages were 2.56% at the end of December 2013, which is the same as at the end of December 2012.
  • Expect rates to rise through 2014 as the Fed backs off buying mortgage-backed securities. Don’t be surprised if rates are near 6% by year’s end.

MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of December was 3.5 months, up from 2.5 months at the end of December 2012.
  • This is the fourth month in a row that we have had a month-over-year increase in months’ supply.
  • While 3.5 months is still indicative of a good market, it is the highest in the region.
 


FULLY AVAILABLE LISTINGS

  • The available inventory for December 2013 was up 11.1% from December 2012.
  • In “normal” markets with overall tight supply, we would expect that even more owners would be putting their homes on the market to take advantage of rising prices. But most are in no hurry to do so because they’re happy where they are, they have low interest rates locked in, or they are simply cautious after seeing the market’s roller coaster ride during the past decade.

November - December 2013

11/22/13 by David Howell

RESILIENT.

The best way to describe Loudoun County’s housing market is resilient. Webster’s defines resilient as able to become strong, healthy, or successful again after something bad happens, and holy cow, we wouldn’t have to look real far to find some bad things that have happened during the past few months.

Let’s see – we had sequestration in the spring. The Federal Reserve has toyed all year with ending their quantitative easing policies that have kept interest rates low, frequently giving mixed signals to the market. More recently, we’ve seen the government shutdown, and tens of thousands of federal workers were laid off and didn’t know when they’d be going back to work or when they’d be paid – and the businesses that depended on those workers suffered as well. We witnessed the continuing battles over whether or how to extend the debt ceiling, and even more recently, we’ve seen the distraction of the launch of the Health Care Exchange created by the Affordable Care Act.

Now to be sure, every single one of these items has impact nationally, but that impact is felt disproportionately in our region, and even more so in the Virginia suburbs. So it wouldn’t have been surprising if Loudoun’s housing market took a bit of a breather.

But that hasn’t really happened. It’s absolutely true that Loudoun has lagged behind the rest of the immediate metro area, but we’re still holding up pretty well. Contract activity during the past two months is off slightly less than 4% compared to the same two months last year. 10% more new listings have come on the market, demonstrating confidence by an increasing number of sellers, but total available inventory is only 6% higher now than it was at the end of last October. The average number of days a home is on the market before receiving a contract in down by 20%. The average sales price is up almost 6%, and the overall supply of homes is slightly more than 3 months. Taken as a whole, those are indications of a pretty healthy market.

Now we’re not trying to sugarcoat some challenges the market will face. We’ve just entered what is historically the slowest time of the year – November through January. Eventually the Fed is going to have to stop buying tens of billions of dollars of mortgage backed securities every month, and when that happens, interest rates will rise – and that will price some folks out of the market. And perhaps the biggest challenge Loudoun will face is that the significant majority of new household formation is occurring in closer-in, more urban areas. But the fundamentals are strong, and we remain convinced we’re headed to a balanced, sustainable housing market in Loudoun County.


ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/ (# Contracts + # Available).] An example: The absorption rate for attached homes priced between $300,000 and $499,999 in October 2013 was 36.3%. That compares to a rate of 33.5% in October 2012, and the increase means the market was better in 2013 for that type of home. If the absorption rate was less in 2013 than in 2012, we have put the more recent absorption rate in red. This month there was improvement for just 3 of 14 individual price categories with activity, and 2 remained the same.


ABSORPTION RATES
ACONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for October 2013 was 31.5%, down from the 39.6% rate in October 2012.
  • Safe to say the market for condos priced more than $500,000 is virtually non-existent.
 

ABSORPTION RATES
ATTACHED HOMES

  • The overall absorption rate for attached homes for October 2013 was 34.4%, down from October 2012’s 36.1%.
  • With an absorption rate of 45.3%, it is still a good time to be a seller of a townhome priced less than $300,000!
 


ABSORPTION RATES
DETACHED HOMES

  • October 2013’s absorption rate for detached homes was 16.8%, a decrease from the 20.7% rate from Oct. 2012.
  • And as we have seen in the other property types, the absorption rates are higher for the lower-priced categories.

 

October 2013

10/03/13 by David Howell

A FEW MORE CHOICES.

 

Perhaps the biggest factor in the Loudoun County real estate market during the past 18 months is the paltry number of listings on the market. Not only has there been low inventory, but month after month fewer new listings were coming on the market. With limited choices for purchasers, prices in most price ranges have climbed.   

Well, it’s funny how markets work. Those higher prices have tempted more sellers to take a stab at getting their homes sold. In the past five months, 22% more listings came on the market than during the same time period last year. That doesn’t mean there’s been a huge shift, but it’s at least noticeable. There was 1.6 months of inventory on the market at the end of April, and that has inched up a bit month after month to 2.6 months’ supply now. It’s still a tight market, but there are a few more choices for buyers than in the spring.

So what does that mean? It’s really Economics 101. On the supply side, we have seen this modest increase in inventory. On the demand side, we’ve seen an increase in mortgage interest rates – up a full point over the past five months. That represents a loss of more than 13% in buying power and that, coupled with the lingering impact of sequestration, is serving to keep the number of buyers in the market a bit less than it was earlier in the year. And this will ease – but not reverse – the significant upward pressure on home prices we have seen this year.

Make no mistake: this modest increase in listings and modest decrease in buyers isn’t turning this into a buyers’ market. Any way you look at it, a 2.6-month supply of homes tilts the odds in the favor of sellers. We’re still seeing multiple offers and escalation clauses in the hottest neighborhoods and price ranges – just not as frequently as earlier in the year. And remember that market pressures are not the same for every type of property and in every neighborhood. As the Months’ Supply chart below indicates, there is a 1.6-month supply of homes priced less than $500,000, and a 3-year supply for homes priced more than $1,500,000. And the seller of a detached home in Purcellville isn’t going to see as many prospective purchasers as a seller of a townhouse in Ashburn.  

What we see is a market slowly returning to normal. But for now, most sellers continue to have the upper hand.

 


MONTHS' SUPPLY

  • Although overall supply is 2.6 months, it is considerably tighter for homes priced less than $500,000 at just 1.6 months or less.
  • And as noted above, there is ample supply for upper brackets homes, with just over a year for homes priced between $1,000,000 and $1,499,999, and over three years for homes priced more than $1,500,000.

 


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $197,130 at the end of August which is $23,118 less than this time last year.
  • That’s a 10% drop, but the drop is even more significant since April when mortgage interest rates reached a low of 3.35%. Buying power now is 13% less that it was during the peak of the spring market.
  • Even with this loss in buying power, rates are still extremely attractive.
 


RELATIONSHIP OF SALES PRICE TO LIST PRICE vs DAYS ON MARKET

  • As we have noted in this space for years, initial pricing strategy is critical to the success of sellers.

  • More often than not, sellers who price it right are rewarded with a quick sale close to list price.

  • But even in this sellers’ market, there are listings that languish and take a deeper discount to list – or don’t sell at all.

 

July 2013

07/29/13 by David Howell

MORTGAGE RATES UP A FULL POINT IN 60 DAYS. AND THE SKY ISN'T FALLING.

 

Well, we knew rates would bottom out – and they did. From a low of 3.35% for 30-year fixed mortgages at the end of April, rates jumped to 4.46% by the end of June. (Since the end of June, rates have fluctuated about 10 basis points above and below that mark.) That jump in rates means that there was a 12.6% loss of buying power. A monthly payment to support the purchase of a $400,000 home in April now only supports a $350,000 purchase.

In the past when rates have bumped up after a prolonged period of lower rates, the number of buyers has actually increased in the short term. Folks who were waiting for the absolute bottom realized that they may have waited a bit too long and jump in before rising rates price them out of the kind of home they want. And that’s exactly what has happened this time. Through the first four months of 2013, total new contract activity in Loudoun County was up 5% compared to 2012, but contract activity rose 15% in May and June.

However, higher rates will undoubtedly put a damper on demand in the months ahead, simply because buyers may no longer be able to afford the home they want. Removing folks from the pool of possible homebuyers will ease some of the upward pressure on home prices. And this dampening of demand comes at a time when the number of homes coming on the market is finally beginning to increase. So, with the prospect of more supply and less demand, why are we so confident the sky isn’t falling?

First, we’ve seen this before. In July 1980 when McEnearney Associates opened for business, mortgage interest rates averaged 12.71%. By September 1981, rates had climbed to 18.45%, representing a 30% loss of buying power in just over a year. (Already feel a little better about today’s rates?) But people still bought homes, and believe it or not, home prices actually rose slightly during that period of time. Because owning a home made long-term sense, just like it does now, buyers, sellers and lenders figured out ways to make it work. Sellers offered financing, lenders wrapped assumable first trusts with second trusts - and people bought and sold houses.

Second, by any historical measure, today’s mortgage interest rates are still incredibly low, and there are very attractive alternatives as well. At the end of April, there was very little difference between the rates for 30-year fixed rate mortgages and those for adjustable rate loans. Today, a 5-year ARM averages 3.17%, well over a point lower than 30-year loans. It is further good news that there won’t be any of the ridiculous, teaser-rate, no-money-down mortgage products developed to bring unqualified buyers to the market like we saw during the boom last decade. People will buy homes because they need or want to move, and can afford to do so.

Today’s rising rates will moderate the market, not kill it.

 


MORTGAGE RATE TRENDS

  • 30-year fixed interest rates at the end of June averaged 4.46%, compared to 3.66% at the end of June 2012.
  • One-year ARMs were 2.66% at the end of June 2013 vs. 2.74% at the end of June 2012
  • While 3-year rates have jumped more than a point, one-year adjustable have barely moved. While not shown on this chart, 5-year adjustable rate mortgages have moved up less than half a point..

 


NEW CONTRACT ACTIVITY

  • The number of new contracts ratified in June 2013 was up 17.5% from the number of contracts ratified in June 2012, and contract activity year-to-date is up 8.4%.
  • 26.3% of all homes going under contract in June 2013 had at least one price reduction before going under contract.
  • And 73.4% of all homes going under contract in June were on the market 30 days or less. This time last year it was 60.4%.

 

 


AVERAGE SALES PRICE

  • The average sales price in June 2013 was $482,050, up 10.4% from the June 2012 average price of $436,464.
  • Remember that these indicators are arithmetic computations based on all properties sold and do not indicate the appreciation or depreciation of any individual property.

 

May 2013

06/05/13 by Kathy McEnearney

THAT WAS THEN. THIS IS NOW.

To many, the current market conditions bear an eerie resemblance to the feeding frenzy of the market boom of 2004 to 2006: low inventory, multiple offers, escalation clauses, waiver of important contingencies and rapidly rising prices. And that prompts fear of a bubble burst somewhere down the road.

There’s no doubt the market is much improved, and the overall supply of homes hasn’t been this tight in nine years. But there are important differences.

Then: The market was powered by a strong economy, rising incomes and public policy that was geared to encourage home ownership. As home prices rose faster than the rate of increase in household income, mortgage programs were created to offer “teaser” rates to bring payments down (for a short time) for those who couldn’t afford market interest rates. Of course, that dramatically expanded the number of eligible buyers, keeping both demand and prices artificially high. And those rapidly rising prices fueled a market based largely on speculation. With back-to-back years of 20%+ home price appreciation, everyone wanted in on the act, with little concern about mortgage payments that would jump to prohibitively high levels in a couple of years. After all, at that point one could either refinance or just cash out. But the market collapsed when the pool of buyers who could afford even those unrealistic mortgages ran out.

Now: The “juice” for today’s market comes largely from the pent-up demand created by conditions in recent years, not because of a booming economy. Folks are appropriately more cautious, especially with the tempering impact of sequestration. To a large extent people are moving because they have a need for housing, not because the lure of making a quick buck. Prices are rising, but not at the break-neck pace we saw in the last hot market. Interest rates aren’t going lower because they are already at historic lows, and the Federal Reserve has recently given signals that it will slow the pace or even stop the $30 - $40 billion monthly bond purchases that have helped keep interest rates low. As a consequence, the pool of eligible buyers will grow only as the economy grows. Investors have certainly returned to the market and prices are rising, but not at the break-neck pace of the last market. And while multiple offers and escalation clauses are common in the hottest areas, it isn’t hot everywhere. Location, price and condition actually matter now.

Those homes in areas closest to major employment centers and great transportation are faring better. In the last month, homes that sold in Ashburn were on the market an average of 25 days, and sold for an average of 2.5% under list price. In May 2004, home sold in Ashburn homes were on the market an average of just 7 days and sold for 2% above list price. In Purcellville last month, homes were on the market an average of 115 days and sold 5% under list price. In 2004, the average was just 41 days, and homes sold on average for list price.

The real estate market in Loudoun County is very healthy, but – fortunately – it’s not the same as last time.

 


MONTH'S SUPPLY

  • A $1,000 principal and interest payment supported a loan of $226,931 at the end of April which is $13,364 more than this time last year, and $70,029 more than April 2006.
  • And in April 2006, it would have taken a monthly PI payment of $3,091 to purchase a median priced home. With today’s lower prices, combined with lower rates, it takes a payment of $1,802 – that’s a 42% drop!
     

 


FULLY AVAILABLE LISTINGS

  • Available inventory for April 2013 was down 17.9% from April 2012. 
  • There was an increase for one out of six price categories.
  • Inventory for homes priced less than $300,000 is down 48.4%.
  • 23.2% of all homes on the market have had at least one price reduction since coming on the market.
  • This time last year, 29.4% of all homes on the market had at least one price reduction.
     
 


AVERAGE NUMBER OF DAYS ON THE MARKET

  • The average number of days on the market for all homes receiving contracts in April 2013 was 31 days, which is a decrease of 41.5% from 53 days in April 2012.
  • The number of days on market decreased for every price category for which there was a measurement.

 

 

 

March 2013

04/03/13 by David Howell

CONVERGENCE

The dictionary says that “convergence” is the act of coming together from different directions – and that is exactly what is happening with three key indicators in the Loudoun County real estate market.

In the first quarter of 2013, we’ve seen the number of new contracts, new listings, and fully available inventory converge. A specific example: in March, there were 660 new contracts, 808 new listings, and just 1,115 listings on the market at the end of the month. Two short years ago in March 2011, there were two and a half times as many available listings and 40% more new listings than new contracts.

It’s a tight market in most prices ranges right now, and we haven’t seen these indicators so closely aligned since the peak of the market in 2004. It’s so tight that there has actually been a 28% drop in contract activity year-to-date for homes priced less than $300,000. There simply isn’t enough inventory – just a 27 day supply – to support the level of demand. But the upper brackets, while still a small slice of the market, are doing well. There’s been a 67% jump in contract activity through the first three months of the year for homes priced more than $750,000.

To give you an idea about how dramatically the market has changed, the second chart at right shows the same three indicators from January 2007 through the end of 2008. The number of active listings was as much a thirteen times the number of new contracts, and the number of new listings coming on the market was typically two and a half times the number of new contracts.

Low inventory continues to drive the market, with 21% fewer homes on the market right now than this time last year. We see more of the same in the months ahead. Thus far, there’s no discernible negative impact from sequestration, and there’s no reason to think that the low inventory situation is going to change anytime soon. Homebuyers below $500,000 are going to find it particularly challenging to find what they’re looking for.

 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of February was 2.0 months, down from 2.6 months at the end of February 2012.
  • Look at the supply for homes priced less than $300,000 – it’s just 27 days!
  • Remember that the low supply relative to last year for homes priced less than $300,000 is due entirely to the drop in inventory, not because of an increase in contracts.

 


AVERAGE NUMBER OF DAYS ON THE MARKET

  • The average number of days on the market for all homes receiving contracts in February 2013 was 50 days, which is a decrease of 21.9% from 64 days in February 2012.
  • With so little inventory, listings priced less than $500,000 are selling in just about 40% less time than last year.
     
 
 


RELATIONSHIP OF SALES PRICE TO ORIGINAL LIST PRICE vs DAYS ON MARKET

  • Initial pricing strategy is critical to the listing process, even in this tighter market. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in Feb. 2013 that received contracts their first week on the market sold, on average, 0.4% below list. Those that took 4 months or longer to sell sold for 14.6% below the original price.

January 2013

01/27/13 by David Howell

TIME TO RE-STOCK!

If a retailer had this little inventory to sell, they’d swear someone had been shoplifting! To keep the doors open, they’d have to re-stock their shelves with saleable merchandise, and that’s exactly what needs to happen in Loudoun County’s real estate market.

In our last issue of MarketWatch, we focused on the opportunity for buyers because of historically low interest rates. But we believe there’s an even bigger opportunity for potential sellers because there are so few listings on the market.

Here’s one narrow example of the acute shortage: at the end of December, there were 5 townhouses priced between $200,000 and $300,000 on the market in Ashburn. At the end of May, there were 18. We recognize that inventory is always lower in the middle of winter than it is in the spring, but this isn’t just seasonal. Inventory is down 19% from this same time last year, and there was a 6% drop in the number of new listings coming on the market in December as well. In the past six months, 75 Ashburn townhomes in that $200-$300k price range went under contract, so the demand is clearly there, but right now there’s nothing to buy. When there’s plenty of demand and little or no supply, prices are going to rise. That’s just a simple economic fact of life.

Anyone who is thinking about selling their home in the next year or two should really consider doing it now. This includes would-be sellers who purchased at the top of the market and think they don’t have equity. A couple of caveats: every submarket is different; the time still has to be right for your personal circumstances, and given the low inventory, finding your next house could be a bit of a challenge. Nonetheless, we know there are plenty of sellers who are in for a pleasant financial surprise in the next few months. If moving up or moving out is in your agenda, give us a call and we can help you craft a strategy to accomplish your real estate goals.

So what’s in store for the Loudoun County’s real estate market over the next few months? We know the low-inventory issue isn’t going to be solved overnight, so expect that supply will remain very tight in significant portions of the County through at least the first six months of 2013. The Fed has made it clear that they intend to keep interest rates low, and while we know that they can’t stay under 4% forever, they should stay there for another six months as well.

So what’s really ahead is more of the same: a healthy market with tight supply, low rates and rising prices. But – and there’s always a but - we’re still keeping a watchful eye on the sequestration and budget ceiling negotiations. Some defense contractors have already started job layoffs given the uncertain situation, and folks don’t buy houses when they’re out of work. The nation’s economy - and the region’s housing market - remains vulnerable if Congress and the White House can’t find a long-term solution.

ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/ (# Contracts + # Available).] An example: The absorption rate for detached homes priced between $300,000 and $499,999 in December 2012 was 32.7%, indicating that almost one third of the homes on the market for this category of homes went under contract in December. That compares to a rate of 23.6% in December 2011, and the increase means the market was better in 2012 for that type of home. If the absorption rate was less in 2012 than in 2011, we have put the more recent absorption rate in red. This month there was improvement for 12 of 14 individual price categories with activity, and 1 remained the same.


New Listings, New Contracts, and Active Lstings - Northern Virginia


ABSORPTION RATES - CONDOS & CO-OPS

  • The overall absorption rate for condos and co-ops for December 2012 was 36.1%, up from the 29.2% rate in December 2011.
  • Safe to say the market for condos priced more than $500,000 is very, very thin for both listings and sales.

 


Fully Available Listings - Northern Virginia October 2011 vs October 2012

ABSORPTION RATES - ATTACHED HOMES

  • The overall absorption rate for attached homes for December 2012 was 45.9%, up from Dec. 2011’s 30.5%.
  • With an absorption rate of 65.3%, it is a great time to be a seller of a townhome priced less than $300,000!

 


Month's supply of housing October 2011-October 2012 Northern Virginia

ABSORPTION RATES - DETACHED HOMES

  • December 2012’s absorption rate for detached homes was 21.5%, an increase from the 17.2% rate from December 2011.
  • And as we have seen in the other property types, the absorption rates are higher for the lower-priced categories.

November 2012

11/27/12 by David Howell

THE REAL STORY IS INVENTORY – AND THE LACK OF IT

There’s a 2.8-month supply of homes on the market in Loudoun County, the lowest we’ve seen at this time of year in almost a decade. This is due in part to an increase in new contract activity, but it’s primarily due to plummeting inventory.

Inventory October 2011 - October 2012 - Loudoun County, VirginiaThe average number of fully available homes on the market for the past six years at the end of October was 2,300. Right now, it’s almost half that, at 1,320. The shortage is particularly acute for homes priced less than $300,000 so those first-time homebuyers are finding pretty slim pickings. Believe it or not, if no new listings came on the market, at the current pace of contracts every home priced under $300,000 would be gone in just 33 days.

We’re firm believers that markets seek balance. In those areas and price ranges where inventory is very low, we’ve seen the return of multiple offers, and those multiple offers bring rising prices. Rising prices will eventually bring more sellers back to the market. But that’s going to take time, so expect low inventory to prevail for at least the next several months.

The other piece of the story is affordability. With 30-year fixed rate mortgage rates continuing well below 4%, the principal and interest payment for a median-priced home is 36% lower than it was in October 2005. And that payment is also less than the median rented price for a home in Loudoun County. We continue to believe that this is a uniquely great opportunity for buyers to lock in at these historically low interest rates precisely at the time home prices are beginning to rise.

So what’s ahead for the Loudoun County real estate market? We expect to see steady improvement in the market over the next several months – a modest rebound in inventory as buyers continue to return to the market. But there is one major caveat: the ‘fiscal cliff.’ We’re writing this in late November, right as Congress is heading into its lame duck session. If Congress and the White House can’t reach an agreement to either postpone or avoid the expiration of the Bush-era tax cuts and the automatic sequestration of $1.2 trillion in federal spending, then all bets are off for this market. It could mean a significant loss in federal jobs, disproportionately so in the Northern Virginia suburbs, and we could see the regional unemployment rate could jump a full percent virtually overnight. People who don’t have jobs don’t buy houses. We hope and trust that cooler heads will prevail.


New Listings, New Contracts, and Active Lstings - Loudoun County, Virginia
NEW LISTINGS, NEW CONTRACTS, AND ACTIVE LISTINGS

  • That green line tells the story – listing inventory has dropped in a big way.
  • Increasing contract activity has certainly contributed to a much tighter market, but not nearly as much as the drop in inventory.
  • As mentioned above, inventory is 43% less than the market average during the past 6 years, and it’s even 18% lower than it was this time last year.

 



Fully Available Listings - Northern Virginia October 2011 vs October 2012FULLY AVAILABLE LISTINGS

  • And while inventory is way down, it’s clear that’s there has been little change in available listings in the higher price categories – it’s homes priced less than $750,000 that have seen the biggest drops.
  • The number of homes on the market priced at $750,000 and higher is just 4% less than this time last year.
  • Total inventory under $750,000 is down 19%, and inventory under $300,000 is just about half of what it was last October, and that makes it tough for first-time buyers to find what they’re looking for.


Month's supply of housing October 2011-October 2012 Loudoun CountyMONTHS' SUPPLY

  • The The overall supply of homes on the market at the end of October was just 2.8 months, down from 4.1 months at the end of October 2011.
  • There’s a 33-day supply of homes priced less than $300,000, and just a 63-day supply for homes priced between $300K and $500K.
  • Supply is considerably lower in every price range.

September / October 2012

10/02/12 by David Howell

Horseshoes and Hand Grenades!

One of the great evolutions in real estate during the past decade is the power of the Internet, and more than 90% of homebuyers begin their search there. We think that’s great, and buyers are more empowered than ever with loads of information. Some of that information can come from sites like Zillow that offer what’s called an “automated valuation model” – AVM for short – that purportedly offer a great estimate of the current market value of millions of homes. It’s cool technology, amassing an enormous amount of information from publicly available sources in one place that is then scrubbed through very sophisticated algorithms to predict value. And all of that is typically presented in an easy-to-use interface. There’s just one problem: those predicted values are wildly inaccurate and inconsistent. 

We check on the accuracy, or lack thereof, of these sites every year. We identified almost 300 properties throughout the Washington, DC metro area that went to settlement in the first two weeks of September 2012, and compared their actual sales prices to the predicted values from three prominent AVMs – Zillow, Eppraisal and Chase Home Valuator – as well as the relevant taxing jurisdiction’s current assessments. To be as generous as possible, we excluded new homes since it would be unlikely that any of these AVM sites could have the details on just-completed homes. We selected all types of homes – condos, townhomes and detached – across all price ranges. To top it off, we looked at the predicted value after the properties had gone to settlement, knowing full well that the AVMs could have had the opportunity to update their models with the actual sales price. We broke the result down by area, and the chart to the right shows the dismal results of the 60 homes evaluated in Loudoun County.

Zillow was the “best” of the bunch, getting within 5% of the actual value 48% of the time, and Eppraisal got that close just 22% of the time. We call this the “horseshoes and hand grenades” home valuation model. You know the old cliché that close only counts in horseshoes and hand grenades – well “close” isn’t nearly good enough when it comes to valuing a home. That’s precisely why we don’t offer the estimated values from any of the site on our website – we think our clients deserve up-to-date knowledge about the market, not just a data dump. Before you decide to put a lot of confidence in these AVMs, consider this comment in an email to us from a senior Zillow executive this summer when we complained about the problems caused by the inaccuracy of their “Zestimates” of value: “You are correct – this is nothing new for any of us. But because consumers are so fond of the Zestimate, it is not going anywhere.” OK, we get it – they know it’s inaccurate but don’t really care because it brings eyeballs to their site. But since they know they’re not accurate, we think you should too.



ABSORPTION RATES CONDOS AND CO-OPS
BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $220,248 at the end of August which is $16,243 more than this time last year, and $60,849 more than August 2006.
  • In August 2006, it would have taken a monthly PI payment of $3,137 to purchase a median priced home. With today’s lower prices, combined with lower rates, it takes a payment of $1,711 – that’s a 45.5% drop!

 



Absorption Rates Attached HomesNEW CONTRACT ACTIVITY

  • The number of new contracts ratified in August 2012 was up 14.5% from the number of contracts ratified in August 2011.
  • Contract activity YTD is up 8.8%.
  • 33.1% of all homes going under contract in August 2012 had at least one price reduction before going under contract. 
  • And, 56.7% of all homes going under contract in August were on the market 30 days or less. Buyers know value when they see it.

 



Absorbtion Rates Detached HomesMONTHS' SUPPLY

  • The overall supply of homes on the market at the end of August was 2.8 months, down from 3.7 months at the end of August 2011.
  • Look at the supply for homes priced less than $300,000 – it’s just 33 days.
  • The relative supply of homes priced more than $1.5 million represents only one transaction.

July 2012

07/30/12 by David Howell

Opportunity Knocking!

When 2012 comes to a close, we believe we’ll look back on it as a year of tremendous opportunity for home buyers and sellers alike – but for some it will be a missed opportunity.

We are witnessing something for the first time in our memory in Loudoun County real estate: the principal & interest payment for a median-priced home is now less than the median rental price. At the market’s peak in June 2006, the mortgage payment for a median priced home was 41% greater than the median rental price. Today, it’s 12% lower. We know there’s more to the cost of owning a home than the mortgage payment, and we’re certainly not suggesting that everyone should buy a home. But home prices are beginning to rise, and interest rates will almost certainly be higher a year from now – and we think that it will be a long time before we see the total cost of buying a home this low again.

Another indicator we look at is the percentage of homes going under contract in a given month that have been on the market 30 days or less. In times other than a boom or bust in Loudoun County, roughly 55-60% of homes going under contract are on the market for a month or less. In June 2004, during the boom, that climbed to 89% as buyers were snapping up everything in sight. Just two years later in June 2006, it dropped to 29% as buyers were very nervous about market conditions. It’s now at 60%, a sure sign that buyers are willing to buy when they see value. Buyers still remain appropriately cautious – even in multiple offer situations they are rarely waiving home inspections and appraisals, and that’s a good thing.

These unique circumstances also mean there is great opportunity if you’re thinking of selling – inventory is very low and buyers in some areas and price ranges are having a tough time finding what they want. Take a look at the absorption rates tables that follow to see the hottest price ranges and property types. Sellers of townhomes priced less than $300,000 are doing very well, with an absorption rate of almost 60%. The same goes for detached homes priced less than $300,000, with rates around 45%. And in general, those subdivisions near the eastern edge of Loudoun County are faring better that outlying suburbs. Still, your personal circumstances have to be right to consider making a move, but if they are, this is a great time to sell.


ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/ (# Contracts + # Available).] An example: The absorption rate for detached homes priced between $500,000 and $749,999 in June 2012 was 22.2%, indicating that a little less than one quarter of the homes on the market for this category of homes went under contract in June. That compares to a rate of 20.8% in June 2011, and the increase means the market was better in 2012 for that type of home. If the absorption rate was less in 2012 than in 2011, we have put the more recent absorption rate in red. This month there was improvement for 12 of 14 individual price categories with activity.

ABSORPTION RATES CONDOS AND CO-OPS
CONDOS & CO-OPS

  • The overall absorption rate for condos and co-ops for June 2012 was 28.3%, up from the 26.6% rate in June 2011.
  • Safe to say the market for condos priced more than $500,000 is very, very thin for both listings and sales.



Absorption Rates Attached HomesATTACHED HOMES

  • The overall absorption rate for attached homes for June 2012 was 42.6%, up from June 2011.
  • With an absorption rate of 59.3%, it is a great time to be a seller of a townhome priced less than $300,000!

 



Absorbtion Rates Detached HomesATTACHED HOMES

  • June 2012’s absorption rate for detached homes was 22.7%, an increase from the 19.8% rate from June 2011.
  • And as we have seen in the other property types, the absorption rates are higher for the lower-priced categories.

May 2012

05/31/12 by David Howell


“No Chipped Paint; All Horses Jump” - Disneyland and Your Home.

A carousel ride for his young kids spurred Walt Disney’s goal for creating the perfect customer experience when he opened Disneyland – and that goal is a great one for homeowners as well.

From a distance, that Los Angeles amusement parkRide Mac's Mercury at Clemijontri Park in McLean! ride looked great to Disney and his two young daughters, but as they drew closer they found that only the horses on the outer ring moved and the paint was shabby and peeling. He was both disappointed and inspired, determined that his guests would have an entirely different experience, and his mantra for the creation of Disneyland quickly became “No Chipped Paint; All Horses Jump.

It was a direct and passionate expression that simply meant that everything had to work, everything had to look good, and nothing should be left to chance. And Disney and his cast acted on that directive to perfection.

Creating the right customer experience when selling a home matters just as much. Making sure everything works properly and everything sparkles gives prospective purchasers the confidence that the home they are considering buying has been well cared for. Most buyers aren’t looking to take on a “project,” and those that are will drive a harder bargain. The seller will pay for maintenance and condition one way or another. If they DO the right things, and PRICE it right, they’ll be rewarded. If they don’t – well, purchasers won’t pay as much for a poorly kept house, and those homes take longer to sell.

Remodeling Magazine, in cooperation with the National Association of REALTORS®, publishes an annual “Cost vs. Value” report that directly addresses this issue. This is among the conclusions of their most recent survey: “The…research…shows that maintenance, repair, and replacement projects take precedence with homeowners. Cost vs. Value data confirm this once again this year, as replacement projects continue to perform better in resale value than other types of remodeling projects. Seven of the 10 top-ranked projects are siding-, window-, or door-replacement projects.”

Proper maintenance is the single, best way to improve the value of your home, regardless of when or if you plan to sell. Before you think about adding a room, or “granitizing” your kitchen, call your favorite McEnearney Associates REALTOR®.  We can give you advice and recommend professional contractors for projects that will ensure the best price when the time is right to sell your home. Relationships with our clients, both buyers and sellers, are for the long term. They don’t begin and end with the transaction!



ABSORPTION RATES CONDOS AND CO-OPS
FULLY AVAILABLE LISTINGS

  • The number of homes on the market at the end of April 2012 decreased 10.5% compared to April 2011.
  • There was a 30% drop in the number of homes priced less than $300,000 on the market, and only the highest price category saw any increase in inventory – and that very modest.
  • 29.4% of all homes on the market have had at least one price reduction since coming on the market. This time last year, 31.6% of all homes on the market had at least one price reduction.



Absorption Rates Attached HomesNEW CONTRACT ACTIVITY

  • The number of new contracts ratified in April 2012 was up 18.8% from the number of contracts ratified in April 2011; contract activity YTD is up 8.8%.
  • 27.3% of all homes going under contract in April 2012 had at least one price reduction before going under contract.
  • And 61.5% of all homes going under contract in April were on the market 30 days or less. That’s considerably higher than any time since the “boom” years when the market was picking off 80% of the inventory in 30 days or less.




Absorbtion Rates Detached HomesMONTH'S SUPPLY

  • The combination of the drop in the number of homes on the market and the increase in contract activity makes for a pretty tight market in many price categories.
  • The overall supply of homes on the market at the end of April was 2.3 months, down from 3.0 months at the end of April 2011.
  • The relative supply of homes priced more than $1.5 million cannot be calculated for 2012 since there were no contracts in April, but look at the supply for homes priced less than $300,000 – it’s just one month!

March 2012

03/28/12 by David Howell

“Is it a Buyers' Market or a Sellers' Market?”

That was the question recently posed in an online forum for area REALTORS®. After five years of a very challenging market, it is encouraging that this is even a plausible question – but it is based on the false premise that market conditions are the same everywhere and for every type of property in Loudoun County.

There are some very encouraging signs. Through the first Absorption Ratesthree months of the year, contract activity is up more than 7% from the same time last year, and listing inventory is down 6%. And that means that there is less than a three-month supply of homes on the market. That looks like a sellers’ market: relatively low supply being chased by more purchasers. But let’s also put this into perspective from the low point in the market – 2008.

We took a look at the four key market indicators for the first three months of this year and compared that to the same time period of 2008. Clearly the biggest difference is the number of listings on the market. The average month-end inventory in the first quarter of 2008 was 3,000, and it has been just a little more than 1,300 so far this year. That’s a 57% drop. In 2008, the market was flooded with an overwhelming number of new listings – almost 2,900 in the first quarter – as many sellers recognized that the boom market was truly over and tried to cash in. So buyers had plenty of choices, and they took their time making a decision. The average time on the market for properties going under contract was more than 116 days. This year, only half as many new listing have come on the market, so buyers have fewer choices and are acting more quickly when they see an appropriately priced listing.  The average time on the market has been just 65 days so far this year. But note the indicator that has changed the least: contract activity. Now, we’re thrilled that almost 1,500 homes have gone under contract so far this year – that’s an almost 11% jump from 2008 – however, it’s still less than the first quarter of 2007. Buyers are incented by very, very low mortgage interest rates, but they are still cautious. The reality is that the tight market has far more to do with limited inventory than high demand.

The tight market does mean that there are hot spots, but it’s not hot everywhere. The market is absorbing almost two thirds of the available inventory of townhomes priced less than $300,000 every month – and less than 2% of homes priced more than $1,000,000. There’s less than a two-month supply of homes in Ashburn, and ten months in Middleburg. There are areas and price ranges where short sales and foreclosures are still having a negative impact on the market, and it will take longer for those areas to recover.

Sellers in a hot spot have more negotiating power today than they have had in years, and we’ve seen a resurgence in multiple offers on some properties. But buyers are still hesitant to overpay, and we rarely see escalation clauses accompany those multiple offers. Buyers who are used to having their way may find it a lot tougher to drive a hard bargain in some areas. As we have noted many times before, market conditions are “hyper-local,” and careful and thorough research is required to evaluate any individual property before making a buying or selling decision.

Absorption Rate by Property Type

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/ (# Contracts + # Available).] An example: The absorption rate for detached homes priced between $300,000 and $499,999 in February 2012 was 34.6%, indicating that more than one third of the homes on the market for this category of homes went under contract in February. That compares to a rate of 23.5% in February 2011, and the increase means the market was better in 2012 for that type of home. If the absorption rate was less in 2012 than in 2011, we have put the more recent absorption rate in red. This month there was improvement for 6 of 14 individual price categories with activity, and 2 remained the same.


 

ABSORPTION RATES CONDOS AND CO-OPS
ABSORPTION RATES
CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for February 2012 was 38.8%, up from the 30.1% rate in February 2011.
  • Safe to say the market for condos priced more than $500,000 is very, very thin for both listings and sales.



Absorption Rates Attached HomesABSORPTION RATES
ATTACHED HOMES

  • The overall absorption rate for attached homes for February 2012 was 38.4%, down slightly from February 2011.

 



Absorbtion Rates Detached HomesABSORPTION RATES
DETACHED HOMES

  • February 2012’s absorption rate for detached homes was 21.5%, a slight increase from the 20.5% rate from February 2011.
  • And as we have seen in the other property types, the absorption rates are higher for the lower-priced categories.

January 2012

01/31/12 by David Howell

“Lessons Learned and a Look Ahead”

We learned a lot about Loudoun County’s market in 2011, and the most important lessons bode well for 2012.

There were a number of factors at play last year. Home prices were stable at best and still declining at worst, mortgage qualification standards rose making loans more difficult to obtain, the national unemployment rate remained persistently high, and there was the looming threat of federal job losses locally. And for the first time since 2008, there were no special tax credits to incent home purchasers. That challenging combination could have made 2011 a very difficult year, but there were positives as well. The combination of lower home prices and incredibly low interest rates meant homes were dramatically more affordable, and our regional economy remained relatively strong. So what did buyers and sellers do in this environment? They acted logically – in today’s environment, “logically” means “cautiously.”

Buyers pulled back just a bit, with the total number of properties going to settlement dropping 4.6% from 2010. Correctly understanding that there were few areas where prices were going up, buyers were generally pretty picky. If a home was overpriced, buyers were quite content to take a pass and either wait for something better – and more realistically priced – to come along, or for a price reduction that brought that home more in line with the market. But when a home was priced right, buyers knew it and would make a quick decision; almost half of what went under contract was on the market 30 days or less. By contrast, the average number of days all currently available homes have been on the market is 167, suggesting there are sellers who either won’t or can’t price their homes where buyers wants them.

Sellers were appropriately cautious as well. They pulled back slightly more than buyers did, with a 5.3% drop in the number of listings coming on the market in 2011 compared to 2010, indicating that fewer folks decided to attempt to sell in a fairly flat market. For some, perhaps many, prices have not returned to acceptable levels and they will wait until market conditions are better. As noted above, sellers who are willing and able to price their homes in line with the market are getting their homes sold – so the most motivated are seeing results. And that’s exactly what one would expect.

All these factors mean that overall supply is pretty tight, especially in the lower price ranges as shown in the “Months’ Supply” chart on the following page. Fewer homes on the market for by buyers empowered by historically low interest rates will eventually start to move prices higher, and we’re already seeing signs of that in lower price ranges. And when prices begin edging up, more sellers will feel like they have a better chance of selling. There are some wildcards out there including the possibility that we’ll see more foreclosures and short sales come on the market, and the ongoing battles over the federal budget could negatively impact jobs here. Markets adjust, sometimes more slowly than we’d like, but we believe the table is set for 2012 being better than 2011. Make no mistake – we don’t expect dramatic improvement, just continuation of the long climb back to “normal.”



September 2011 Interest Rates
BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $210,732 at the end of December which is $21,445 more than this time last year, and almost $50,000 more than at the peak of the market.
  • This dramatic increase in buying power, combined with significantly lower prices, means that it costs roughly 40% less to purchase a median priced home in Loudoun County today than it did in December 2005.
  • And that fact will slowly bring more buyers back to the market.



New Contract ActivityMONTHS’ SUPPLY

  • As we mentioned on page 1, supply under $500,000 is reflective of a pretty tight market, and that’s 95% of all homes sold in Loudoun.
  • Basic market economics indicates that this tight supply will – slowly –cause a rise in prices. And when the sellers of those homes see higher prices, they will be better positioned to become “move-up” buyers. And that, in turn, will – even more slowly – put upward pressure on prices of more expensive homes.




Month's SupplyNEW LISTINGS, NEW CONTRACTS AND ACTIVE LISTINGS

  • We think this chart really captures what market pressures do.
  • In the white-hot market of 2005, contract activity soared, spurring more sellers to sell – and then they became buyers.
  • When buyers started to exit the market in 2006, listing inventory soared – and the market has been adjusting rather painfully ever since.
  • Other than the spring of 2010, when the homebuyers’ tax credit created a short-term surge, the market is more balanced now than any time since the bust.

December 2011

12/06/11 by Kathy McEnearney

“Parts of Area Housing Market Almost Back to Pre-Recession Levels”


That’s the headline in a recent Washington Examiner article about the state of the region’s real estate market. Um...we think there are a lot of sellers who would call the veracity of that attention-grabber into question.

Slippery When Wet What the article goes on to say is that the median sales price in Arlington County is now nearly 95% of its peak in June 2006. (There were several jurisdictions mentioned that are nowhere near their peak levels, by the way.) While that may be statistically accurate, we respectfully submit that the headline confuses a mathematical calculation with a home’s value.

Remember that the “median” is simply the midpoint of a list of numbers ranked highest to lowest. As such, a change in the mix of what is selling can have a significant impact on the “median” value. The table at right shows the impact. In month 1, there are 15 homes that sold, ranging from a low of $300,000 to a high of $1,000,000. The median price is $650,000. In month 2, 13 of these same homes sell for exactly the same price as the previous month, but the two most expensive homes are dropped from the list. So even though there’s no change in the actual sales prices, the median price drops $50,000. And in month 3, 13 of these same homes sell again at the same price, but this time the two least expensive homes don’t sell – the median price increases $50,000.  

The reality is that, in good markets and bad, median prices skew dramatically from month-to-month and year-to-year. Example: the median sales price in Loudoun County was 2.5% higher in October 2011 than it was in October 2010. However, the median price just one month earlier in September 2011 was 5.8% lower than September 2010. Looking at median price as a key indicator, one might be tempted to draw the conclusion that there are some wild price swings going on in Loudoun County every month. The reality is something entirely different.

Anyone who has read MarketWatch over the years knows that we like statistics, and we try to use them to help educate our clients so that they can make sound real estate decisions. But we also try to be very careful about placing the numbers in context, with an effort to explain what they mean and what they don’t mean. And that’s why we don’t focus on average and median prices in our reports – they can be very misleading.

We’re as optimistic as anyone about the long-term prospects for the Loudoun County real estate market, but the reality is that home values are nowhere near their boom-market peak. Don’t be fooled into thinking a simple arithmetic computation means anything – only a careful analysis of an individual property will give a buyer or seller a good idea of the value of that home.


Absorption Rate by Property Type

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/ (# Contracts + # Available).] An example: The absorption rate for attached homes priced between $300,000 and $499,999 in October 2011 was 23.2%, indicating that slightly less than one quarter of the homes on the market for this category of homes went under contract in October. That compares to a rate of 21.4% in October 2010, and the decrease means the market was better in 2010 for that type of home. If the absorption rate was less in 2011 than in 2010, we have put the more recent absorption rate in red. This month there was improvement for 7 of 14 individual price categories with activity and 2 remained the same.



September 2011 Interest Rates
ABSORPTION RATES
CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for October 2011 was 29.5%, down from the 37.7% rate in October 2010.
  • Safe to say the market for condos priced more than $500,000 is very, very thin for both listings and sales.



New Contract ActivityABSORPTION RATES
ATTACHED HOMES

  • The overall absorption rate for attached homes for October 2011 was 29.5%, up from October 2010.



 



Month's SupplyABSORPTION RATES
DETACHED HOMES

  • October 2011’s absorption rate for detached homes was 14.5%, a decrease from the 17.7% rate from Oct. 2010.

  • And as we have seen in the other property types, the absorption rates are higher for the lower-priced categories.

October 2011

10/27/11 by David Howell

"I’M NOT GOING TO GIVE MY HOUSE AWAY!"

Slippery When Wet

This is a common refrain from prospective home sellers in today’s market, and we understand that sentiment. No owner wants to get less than their home is worth, and when we’re representing a seller it’s our job to make sure they get full market value. An important part of that task is making sure that the homeowner is equipped with the best information about the market to help them make rational decisions. 

This can be a rough market, and sometimes sellers don’t have any choice but to sell. A job transfer, a tough time making the mortgage payments, a change in family circumstances – any of those factors and more may necessitate a sale in less than ideal market conditions. And even when the sale is by choice, sellers can get pretty ornery when confronted with what it takes to sell. It’s their home, and the prospect of making changes to accommodate an as-yet-to-materialize purchaser is just too much to handle. Along with our headline statement, here’s a sample of things we’ve heard from defensive sellers:

  • I know what the comps are, but I need to get more to buy my next house.
  • I hung that wallpaper myself 15 years ago; I love it and I’m not going to take it down.
  • My daughter loved that deep red color in her bedroom and we’re not going to change it.
  • We lived with it that way for years and it never bothered us.
  • I’m not going to take up that 20-year old carpet.
  • I don’t care that the same model sold for $50,000 less than my house – my house is better.

Here’s the best piece of advice we can offer to sellers: Buyers don’t care about any of that, and are in no mood to reward sellers who are not realistic. That’s a simple fact, and it shows up in the numbers. In September 2011, 45% of the homes in Loudoun County that went under contract were on the market for 30 days or less. Only 10% of those homes had any reduction in their list price before receiving a contract, and those price reductions averaged just 4.1%. By contrast, of those homes that received contracts after more than 30 days on the market, 71% had to reduce their original list price before receiving a contract, and the average price reduction was 8.0% of original list. And that’s for properties that went under contract – what about those that are still on the market? At the end of September, 75% of the fully available homes had been on the market for more than 30 days, and slightly more than half of those had reduced their price. Buyers will recognize a properly priced home and will make a move – and will happily take a pass on those homes that aren’t priced right.

So, if you are thinking about selling your home, ask yourself this important question: Am I a tester or a seller? Testers don’t think price and condition really matter because there will be that one buyer who will fall in love with their home and will give them what they need. Sellers adopt the attitude that they aren’t selling their home, they’re selling an asset that needs to be presented to the market in the best way possible and will do everything necessary to make that happen.

white line

September 2011 Interest Rates
FULLY AVAILABLE LISTINGS

  • Inventory decreased in four price categories compared to September 2010, with overall inventory down 4.5%.
  • 44% of all homes on the market have had at least one price reduction since coming on the market, indicating that a lot of homes come on the market at an unrealistic price.

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New Contract Activity
MONTHS’ SUPPLY

  • The overall supply of homes on the market at the end of September was 4.5 months, up a bit from 4.1 months at the end of September 2010.
  • The market for the lowest price category is very tight, with only 1.7 month's supply.

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Month's Supply

RELATIONSHIP OF SALES PRICE TO ORIGINAL LIST PRICE vs. DAYS ON MARKET

  • Homes settling in September 2011 that received contracts their first week on the market sold, on average, for 0.12% below original list. Those that took 4 months or longer to sell sold for 11.3% below original list price.
  • Initial pricing really matters, and there is a great opportunity to sell a house quickly if the price is right.

September/October 2011

09/19/11 by David Howell

 

TURN INTO THE SKID AND TAKE YOUR FOOT OFF THE ACCELERATOR

Slippery When WetThat’s wise advice when driving in bad weather. When you hit a rough spot in the road and start to skid, every instinct screams out to hit the brakes and turn the steering wheel hard in the opposite direction. But Driver’s Ed 101 teaches us that gentle corrective action will let you straighten out and start heading the right way – and then equally gentle pressure on the accelerator lets you get moving again. We hope that simple lesson isn’t lost on our nation’s housing policy makers.

One of the major reasons the market is in such a significant skid is that it was driving way too fast and was ignoring some very basic rules of the road. There were times that the traffic not only looked the other way, but urged even more speed. No one in their right mind would suggest that keeping the pedal to the metal – in the form of issuing mortgages to anything that moves – is the remedy. But we’re concerned that there may be too much braking and over correcting. It’s almost certain that the conforming loan limits are going to drop, making loans more expensive for homes priced more than $750,000 – and that’s a very important segment of our market here. And there are other new traffic laws being contemplated – increasing down payment requirements, a significant reduction in Fannie and Freddie’s role, and reducing or eliminating the home mortgage interest deduction. The motivation for the latter seems to have more to do with raising new revenue than addressing the problems in the housing market. The adoption of any one of these policy initiatives could slow the market, and if all were enacted it would amount to jerking the steering wheel and stomping on the brakes of the market.

As concerned as we may be about policy decisions that are ultimately beyond our control, we are also reminded of our company’s history. When John McEnearney opened his doors for business in July 1980, mortgage interest rates were 17% and most loans required 10% or even 20% down.

And people still bought and sold houses. It wasn’t easy and it took a lot of creativity, but people still needed a place to live and were still attracted to the dream of owning their own home. In the intervening 31 years, we have witnessed just about every kind of market condition imaginable, and current conditions could certainly be better. Yet this week, and next week, and the week after, more than 125 sellers and buyers will reach agreement on contract terms to buy and sell a home in Loudoun County, and more than 1,000 in the metro area. That’s surprising to some in the face of all the negative news, but it is reassuring to us.

This is a resilient market, and folks will find ways to adapt to whatever conditions exists, just like we always have.



September 2011 Interest Rates
MORTGAGE RATES

  • Interest rates have nothing to do with a sluggish market, as rates are lower than any time since the Eisenhower administration.
  • 30-year fixed interest rates at the end of August averaged 4.22%, compared to 4.36% at the end of August 2010.
  • That 4.22% figure represents a new historical low, besting the October 2010 number of 4.23%.

 




New Contract Activity
NEW CONTRACT ACTIVITY

  • There were almost 450 homes that went under contract in August, traditionally one of the slowest months of the year.
  • That includes 6 homes priced more than $1 million.
  • Almost half of all the homes going under contract in August were on the market for 30 days or less, suggesting that buyers will act quickly when they see well-priced homes.

 




Month's Supply
MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of August was just 3.7 months.
  • In the lower price ranges, there’s surprisingly little inventory of properly priced homes – the ones that are priced right are not staying on the market long.
  • There’s just a 48-day supply of homes priced less than $300,000.

July/August 2011

07/01/11 by David Howell

A Double-Dip is Great - When It's Ice Cream

But not when it's the real estate market. Six months ago, the national conversation was about when the housing market recovery would start, but there's far more talk now about whether we're headed back downhill. So how likely is a double-dip in the Loudoun County's market?

Let's take a look at six key indicators: Prices, unemployment, inventory, contract activity, mortgage delinquencies, and "velocity."

PRICES:

The Case-Shiller Index says metro DC is the only region in the country where prices are going up – 4.0% in the last year. The Federal Reserve Bank of Richmond says they're down 3% in the same time frame. Who are you to believe? In our view, they're both wrong, even though they have a few more economists on their staffs than we do. Although the statistical average price is up 4.6% in Loudoun County through the first six months of the year, that is entirely due to a significant shift in what is selling. Last year, homes priced less than $350,000 were 50% of the market and homes priced more than $600,000 were 14%. This year, the market for $350K or less is 45% of the total and $600K or more is 16%. That shift alone accounts for the arithmetic increase in average prices. Based on our boots on the ground experience, prices are stable in most of Loudoun; there's just not much movement either way.

UNEMPLOYMENT:

Rates are higher than we'd like to see, but we're very fortunate here. The rate in Loudoun is 4.1%, while the national average is 9.1%. We're adding jobs every month, albeit at a pretty slow pace.The cloud on the horizon is the potential for significant cuts in federal spending, and that would have a negative impact on this region.

INVENTORY:

There are just about the same number of homes on the market now as there were this time last year, and there has been an almost 6% reduction in new listings through the first six months of 2011. The challenges in the market are not because of too much inventory.

MORTGAGE DELINQUENCIES:

We're fortunate that Northern Virginia (the Federal Reserve includes Loudoun in the reported Northern Virginia numbers) had a much smaller percentage of sub-prime mortgage loans than the national average, and the delinquency and foreclosure rates are heading in the right direction. At the end of the 1st quarter of 2010, 6.36% of all mortgages were either 90+ days past due or in foreclosure; 12 months later that stood at 4.96%. So it is unlikely that we're going to see any serious uptick in distressed properties hitting the market.

CONTRACT ACTIVITY:

Loudoun County shines here more than any other jurisdiction in the area. Contract activity was up 3.1% in June compared to last June, and year-to-date numbers are off only slightly from the first six months of last year. Nonetheless, while there's plenty of interest among buyers, there's no sense of urgency. It takes a bargain to get a purchaser to put pen to paper, and we don't see anything in the near term that is likely to change that.

VELOCITY:

That's our term for how fast properties are selling, and there is an interesting split in the market. During the last several months, more than 50% of homes going under contract have been on the market for 30 days or less. That tells us that buyers will make a move when they see value. But if a property doesn't sell quickly, it is likely to languish on the market, as overall average days on the market have ticked up a bit.

So…based on these indicators, we think a double-dip in the housing market in Loudoun County is unlikely. But so is any significant recovery or price appreciation. It is simply going to take time to pull out of the protracted slump, and we stand by our view that we won't see "normal" price appreciation until sometime next year.

Absorption Rate By Property Type

This is another indicator of why we believe we're not headed for a "double-dip" in Loudoun. The tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for detached homes priced between $300,000 and $499,999 in June 2011 was 24.3%, indicating that slightly less than one quarter of the homes on the market for this category of homes went under contract in June. That compares to a rate of 22.4% in June 2010, and the increase means the market was slightly better in 2011 for that type of home. If the absorption rate was less in 2011 than in 2010, we have put the more recent absorption rate in red. This month there was improvement for 7 of 14 individual price categories with activity.

Absorption Rates - Condos and Co-OpsAbsorption Rates - Attached HomesAbsorption Rates - Detached Homes
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November 2018

11/27/18 by David Howell

 

Zillow's "Zestimates" Are a Bit Better Than They Used To Be

But They Are Still Inexplicably Bad

We have just completed our fifth and most comprehensive evaluation of the accuracy of Zillow.com’s “Zestimate,” the major calling card for their website. Going back to 2010, Zillow has been able to predict the market value of the homes they evaluate within 5%, high or low, a little over half the time. Evaluating 1,000 properties late this summer, they got that “close” roughly 64% of the time.

Among the reasons for that marginal improvement is that Zillow now has a direct feed from the region’s multiple listing system, giving them more timely and comprehensive information on available and sold listings. Yet Zillow seemingly ignores the most important information of all: the list price of the property, especially when there is a pending contract. 

In the table below, you can see the evolution of Zillow’s estimates – how often they get within 20%, 10% and 5% of the market value – and they have gotten a little better over time. The last two lines show the “outliers,” just how far off the mark Zillow can be. (As an example, in one case in our most recent analysis, the Zestimate was 744% higher than the actual sales price!) The last column is Realtor® pricing, showing how close the original list price of a home was to the actual sales price.

So with just two pieces of information – the original list price and the fact that the property has a pending offer – the consumer can get closer to predicting the sales price than Zillow does. The list price is within 5% of the sales price almost 90% of the time. Zillow’s model is so reliant on their sophisticated algorithms and data scientists that they choose to ignore the power of a seller and their Realtor® evaluating the property and market conditions to decide on an offering price. And if Zillow is this far off the mark when they have list price info, just how far off do you think they are for home that aren’t on the market? 

Why does Zillow produce these estimates of market value? According to their website, “The purpose of the Zestimate is provide data in a user-friendly format to promote transparent real estate markets and allow people to make informed decisions.” We agree with the first part of that statement, but not the second. If the purpose was to help people “make informed decisions,” then Zillow wouldn’t publish such misleading and inaccurate information. The real purpose is to drive traffic to Zillow.com. We get it – that’s the business they are in and they do that exceptionally well. As Realtors®, we live in a world where accuracy and accountability matter, and Zillow doesn’t. We succeed or fail based on our knowledge and service; Zillow succeeds or fails based on their ability to sell leads to agents, and that depends on web traffic. To be clear, we have no problem with Zillow’s business model or the fact that they publish estimates of property values. We simply don’t want people to think they are making “informed decisions” based on these numbers.

 

Summer 2018

08/17/18 by David Howell

 

No One Has All The Buyers.

The Perils of "Off-market" Sales

The Washington metro area has a strong real estate market characterized by remarkably low inventory, so we’re a little puzzled by the frequency of “off market” listings – those listings that are not put in the multiple listing system (MLS). One may hear them referred to as private exclusives or pocket listings, but under either banner these are homes that are not exposed to the broadest possible market.

In a market where buyers are clamoring for choices, why would a seller intentionally choose to do that?

There are some perfectly legitimate reasons – convenience, security, privacy – and sellers should get to make those choices. But as with any marketing strategy, there are winners and losers, pros and cons.

When a property is sold by word of mouth, or can only be shown by the listing agent or agents with their company, or simply not marketed in a way that every buyer has a shot at seeing, the seller may be able to get a quick, no fuss sale. If that’s the seller’s objective, so be it. But a “private exclusive” listing – by definition – excludes people.

When supply is tight, does it really make sense to restrict the demand - the number of people who have an opportunity to buy? Because that’s really what these “off-market” listings do. They limit the pool of purchasers. Sellers run the risk of missing a better offer. If the “off market” listing strategy is so wise, let’s take it to its logical conclusion: if every seller and listing agent decided to restrict the availability of their listing, wouldn’t everyone be hurt? Buyers would have nowhere to turn for ready access to every home on the market, and sellers would not have access to all the buyers.

Sellers might be attracted to an agent’s “pitch” that they or their company have the buyer for their home. But here’s the reality: no agent, no company has all the buyers, or even most of the buyers. We see these “off market” listings a bit more often in the luxury market where some may perceive that there are dominant players. In the first four months of this year, there have been just over 1,600 homes sold in the metro area in the MLS for $1,000,000 or more. There were 1,050 different agents from over 300 different companies who brought the buyers to those homes. But is the luxury market all that different? So far this year in Fairfax County, there have been 1,650 homes sold in the MLS between $500,000 and $700,000. Over 1,100 different agents from 350 companies represented the buyers of those homes. In Prince George’s County, 2,500 homes have sold between $200,000 and $400,000, and there have been over 1,500 different agents from 550 different companies.

Before a seller decides to sell their home “off-market,” perhaps the most important question to ask is this: “How many buyers do I want to miss?”

 

 


NEW CONTRACT ACTIVITY

  • The overall number of new contracts ratified in July 2018 was up just 0.5% from July 2017, and there were increases for three price categories.
  • Year-to-date, contract activity is down just 0.5%.
  • 24.6% of all homes going under contract in July had at least one price reduction. 

 

 


MONTHS' SUPPLY

  • The overall supply of homes on the market at the end of July 2018 was 1.7 months, up slightly from 1.6 months at the end of July 2017.
  • DC has the most balanced supply in the region across all but the highest price category.

 

 


AVERAGE DAYS ON THE MARKET

  • The average number of days on the market for all homes receiving contracts in July 2018 was 37 days, which remained the same from last July.

 


Winter 2018

03/13/18 by David Howell

 

More of the Same?

2017 ended with a bit of a whimper, as contract activity on our region’s real estate market cooled off along with the weather. But it was an overall solid year, with Washington, DC continuing to outpace its suburban neighbors. What’s ahead for 2018?

We’ll put our forecast into three categories: Steady State, the Wildcard, and the Tantalizing Possibility.

Steady State – With inventory in short supply, especially inside the Beltway, we expect 2018 to look a lot like 2017. There will continue to be considerable upward price pressure close-in, but we do not expect the DC market to maintain the 8%-9% annual appreciation rates of the past three years. We think it will be more like 5%, and probably less in the upper brackets. The suburbs will still be strong, particularly as more frustrated buyers look outside the inner city because of prices and inventory. Even with those factors, we’d be very surprised if the appreciation rate exceeds 3% in those areas. And regarding mortgage interest rates, it is almost inevitable that they will (finally) rise as the overall economy improves, ending 2018 around 4.75%. That rate shouldn’t discourage homebuyers.

The Wildcard – With the ink drying on the sweeping tax reform legislation, residential real estate will be impacted in at least three ways. First, with the cap on deductibility of state and local taxes and the diminished value of the mortgage interest deduction for expensive homes, it is likely that upper end home prices won’t increase as much as they would have had reform not passed. Second, the overall tax decreases for most wage earners will put money in their pockets, particularly for millennials who may be thinking about buying their first home. This should help with student loan debt, saving for a down payment, and/or increased spending – and that’s good for real estate. And third, if the economy grows as it did after the Kennedy- and Reagan-era tax cuts, that means more jobs, more income and a much healthier economic climate. Overall, we think the tax reform legislation in 2018 will be a modest, net positive for the region’s real estate market.

The Tantalizing Possibility – Three communities in our region made the short list of 20 semi-finalists for Amazon’s HQ2, with a promise that their final decision will come in 2018. Should one of those three areas be anointed to host 50,000 new employees, acres of office space, and the traffic that will come along with it over the next several years, the whole region wins. Amazon won’t be turning dirt for their second headquarters anytime soon, but the real estate boom for some city on that list of 20 could begin later this year.

 

 


November 2017

11/22/17 by David Howell

 

Absorption Rates and Sell-by Dates

Determining the appropriate list price for a home or figuring what to offer is equal parts art and science. The “art” has a lot to do with the motivation and level of risk tolerance of the parties, as well as the degree of emotional attachment to the outcome. The focus of the “science” has typically been on knowing overall market and financing conditions, and picking the most “comparable” properties to see how the subject property stacks up. Unsurprisingly, there’s a lot more to it than that.

Among the factors to consider are absorption rates and what we call “sell-by” dates. Absorption rates simply measure the percentage likelihood a property will sell in a given month. Absorption rates above 35% are reflective of a seller’s market, and rates below 20% create more leverage for buyers. Anything in between indicates a more balanced market. Sell-by dates reflect how much of the inventory sells before list price reductions are needed. Generally, when homes sell quickly they sell closer to list price, and the discount from the original list price is greater the longer they are on the market. Let’s look at some specific examples.

We analyzed the contract activity for detached homes with a list price of $800,000 to $899,999 from July through October for three communities in the metro area: Great Falls, Virginia, Bethesda/Chevy Chase, Maryland and the Spring Valley/American University Park area of Northwest DC. Great Falls had the lowest absorption rate at just under 20%, meaning that of all the inventory of available homes, only 20% on average sold in a given month. The average number of days a home was on the market before getting a contract was 37. Advantage: Buyers. At the other end of the spectrum, almost two thirds of the available inventory sold each month in Spring Valley/AU Park. The average days on the market was a remarkably low 10 days. Advantage: Sellers.  

 

 

The “sell-by” date is the threshold for considering a list price reduction. In Great Falls, homes that sold in 30 days or less sold for an average of 99% of the original list price. Those that sold after 30 days on the market sold for an average of 92% of original list, and almost all had to lower their price before receiving an offer. In Bethesda/Chevy Chase, homes selling in 21 days or less sold for 99% of original list; those that took longer sold for just 94% and all but one had to drop their list price. In the hotter Spring Valley/AU Park market, homes on the market 25 days or less sold for 105.5% of list price, but after 25 days the average dropped to just 94.3%.  Even in this market, 75% of sellers had to drop their list price to receive an offer after their home had been on the market for 25 days.

Despite very different pricing dynamics in these markets, sellers need to understand there is a critical window of opportunity to sell for the highest price. And buyers understand that if they wait for the inventory to “age” a bit, they might be able to drive a harder bargain.

 


FULLY AVAILABLE LISTINGS

  • The available inventory for October 2017 was up 15.3% from October 2016. Inventory increased for five price categories. 
  • DC was the only area jurisdiction with an increase in inventory.
  • 35.8% of all homes on the market have had at least one price reduction since coming on the market.

 



MONTHS' SUPPLY

  • The overall supply of homes on the market at the end of October 2017 was 1.9 months, which was a 12.1% increase from the supply at the end of October 2016.
  • Nonetheless, Washington, DC continues to have the lowest supply in the metro area.
  • In addition to the lowest overall supply, DC has the most balanced supply in the region across all but the highest price category.

 


 

RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON MARKET​

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in October 2017 that received contracts their first week on the market sold, on average, 2.32% above list. Those that took 4 months or longer to sell sold for 10.13% below the original price.

 


September - October 2017

09/09/17 by David Howell

 

 

Champagne, Baths – and Real Estate

Bubbles are great to have in champagne, baths, and a host of other things, but they are not good for the real estate market.

A real estate bubble generally is caused by unjustified speculation in the housing market that leads to a rapid and unsustainable increase in prices. When it bursts, prices decline quickly – often to levels lower than when the run up in prices began. The whole country experienced a painful bursting bubble almost a decade ago, and its impact was felt far beyond the real estate market.

There is no doubt that home prices have risen significantly in the metro area during the past several years and affordability, especially for first-time homebuyers, is a real concern. But are we in a bubble? The short answer is no.

From 2002 through 2005, home prices in the Washington, DC metro area skyrocketed. Demand was artificially high, driven by ridiculously low “teaser” interest rate mortgages. Prices were up 14% in 2002, 15% in 2003, 20% in 2004, and 21% in 2005. Since mortgage underwriting guidelines were essentially non-existent, more and more buyers rushed into the market to buy homes they could not afford, with the expectation they could cash in their gains later.

When those artificially low adjustable rate mortgages started to adjust and guidelines tightened, demand plummeted. There was a 40% drop in the number of home sales in 2009, compared to the peak in 2005. At the same time, the market was flooded with new inventory as homeowners rushed to sell homes they could no longer afford. With the enormous drop in demand and the jump in homes on the market, prices dropped almost 15% in 2009. Prices only started to head back up in 2012.

None of those supply and demand conditions exist today.

Let’s take a look at demand. There are three basic ways to increase the desire for housing: an upturn in economic activity, an increase in population, and generally low interest rates. To a large degree, all three of those exist today. The region’s economy is doing pretty well, especially in The District. Further, the region has grown by 1,000,000 residents in the last 14 years. Finally, low mortgage interest rates have created an extremely attractive environment for prospective home purchasers, and yet, demand has not exploded. The number of home sales this year in the metro area will be virtually identical to the number that sold in 2003. There have been significant demographic shifts – people are waiting longer to marry and form households, and student loan debt makes it harder for many to buy their first home. And despite those low interest rates, it is harder to qualify for a loan. In short, demand is reasonable, and it not being fueled by speculation.

On the supply side, inventory of available homes is at a historic low. Just as buyers are waiting longer, homeowners are staying put longer. Nationally, the median number of years sellers have been in their homes has risen from six years in 2000 to 10 years today. New construction isn’t keeping pace with household formation.  

Low inventory has certainly contributed to increasing home prices, but even in the hottest market area in The District, annual appreciation rates have been between 6% and 8% during the last three years. It is far lower in the suburbs. If demand were greater, the lack of inventory would have pushed prices much higher.

Markets seek balance over time, as long as they are not artificially stimulated or restricted. The hottest areas in our region are due for an adjustment because 6%-8% appreciation isn’t sustainable forever. In our more suburban markets, current appreciation rates are in line with historic norms. And we know that eventually, mortgage interest rates will climb, and that will ease some of the upper pressure on home prices. We believe the inevitable market adjustment will come in the form of lower appreciation rates, not a drop in prices.


 

ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for Condos/Co-ops priced $500,000-$749,000 in July 2017 was 41.4%; that compares to a rate of 40.9% in July 2016, and the increase means the market was better in 2017 for that type of home. If the absorption rate was less in 2017 than in 2016, we have put the 2017 rate in red. This month there was improvement for 9 of the 18 individual price categories – but DC still has the highest absorption rates in the region.

 



ABSORPTION RATES – CONDOS AND CO-OPS

The overall absorption rate for condos and co-ops for July was 37.6%, a slight decrease from the 38.1% rate in July 2016.
The absorption rate for condos across most price ranges is more balanced in DC than anywhere else in the region.



ABSORPTION RATES – ATTACHED HOMES

The overall absorption rate for attached homes for July was 42.0%, which is slightly less than the 42.6% rate in July 2016.
Again, look at the balance across most price ranges.


 

ABSORPTION RATES – DETACHED HOMES

July 2017’s absorption rate for detached homes was 32.3%, an increase from 30.3% in July 2016.
And the balance among the price ranges is evident here as well.

 


May-June 2017

05/17/17 by David Howell

 

MILLENNIALS FEELING THE PINCH

As millennials are entering their prime as homebuyers, they are feeling the pinch between very low inventory for entry-level priced homes and rising interest rates in the metro DC market.

Contrary to much of the conversation these days, the overall inventory of homes is not at a record low. At the end of April 2014, there were almost 5% fewer fully available homes than there are right now. However, a huge shift of the price range of homes on the market has occurred.

In April 2014, 45% of all homes on the market were priced less than $500,000, and homes in this price category constituted 67% of all sales. Today, just 33% of homes are priced less than $500,000, and the percentage of total sales has dropped to 62% of the market.

No question – inventory is down significantly from this time last year, but the decreases have not been evenly distributed. While overall inventory is down 15%, the number of homes priced less than $500,000 is down 26%. But there are 3% more homes available priced more than $1,000,000.  

In the suburban markets, the differences are even starker. In Northern Virginia and Loudoun County, there are 32% fewer homes priced less than $500K than last year, and Montgomery County is down 23%.

It isn’t just the scarcity of inventory facing millennials – or any other first-time buyer – that makes this a challenging market. Mortgage interest rates are about a half point more than they were in November, making homes slightly less affordable. And ironically, those higher rates are contributing to the relative paucity of new listings coming on the market. In our robust sellers’ market, one might expect there would be a significant jump in the number of sellers taking advantage of very favorable market conditions.

However, new listings are up only 2% in the metro area year-to-date compared to the same time last year. Plenty of homeowners who purchased or refinanced in the last few years and locked in sub-4% mortgages are in no hurry to sell their homes. The prospect of giving up those very favorable rates, only to face the prospect of buying a home in a tight market at higher rates, is keeping people in their homes longer.

Another factor preventing many millennials from buying homes is student loan debt, and that’s certainly not unique to the Washington area. In their “Student Loan Debt and Housing Report – 2016,” the National Associations of REALTORS® found that, among those who are current in their debt repayments, 71% of non-homeowners cite student loan debt as the factor delaying them from buying a home. The level of debt impacts both their ability to save for a down payment, as well as their debt-to-income ratios to qualify for a mortgage. The delay in buying a home among non-homeowners and homeowners alike is five years.

So, buyers of entry-level homes are truly feeling the pinch of low inventory and higher interest rates.  Nonetheless, perspective and patience are both virtues.  Mortgage rates are still extraordinarily low from a historical perspective, and markets seek balance over time. Millennials and anyone else can be successful buyers with planning and persistence.

 


FULLY AVAILABLE LISTINGS

  • The available inventory for April 2017 was up just 0.8% from April 2016. Inventory increased for four price categories.
  • DC was the only area jurisdiction with an increase in inventory, even though that increase was very modest.
  • 31.0% of all homes on the market have had at least one price reduction since coming on the market. 

 

 


CONTRACT ACTIVITY

  • The number of new contracts ratified in April 2017 was down 8.8% from April 2016, and there were increases for two price categories.
  • As noted on page 3, contract activity year-to-date is up 3.9%.
  • Only 20.3% of all homes going under contract in April had at least one price reduction.  

 

 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of April 2017 was 1.4 months, up slightly from 1.3 months at the end of April 2016.
  • Nonetheless, that’s the lowest supply in the metro area.
  • In addition to the lowest overall supply, DC has the most balanced supply in the region across all but the highest price category. 

 

 

March-April 2017

03/30/17 by David Howell

 

THE IMPACT OF RISING MORTGAGE RATES

It finally happened – after years of speculation and expectation, mortgage interest rates have climbed since the national elections in November.

During the past forty years, the interest rate for 30-year fixed rate mortgages has averaged 8.2%. From the beginning of 2000 through 2012, the average was just under 6.0%. But from early 2013 until mid-November of last year, rates averaged an astoundingly low 3.8%. It’s a funny thing – when rates stay low for an extended period of time, people get used to them, and also tend to forget that they couldn’t stay that way forever.

 

 

In the weeks after the election, rates moved from 3.5% to 4.3%, and have since floated between 4.0% and 4.2%. To be sure, mortgage interest rates are still very low, but potential homeowners have lost about 6% of their purchasing power in just a few weeks. The monthly principal and interest payment on a $400,000 mortgage in early November was roughly $1,800. A borrower getting that same mortgage today would pay $1,925.

So a big jump in a short time is a market killer, right? In fact, at least on the short term, exactly the opposite is happening. Many buyers who have been sitting on the fence have decided to purchase before rates go much higher. During the past three months, contract activity is up 12% compared to the same time period a year earlier. This uptick in activity may seem counterintuitive, but it is what we have always seen when rates rise.

From May to August 2013 rates jumped a full percentage point from 3.5% to 4.5% – but contract activity rose 13% from the same time in 2012 when rates averaged 3.6%. It is also likely that, given the recent action by the Federal Reserve Chair raising its target rate, mortgage rates will continue to trend higher through the rest of 2017.

We’re not suggesting that rising rates are good for the real estate market, and there is no doubt that higher rates will price some out of the market and prompt others to lower their price point. Yet rising rates are not a huge negative either, at least in the short term. It is important to view these increases in a broader context. The fundamental reason that rates are climbing is that the national economy is improving. And that means household income is rising, the job market is improving and more people will be in a position to buy.

We’d like to offer one more bit of historical perspective. When John McEnearney opened the doors to our company in July 1980, mortgage rates stood at 12.0%. One year later they were 17.0%. That’s right: 17.0%. And people still bought houses. To be sure, it was a lot tougher, but owning a home was just as important then as it is now.

 


FULLY AVAILABLE LISTINGS

  • The available inventory for February 2017 was up 8.8% from February 2016. Inventory increased for the top three price categories.

  • 29.2% of all homes on the market have had at least one price reduction since coming on the market.

 

 


CONTRACT ACTIVITY

  • The number of new contracts ratified in February 2017 was up 9.6% from February 2016, and there were increases for all price categories.

  • Contract activity year-to-date is up 15.2%.

  • Only 23.8% of all homes going under contract in February had at least one price reduction. 

 

 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of February 2017 was 1.5 months, the same as the supply at the end of February 2016.

  • That’s the lowest supply in the metro area.

  • In addition to the lowest overall supply, DC has the most balanced supply in the region across all but the highest price category.

 

 

 

November - December 2016

12/04/16 by David Howell

 

IS THERE AN INVENTORY PROBLEM?

With the number of fully available homes on the market near record lows for this time of year and with fewer new listings coming on the market, is there any relief in sight for buyers who are frustrated by their lack of choices? And why aren’t more sellers taking advantage of this low inventory by putting their homes on the market?

We don’t see any relief on the horizon. There are really only three ways to create a net increase in inventory. The first is new construction, and while construction permits have increased, there is an estimated shortfall of 50,000 units over the next 5 years just to meet new household formation. The second way inventory increases involves investors selling units that they have been holding as rental properties. With rents rising faster than home prices, there is no market pressure for that to happen. And the third way is homeowners leaving the area and selling their residences. While there is always emigration from the metro area, we are still attracting more people than we are losing.

We’re not minimizing the impact of current homeowners who sell and buy another home in the area, but that doesn’t create a net increase in inventory. On top of that, the current low inventory climate actually discourages some from moving. While they may be confident they can sell their current home, they lack confidence they can find their next one with relatively few homes on the market.

 

 

There is another undeniable fact that is keeping a lid on movement by existing homeowners: people are staying in their homes longer than they used to. In their 2016 Profile of Home Buyers and Sellers, the National Association of REALTORS® reported that the median number of years a seller remained in their home was 10 years. From 1987 – 2008 it was just six years. That is a seismic shift. A large part of that jump is the simple fact that many could not move even if they wanted to during and after the crash of the real estate market that started in 2006. But even as equity has returned to the overwhelming majority of the nation’s homeowners, they just aren’t in a big hurry to sell.

Economist Elliot Eisenberg summed up the impact of this demographic trend in a recent post: “The percentage of Americans that moved fell to an all-time low of 11.2% in 2016 from a peak of 42% in the early 1950s. Numerically, moving activity topped out in 1984 at 45 million and has steadily fallen to 35 million today, the same level as in 1962.” The population of the United States was 186,000,000 in 1962; today it is over 324,000,000.
When people don’t move as often, inventory is going to suffer.

The Washington area is certainly more transient than the nation as a whole, but we’ve seen our “seller tenure” change as well. In 2000, the median number of years a seller was in their home was 6.5 years. So far in 2016, it’s 8.5 years. We know this period of tight inventory won’t last forever, but there are some fundamental reasons it won’t change any time soon.

MARKETWATCH ARCHIVE - WASHINGTON, DC

 


FULLY AVAILABLE LISTINGS

  • The available inventory for October 2016 was down 7.5% from October 2015.

  • Inventory increased for two price categories.

  • 34.1% of all homes on the market have had at least one price reduction since coming on the market.

     

 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of October 2016 was 1.7 months, which is a 6.5% decrease from the supply at the end of October 2015.

  • That’s the lowest supply in the metro area by almost a month.
    In addition to the lowest overall supply, DC has the most balanced supply in the region across all but the highest price category.

     

 


RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON THE MARKET

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.

  • Homes settling in October 2016 that received contracts their first week on the market sold, on average, 2.7% above list. Those that took 4 months or longer to sell sold for 7.1% below the original price.

 

 

September - October 2016

09/02/16 by David Howell

 

DO ELECTIONS REALLY IMPACT OUR REAL ESTATE MARKET?

32,000 jobs. Theoretically, that is how many are up for grabs in this town in our quadrennial election cycle, and that much potential turnover has to have an impact on the real estate market, doesn’t it?

Let’s take a look at the Executive Branch. Regardless of the outcome, there will be a change in the occupant of the White House, and there are roughly 3,000 presidentially appointed jobs. Let’s assume the every one of those jobs changes and a considerable number of lower level staff positions change along with them. That could be as many as 8,000 jobs. The reality of Washington’s political job market is that many who will fill those jobs already live here. People cycle in and out of public sector jobs with considerable frequency. But let’s be generous and estimate that half of those 8,000 jobs will be filled by people who relocate to the metro area. Let’s also assume that half of those will buy homes sometime in their first year here. Although our experience tells us that is a dramatic overestimate, that would be 2,000 home sales.

There are 24,000 jobs on Capitol Hill, but close to 9,000 are considered “non-partisan” and generally do not change with election cycles. So, the “political” staff on The Hill numbers about 15,000. But even with 435 House and 33 or 34 Senate seats on the line each election cycle, there is usually not an enormous amount of turnover. In 2014, 95% of the members of the House running for re-election won. 41 members retired - and their party kept the seat in each and every case. There was a significant change in the Senate, however, with a net change of 9 seats. 2010 saw the biggest party change in recent memory with a 15% change in the House and a 16% change in the Senate. So, if we take an extreme example and assume we have another major “change” election like 2010 with a 15% turnover in Congress and also assume that there was a 100% turnover in the staff of those newly-elected members, that would translate to 2,250 jobs changing hands. Most staff jobs on Capitol Hill pay less than $50,000 per year, and many newly elected officials look for rental housing or even live out of their offices. As is true with the Executive Branch positions, some of the people who will fill the new Congressional staff positions already live in the Washington area. But we’ll apply the same logic ñ let’s assume that half of the new hires come from out of town and half of those buy a home sometime in their first year in town. That would be about 560 home sales.

 

 

 

How much impact would 2,500 additional home sales have on our market? There were slightly more than 50,000 home sales in the immediate DC metro area last year, so that would be a 5% increase. But as the table shows, there is no historical correlation between home sales and election results. On the heels of the major changes in the makeup of Congress in 2010, the number of sales in the immediate DC area fell almost 5% the following year. The election of 2008 brought a change in the White House and a change of 29 seats in Congress. There was an increase of almost 20% in the number of sales in 2009 compared to 2008 - so on the surface one might be tempted to say these elections had a major impact on the region’s real estate market. However, in February of 2009 Congress passed and the new President signed into law the first round of the Homebuyer’s Tax Credit, and the number of sales jumped nationally, too. 

As we have discussed many times, there are other significant factors at play in the real estate market. Individuals do not make a decision to purchase a home in a vacuum. Just moving to the area to take a new job - even a new job on the Hill or in the Executive Branch - does not cause an individual to ignore overall market conditions or their personal circumstances. Also remember, that while there may be new occupants of these jobs, these are not “new” jobs like those we see created when a company moves to the area. National elections may make a big difference when it comes to policy, but not to the local real estate market.

 

MarketWatch Archive for Washington DC

 


MORTGAGE RATES

  • 30-year fixed interest rates at the end of July averaged 3.48%, compared to 3.98% at the end of July 2015.

  • One-year adjustable rate mortgages were 2.78% at the end of July 2016, which is up from 2.52% at the end of July 2015.

 


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $223,250 at the end of July, which is $13,282 more than July 2015 and $57,880 more than July 2004.

  • Just after the market’s peak in July 2006, it would have taken a monthly PI payment of $3,068 to purchase a median-priced home. Today’s lower rates have had a dramatic impact ñ now it takes a payment of $2,292 to buy a median-priced home. That’s a 25.3% decrease.

 


RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON THE MARKET
  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.

  • Homes settling in July 2016 that received contracts their first week on the market sold, on average, 2.29% above list. Those that took 4 months or longer to sell sold for 12.98% below the original price.

 

July - August 2016

07/26/16 by David Howell

 

A TALE OF THREE CITIES

 

With apologies to Charles Dickens, these are neither the best of times nor the worst of times for the Washington, DC metropolitan area real estate market. We’d like to take a little poetic license and discuss pricing trends in our area with “A Tale of Three Cities.”

How much have home values changed during the past year? That’s probably the question we’re most often asked. Here’s a direct answer: the average sales price in the metro DC area is up 1.2% from this time a year ago. And how does that relate to the value of your home? It doesn’t. Market conditions vary from area to area, and we think the recent market activity in three “cities” illustrates this perfectly.

Chevy Chase is a close-in community that straddles both Maryland and Washington, DC. Great Falls, Virginia is a suburban oasis between McLean and bustling Loudoun County. Potomac, Maryland is home to large estates just 15 miles from downtown DC. All three communities have average sales prices just above $1,000,000, and during the past decade all have had roughly comparable market metrics, with one exception. Those key indicators are: average days on market, the ratio of sales price to list price, the percentage of homes selling above list price, and the percentage of homes selling in a week or less. Taken together, think of these as pricing dynamics. The exception, by the way, is that Chevy Chase has always had shorter average days on the market than Potomac and Great Falls.

So far this year, the pricing dynamics in these three cities has shifted significantly, as the chart below indicates.

 

 

There has been a clear change in consumer demand, as more than one-third of the buyers in Chevy Chase have been willing to pay above list price and almost half of the homes have gone under contract in a week or less. It’s no wonder that there is upward pressure on prices. We’re seeing the opposite effect in Great Falls and Potomac. Roughly one in 20 homes sells above list price and one in four sells in the first week on the market. The pricing dynamics in these communities have changed in ways that mirror what we’re seeing elsewhere in the market. Demand has shifted more toward walkable communities convenient to employment centers and public transit.

We’d also like to make a note about “average” prices. The table above indicates that the average sales price in Chevy Chase is up 13.3% over the last year, and that’s absolutely true. Keep in mind that this is an arithmetic computation that gives a general, very positive indication of the direction of the market, not the market value of an individual home.

 

MarketWatch Archive for Washington DC


ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for condos and co-ops priced $750,000-$999,999 in June 2016 was 36.8%; that compares to a rate of 33.0% in June 2015, and the increase means the market was better in 2016 for that type of home. If the absorption rate was less in 2016 than in 2015, we have put the 2016 rate in red. This month there was improvement for 8 of the 18 individual price categories, and one remained the same.

 


ABSORPTION RATES – CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for June was 39.2%, a slight increase from the 38.5% rate in June 2015.
  • The absorption rate for condos across most price ranges is more balanced in DC than anywhere else in the region.

 


ABSORPTION RATES – ATTACHED HOMES

  • The overall absorption rate for attached homes for June was 49.4%, a slight decrease from the 50.1% rate in June 2015.
  • Again, look at the balance across most price ranges.

 


ABSORPTION RATES – DETACHED HOMES
  • June 2016’s absorption rate for detached homes was 33.3%, a decrease from 37.7% in June 2015.
  • And the balance among the price ranges is evident here as well.

 

March - April 2016

04/04/16 by David Howell

 

 

Time Kills

We know from experience that most of the time, homes that sell quickly sell much closer to their original list price than those that take longer to sell. Why is that? It’s because time kills.

With the nature of the Internet, buyers know the moment a property comes on the market. In the old days, if a potential buyer was interested, they might arrange a showing to go see the property. Today, that showing is online and immediate. Based on its price, condition, and location, a home either communicates value to that consumer – or if it doesn’t, they move on and look elsewhere. Bringing them back to that property means changing the value equation – which usually means changing the price.

Think of it this way: When a home first comes on the market, everyone who is looking for that type of home in that price range and location sees it right away. If it doesn’t sell, those potential buyers have moved on and, as time goes by, only buyers new to the market are discovering the home. There are always new buyers coming into the market – but by definition, it is a smaller group than all the buyers that were looking when the house first came on the market.

The charts to the right show the web traffic for two of our listings that recently went under contract. To make sure the comparison is fair, these are homes that are in the same neighborhood, listed by the same agent and at very similar list prices.

The first property was listed in September of last year. Web traffic – online showings – spiked quickly in the first week and then began a steady decline. A price reduction in late October increased web traffic, but not to the levels seen when the house was first on the market. An early December price reduction had almost no impact on traffic, and it wasn’t until a substantial price drop in early January that traffic spiked again – and the property finally went under contract three weeks later. Total time on the market was more than 150 days, and the total price reduction was 14% before someone felt compelled to make an offer. And that offer was 3% lower than that new list price.

The second chart shows the benefits of coming on the market at the correct initial price. Just like the first example, traffic spiked and then started to taper off. The difference is that buyers perceived value at the initial list price, and in a week, a contract was successfully negotiated. The sellers came on at a compelling price, rode the online traffic wave and got their home sold at almost full list price.

We’re not suggesting that it works this way every time because there are always exceptions. But time after time, listing after listing, we see the consequences of pricing strategy – both good and bad. And far more often than not, for sellers, the wrong price means a longer time on the market, and time kills.

 

MarketWatch Archive for Washington DC


  • As we have noted above – time kills, and initial pricing strategy is critical to seller’s success.
  • Homes settling in February 2016 that received contracts their first week on the market sold, on average, 2.35% above list. Those that took 4 months or longer to sell sold for 8.69% below the original price.

  • The average number of days on the market for all homes receiving contracts in February 2016 was 46 days, which is a decrease of 8.0% from 50 days in February 2015.
  • DC is the jurisdiction with the lowest average days on market, twenty-one days lower than the next best area.

  • The overall supply of homes on the market at the end of February 2016 was 1.5 months, which is a slight decrease from the 1.6 months’ supply at the end of February 2015.
  • That’s the lowest supply in the Metro Area.
  • In addition to the lowest overall supply, DC has the most balanced supply in the region across all but the highest price category.

January - February 2016

02/04/16 by David Howell

WHAT’S AHEAD FOR 2016?

2015 was better than 2014 across the entire metro DC area for the two most important metrics – total settlements and new contract activity – but most other indicators were a little worse. With the exception of Washington, DC itself, homes took a little longer to sell, price appreciation was moderate at best and overall supply rose as more new listings came on the market. 

What’s ahead for 2016? We think the market is headed toward something we haven’t seen in almost 15 years: normalcy. During the past decade and a half we’ve seen some wild swings in real estate, from the pause after the horrors of September 11, to the rapid run up in home prices 10 years ago with teaser rate mortgages and people buying homes who could not possible afford them, to the crash that followed.

“Normal” means a supply of three to four months of inventory along with modest and sustainable price appreciation in the range of 1%-3%. Of course, there will continue to be regional differences, with walkable communities and those areas close to major employment centers and Metro faring better than others. And that means that DC will still outperform its suburban neighbors in 2016.

There are three fundamental reasons we think 2016 is going to look a lot like 2015:

The first is the economy, regionally and nationally. The overall news isn’t bad, but it isn’t great either. Sure, the employment numbers are very encouraging – but real incomes haven’t risen. Lower oil prices have put more money in people’s pockets, but oil producers are going to take a big hit – and so are their employees. That won’t be good for the overall economy. We just don’t see anything on the horizon that tells us things are going to be a lot better.

The second is interest rates. Today, mortgage interest rates are still under 4% and we haven’t seen anyone project rates by year-end any higher than 4.9%. There’s no doubt that rising rates will make home slightly less affordable, but the bigger hurdles for buying a home for most people are the down payment and debt-to-income ratios, not the payment. We’re not suggesting that rising rates are good for the housing market – we just don’t see a major negative impact in 2016.

The third reason: Urgency. A couple of years ago, we created a rudimentary indicator of the health of the market called the “Urgency Index.” This is simply the percentage of homes going under contract in any given month that were on the market for 30 days or less. The higher the percentage, the greater “urgency” buyers felt to act. DC has consistently had the highest Urgency Index in the region during the past several years. For all of 2015, the suburbs had a UI of about 50% while DC’s was 67%. Over the last several months, the suburban markets have seen their UI drop a bit while DC’s has held steady. But in both cases, buyers aren’t in a huge hurry to snap up homes the moment they come on the market.

In short, we think 2016 will be a good – not great - year with a return to normalcy.

One more thought: This is an election year, and every election cycle we hear the speculation that the outcome will have a major impact on the local real estate market. It won’t – regardless of the results. As we get a little closer to November, we’ll talk about why. Just don’t change your plans to sell or buy because there’s an election on the horizon – make the move when it makes the most sense for your personal circumstances.

MarketWatch Archive for Washington DC


New Contract Activity

  • The number of new contracts ratified in December 2015 was up 5.1% from December 2014, but there were decreases for four of the six price categories.
  • Contract activity for the full year 2015 was up 5.7%.
  • 29.6% of all homes going under contract in December had at least one price reduction. The other jurisdictions in the Metro Area are typically seeing 43% - 48% of homes with a price reduction before receiving a ratified contract.

Buying Power

  • A $1,000 principal and interest payment supported a loan of $209,209 at the end of December, which is $3,579 less than December 2014 and $24,738 more than December 2008.
  • We expect the interest rates on a 30-year fixed mortgage will increase to no more than 4.9% by the end of 2016 – and we won’t be at all surprised if they top out at 4.5% this year.

Urgency Index

  • In the past 12 years, the December Urgency Index has been as high as 62.2% and as low as 30.1%.
  • Look how much buyer expectations changed from December 2005 to 2006.
  • The number of ratified contracts increased by 17.6%, but the Index fell by 34.8%, indicative of some real buyer pessimism.
  • The average December Urgency Index during the past 12 years is 44.1% - which is significantly lower than where it is now in DC.

November - December 2015

12/04/15 by David Howell

GETTING IT RIGHT THE FIRST TIME

Market Watch with David Howell from McEnearney Web Team on Vimeo.

It is critically important to price a home correctly when it first comes on the market. The reason is simple: The greatest numbers of buyers are going to see the house during the first two or three weeks.

Sellers who price their home correctly are likely to be rewarded. Those who overreach, who think they can “just wait for the right buyer to come along,” are likely to be disappointed. That usually means sitting on the market and taking a big hit financially.

We took a look at all resale homes that went to settlement in The District as well as the Metro DC area in October and November 2015 and broke them down into just two categories: Those that had to reduce their initial list price before receiving a ratified contract (homes with the “wrong” price); and those that came on the market at the “right” price and never had to drop their list price.

The consequences of pricing strategy were starkly different, as the tables below show. Homes that had to reduce their price before attracting a buyer were on the market four times longer in the District and three times longer in the Metro area as a whole – an average of 80 days in DC and 98 days in metro DC, compared to correctly priced homes that sold in just 20 days in the District and 30 days in metro DC. Sellers of homes with the right initial price were less likely to pay any subsidy, and when they did, it was likely to be a smaller subsidy. In both cases, fewer than half of sellers of correctly priced homes had to pay a subsidy.

But the biggest impact of pricing strategy is on the final sales price. Homes that sold without having to reduce their price sold for an average of 99.86% of the list price in DC and 98.4% in the metro area. Those that came on the market too high had to reduce their price by roughly 6% before a buyer was willing to make an offer. And when that offer came in, those sellers had to negotiate a further reduction, ultimately settling at an average of almost 12% below their original price in DC and 10% below the original price in the metro areas.

So let’s sum it up. Homes that hit the market at a price that attracts buyers are on the market an average of just one month and sell very close to list price. The wrong price means much longer time on the market and a very deep discount off the original price.

Buyers will move forward on homes that are priced correctly, and they will take a pass on those that aren’t. Getting the price right from the beginning is the most important thing a seller can do. It really is that simple.


MarketWatch Archive for Washington DC


NEW CONTRACT ACTIVITY

  • The number of new contracts ratified in October 2015 was up 5.0% from October 2014, and there were increases in all but two of the six price categories.
  • Contract activity year-to-date is up 5.4%.
  • 25.3% of all homes going under contract in October had at least one price reduction. The other jurisdictions in the Metro Area are typically seeing 42% - 50% of homes with a price reduction before receiving a ratified contract.

Fully Available Listings

  • The available inventory for October 2015 was up 2.1% from October 2014. 
    38.1% of all homes on the market have had at least one price reduction since coming on the market.
  • The four highest price categories increased in inventory.

RELATIONSHIP OF SALES  PRICE TO ORIGINAL PRICE vs. DAYS ON MARKET

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in October 2015 that received contracts their first week on the market sold, on average, 3.14% above list. Those that took 4 months or longer to sell sold for 14.36% below the original price.

September-October 2015

10/07/15 by David Howell

A SOLID – BUT UNEVEN - RECOVERY

Market Watch with David Howell from McEnearney Web Team on Vimeo.

2015 has been a recovery year for the real estate market in metropolitan Washington, DC, with every jurisdiction seeing an increase in contract activity compared to last year. Some areas are faring better than others, and we have taken a deeper look at how different today’s market is than the real estate boom a decade ago.

The significant market expansion that occurred from the early 2000s through 2005 or 2006 started out on a very firm foundation of an expanding national economy with demand being driven by rising incomes and significant household formation. This may be a bit of an over simplification, but we all know the story of how that expansion was artificially extended by risky mortgage programs that brought millions of purchasers to the market who ultimately couldn’t afford to make payments when their interest rates rose and prices started to fall. A bust followed that boom, and it has taken the better part of 8 years to climb out of the deep trench.

We’re fortunate that today’s recovery isn’t like the boom – it has been slower, mirroring the slow pace of the national economy returning to health. And there are no “funny money” mortgages this time around to artificially create demand. In general, people are buying or selling because they need to. Another big difference is where people are buying.

A decade ago, the Northern Virginia suburbs were on fire, in no small part due to the boom in defense spending. The entire region benefited from that, but Northern Virginia especially so. Among the four jurisdictions we track most closely – Northern Virginia, Loudoun and Montgomery Counties and Washington, DC – almost 50% of home purchases in 2004 occurred in Northern Virginia. Montgomery County got about a quarter of all home sales, Loudoun was at 14% and DC was at 13%. So far this year, Northern Virginia’s share has dropped to 44% while DC’s has risen to 17%. At a quick glance, that may not seem like a lot, but that’s a 32% increase in the size of DC’s piece of the pie.

We compared contract activity for the first eight months of 2015 to the first eight months of the peak year of the last boom for each of four key areas. So far this year, The District is just 4.2% below the contract activity of its top year, 2005. The suburbs are still well off the peaks they experienced in 2004, with Montgomery County contract activity off 24.1%, Loudoun County off 27.0% and Northern Virginia off 31.5%. It’s remarkable to know that The District is seeing almost as many homes go under contract as it did at the absolute top of the market a decade ago while the suburbs are not yet seeing a commensurate number of transactions.

There isn’t any one reason for Washington, DC’s remarkable performance, but there is no doubt that suburban traffic congestion plays a role, as more people are willing to sacrifice the space of larger suburban homes for the convenience of being closer to work.

 


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $213,567 at the end of August, which is $6,613 more than August 2014 and $53,499 more than August 2008.
  • In August 2008, it would have taken a monthly PI payment of $2,452 to purchase a median-priced home in Washington, DC. Today’s much lower rates have offset the much higher prices. It now takes a payment of $2,435 – just 0.7% less.

AVERAGE NUMBER OF DAYS ON THE MARKET – NEW CONTRACTS

  • The average number of days on the market for all homes receiving contracts in August 2015 was 43 days, which is a tiny increase of 2.4% from 42 days in August 2014.
  • DC is the jurisdiction with the lowest average days on market, ten days lower than the next best area.

RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON MARKET

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in August 2015 that received contracts their first week on the market sold, on average, 2.87% above list. Those that took 4 months or longer to sell sold for 8.47% below the original price.
     

July-August 2015

07/29/15 by David Howell

DON’T MISS YOUR PERFECT HOME

Market Watch with David Howell from McEnearney Web Team on Vimeo.

More than 90% of people start the process of looking for their next home by going online, and if one searches the term “Washington DC homes,” there are more than 134,000,000 results. How can you be sure not to miss the perfect house buried in all that info?

If you are like most Americans, you’ll skip to one or more of the big, national portals – Zillow, Trulia and/or Realtor.com. Each has assembled an enormous amount of information in a consumer-friendly interface. While we encourage you to look at these sites, we also want you to understand they simply do not have complete and accurate listing content.

We recently took a snapshot of listings in our local multiple listing system (MLS) in zip codes where we have offices. The results showed 910 listings for sale, active or pending. In Zillow, there were only 703. In Trulia, there were 706. And Realtor.com showed too many listings with 940. This is due to the enormous amount of data feeds these portals are receiving from local brokerages (like us) and MLS systems across the country. It’s a challenge for them to assimilate all the data on a timely basis. And for Zillow and Trulia, lots of sellers opt-out of having their home displayed due to the inaccuracy of the computer-generated estimate of their home’s value. We just completed our annual research project for the accuracy of Zillow’s “zestimates” and looked at the portal’s estimated value of over 450 properties across all price ranges in the Metro DC Area, before they were scheduled to settle. We then compared those estimates to the actual sales price – and, as found in our prior studies, they continue to be inaccurate. Zillow’s estimates were only within 5% high or low of the actual sales price less than half of the time. And one in 10 properties showed wildly inaccurate estimates at more than 20% high or low of actual sales price. These computer-generated estimates simply cannot take into account the condition of a specific home nor local market conditions that can and do change daily; and it is no wonder that some sellers may wish to not have their home appear side-by-side with an estimated value that is so frequently inaccurate.

What does all that mean for you, especially if you’re looking for a home? Reliance on only the national portals means you will miss listings that are on the market, and you will find listings for sale that have already sold. At best, that leads to frustration – at worst, it means missing the home that was perfect for your needs. So what should you do? By all means, look at those national portals, but remember to rely on your local brokerage for accurate information. Remember those 910 listings that were in our local MLS? On McEnearney.com, there were 911. We update our listing content every 15 minutes.


90% of people start their search online – and 85% use a REALTOR® to help them buy their home. Partnering with a great agent can give you the confidence that you will find your perfect home. Knowing what to offer, negotiating the right price, and attending to all of the details between contract and closing simply cannot be done by a national search portal. It can be done only by a great agent who knows the local real estate market and understands your interests and needs.

 

ABSORPTION RATE BY PROPERTY TYPE - WASHINGTON, DC

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for condos/co-ops priced $300,000-$499,999 in June 2015 was 49.0%; that compares to a rate of 44.0% in June 2014, and the increase means the market was better in 2015 for that type of home. If the absorption rate was less in 2015 than in 2014, we have put the more recent absorption rate in red. This month there was improvement for 12 of the 18 individual price categories.


ABSORPTION RATES – CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for June was 38.5%, a slight increase from the 37.0% rate in June 2014.
  • The absorption rate for condos across most price ranges is more balanced in DC than anywhere else in the region.

ABSORPTION RATES – ATTACHED HOMES

  • The overall absorption rate for condos and co-ops for June was 38.5%, a slight increase from the 37.0% rate in June 2014.
  • The absorption rate for condos across most price ranges is more balanced in DC than anywhere else in the region.

ABSORPTION RATES – DETACHED HOMES

  • June 2015’s absorption rate for detached homes was 37.7%, an increase from 33.8% in June 2014.
  • And the balance among the price ranges is evident here as well.

May-June 2015

06/04/15 by David Howell

IN A SELLER’S MARKET, EVERYTHING SELLS - RIGHT?

Market Watch with David Howell from McEnearney Web Team on Vimeo.

We’ve had a very healthy spring market in the Washington, DC area. Of course, some areas are faring better than others and pockets in DC and some of the close-in suburbs are seeing multiple offers and homes selling for more than list price. By almost every measure, this is a seller’s market. And in a seller’s market, everything sells – right?

Well, not exactly. Despite a strong spring market, there are still plenty of properties that have not sold. And there are three market indicators that can help explain why the wanna-be sellers are not getting their homes sold.

The first is the fall-through rate – those are the homes that go under contract that, ultimately, do not go to settlement. As hard as this may be to believe, 1 in every 8 homes that have received ratified contracts this year have fallen through and did not make it to settlement. This may be due to home inspection issues or purchaser financing – but whatever the cause, 13% of sellers who initially think they have their home sold find that’s not the case.

The second is homes that linger on the market. Right now, there are more than 3,000 homes on the market in the immediate Metro area that have been on the market for 90 days or longer. And it’s not just homes at the upper end of the market. More than 500 of those homes are priced less than $300,000.

And the third is homes that are removed from the Multiple Listing Service (MLS) without selling. In April, there were almost 1,000 homes that were on the market for at least 90 days that had expired as unsold or were withdrawn. Some of those may be re-listed, but to put it in perspective, there were just over 4,000 homes that went to settlement in April and 1,000 that were taken off the market.

Does this mean that the market is shifting or turning softer? No. And we continue to see positive indicators across all jurisdictions.  But it does mean that proper marketing matters. Negotiating skills matter. And above all, price matters.

The price at which a home comes on the market is critically important. That requires careful research by a knowledgeable REALTOR® and a seller who is willing to avoid the trap of believing that everything sells. It requires listening to what the market is saying and making a price adjustment sooner rather than later, if an offer doesn’t materialize.

The significant numbers of homes that have been on the market for a long time, and those that have been removed from the market, certainly stand in stark contrast to the homes that are priced right and sell quickly.

It’s still a very good market – for homes that are priced right.

While “private exclusives” exist in all price ranges, they seem to be more prevalent for upper bracket properties. There were 369 homes that sold in the District of Columbia for $1,000,000 or more in the last six months in the MLS. There were 58 different real estate firms, and even more remarkably, 258 different agents representing those buyers.

Additionally, as the table indicates, this broad diversity of firms and agents selling upper bracket homes isn’t any different in Maryland or Virginia. What’s important to note is that most of these buyers never knew about other homes for sale on the market that were tagged “private exclusive” with “quiet” or minimal marketing. Those sellers simply missed out on those buyers – and those buyers missed out on those homes.

Sellers should also consider that privately listing their home could be seen as an intention to screen interested buyers in ways that could appear to be discriminatory. Care has to be taken that no one is excluded from a “private exclusive.”

Think twice if you are a homeowner contemplating a “private exclusive” sale. Ask yourself whether going that route is best for you and whether you would get the best price for your home.

 


New Contract Activity

  • The number of new contracts ratified in April 2015 was up 5.8% from April 2014.
  • 13.6% of all homes going under contract in April had at least one price reduction. The other jurisdictions in the Metro Area are typically seeing 23% - 30% of homes with a price reduction before receiving a ratified contract.
  • Year-to-date contract activity is up 4.8% compared to the first four months of 2014.
 

FULLY AVAILABLE LISTINGS

  • The available inventory for April 2015 was up 5.5% from April 2014. All other areas are up by at least 21%.
  • 28.2% of all homes on the market have had at least one price reduction since coming on the market. 
  • Two price categories dropped in inventory.
 

List Price to Sales Price

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in April 2015 that received contracts their first week on the market sold, on average, 2.3% above list. Those that took 4 months or longer to sell sold for 9.2% below the original price.
 
 

March-April 2015

04/02/15 by David Howell

ARE PRIVATE EXCLUSIVES A GOOD IDEA?

Market Watch with David Howell from McEnearney Web Team on Vimeo.

You may have heard the term “private exclusive” listing – it refers to a property that is not broadly marketed to the public, but instead, offered by word of mouth or other very limited marketing.

A seller may find this to be an attractive option for a variety of reasons, such as they think they won’t have to put up with the hassle of showing their home to a lot of people, an agent has said they have buyers in that area and price range, or they like the idea that they can enjoy privacy while their home is “quietly” marketed. However, a big disadvantage is the lack of exposure to the full market.

After all, doesn’t it make sense that any commodity is more likely to sell, and at a better price, the more people know about it? The first step for broad exposure is getting a home into the Multiple Listing Service (MLS). That is not because REALTORS® control it or want to limit access to the information – it is precisely the opposite. There are 40,000 agents in the DC Metro Area with buyer clients and the MLS is the on-ramp for the Internet to thousands of broker and agent websites and national and regional real estate search portals. More than 90% of today’s buyers across all price ranges start their home search on the net, so why wouldn’t a seller want to be there?

Decades ago, REALTORS® created the MLS for the express purpose of sharing information. It has created a broad marketplace for the sale and leasing of homes, and most remarkably, established the rules of the road for real estate firms to cooperate with each other while still fiercely competing with each other in the marketplace. The MLS accommodates every business model, from full service to limited service to discounters to tech startups. Most importantly, buyers and sellers alike have benefited from a marketplace that fosters the wide dissemination of information and the market-based transactions that flow from that.

Can there be situations where a seller could logically choose to go the “private exclusive” route? Of course, but those situations are few and far between. Every seller should know that no real estate firm and no agent have all the buyers, or even the majority of buyers. Anyone who says otherwise simply isn’t being truthful.

While “private exclusives” exist in all price ranges, they seem to be more prevalent for upper bracket properties. There were 369 homes that sold in the District of Columbia for $1,000,000 or more in the last six months in the MLS. There were 58 different real estate firms, and even more remarkably, 258 different agents representing those buyers.

Additionally, as the table indicates, this broad diversity of firms and agents selling upper bracket homes isn’t any different in Maryland or Virginia. What’s important to note is that most of these buyers never knew about other homes for sale on the market that were tagged “private exclusive” with “quiet” or minimal marketing. Those sellers simply missed out on those buyers – and those buyers missed out on those homes.
Sellers should also consider that privately listing their home could be seen as an intention to screen interested buyers in ways that could appear to be discriminatory. Care has to be taken that no one is excluded from a “private exclusive.”

Think twice if you are a homeowner contemplating a “private exclusive” sale. Ask yourself whether going that route is best for you and whether you would get the best price for your home.

 


New Contract Activity

  • The number of new contracts ratified in February 2015 was up 1.2% from February 2014.
  • Through the first two months of 2015, the number of new contracts is up 7% compared to the same period last year.
  • 23.5% of all homes going under contract in February had at least one price reduction.
 

FULLY AVAILABLE LISTINGS

  • The available inventory at the end of February 2015 was down 2.1% from February 2014, and that was the only decrease in the region. All other areas are up by at least 24%.
  • 31.3% of all homes on the market have had at least one price reduction since coming on the market. 
  • Three price categories dropped in inventory and one remained the same.
 

URGENCY INDEX

  • During the past 12 years, the February Urgency Index has been as high as 69.5% and as low as 39.5%.
  • The average February Urgency Index in DC during the past 12 years is 54.2% - which is significantly lower than where it is now. 
  • There was a 1.2% increase in the number of new contracts this February compared to 2014 – but the Urgency Index increased from 61.6% to 65.6%.

     

January-February 2015

02/05/15 by David Howell

HOW IS THE MARKET?

Market Watch with David Howell from McEnearney Web Team on Vimeo.

One of the questions we get asked most frequently is “How’s the market?” The simple answer is that the market in Metro DC is strong. Prices are going up and sales are steady. And that’s all true – but it’s also fairly meaningless when you get right down to it. The real question is “How’s the market for me?”

Think of it this way: if someone asked how the stock market is doing, it would be accurate to say it’s doing very well. The Dow Jones average has hit record highs, and it has been on a solid, upward path for several years after bottoming out in 2007. Sounds a lot like the real estate market. But someone who has owned Radio Shack stock – currently trading for less than one dollar after being at $20 five years ago – will have a slightly different perspective on how the market is doing than someone who has owned Apple, Google or Disney shares.

Housing Inventory Supply December 2014 for DC NoVa and Montgomery CountyFortunately, we don’t see such wild swings in value in the real estate market, and homes rarely become worthless. But there are significant differences in our local marketplace. Let’s look at months’ supply of inventory as an example. This number tells you how many months it would take for all homes currently available on the market to sell, given the current pace of new contracts.

The overall supply of homes in Washington, DC is less than two months, and in some price ranges it is considerably tighter. DC’s sweet spot – homes priced between $500,000 and $750,000 – is 1.7 months. At the other end of the local spectrum is Loudoun County, where there is a four-month supply. In that same $500,000 to $750,000 price range, there is a five-month supply. While both of these markets would be considered healthy by any historical standard, DC is a seller’s market while Loudoun’s is balanced. Conditions in Northern Virginia and suburban Maryland also differ from Loudoun and DC, with an overall supply of 2.9 months and 3.2 months respectively.

We are also frequently asked whether prices are going up or down. For all of 2014, the average sales price was up 2.7% for Metro DC compared to 2013. But once again, let’s take a look at the differences in all jurisdictions. While DC was up 5.2%, Loudoun County was up 4%, Northern Virginia rose 2%, and Montgomery County was up just 0.8%. And we want to add a cautionary note. Remember that the “average sales price” is just an arithmetic calculation and isn’t indicative of what is happening to individual properties. Let’s go back to those examples. One of the challenges in DC is that many first-time buyers are being priced out of the market, so there have been fewer lower-end sales. When there is a reduction in the number of lower-priced sales, by definition, the average sales price will go up. On the flip side, there has been an increase in lower-priced sales in Montgomery County, so that reduces the average sale down. That doesn’t mean that prices aren’t going up faster in DC – it just means that it may be a bit overstated.

Our point is simply this: market conditions can be captured by a few key stats, but those numbers do not directly relate to what is going on in a specific neighborhood, a specific type of property or a particular price range. To understand what’s going on with an individual property, one cannot rely on broad market indicators. It takes an evaluation by a knowledgeable Realtor® who can look at the factors unique to that home.

 


Washington DC - Dec 2014 - NEW CONTRACT ACTIVITY

  • The number of new contracts ratified in December 2014 was up 6.3% from December 2013.
  • Contract activity for the year is down just 0.6%.
  • 34.3% of all homes going under contract in December had at least one price reduction.
 

Washington DC - Dec 2014 - FULLY AVAILABLE LISTINGS

  • The available inventory for December 2014 was down 8.5% from December 2013, and that was the only decrease in the region.
  • 38.5% of all homes on the market have had at least one price reduction since coming on the market. 
  • Five price categories dropped in inventory.
 

Washington DC - Dec 2014 - URGENCY INDEX

  • During the past 12 years, the Urgency Index has been as high as 67.0% and as low as 30.1%.
  • The average December Urgency Index in DC during the past 12 years is 45.3% - which is in line with where it is now. 
  • There was a 6.3% increase in the number of new contracts this December compared to last – but the Urgency Index dropped from 54.1% to 48.3%.
     
     

November-December 2014

12/04/14 by David Howell

CONTROL: YOU CAN'T LOSE SOMETHING YOU NEVER HAD

McEnearney Associates MarketWatch December 2014 from McEnearney Web Team on Vimeo.

One of the topics generating a lot of buzz - and a lot of consternation - in the real estate business these days is - control. Everyone is worried about controlling the search process, or controlling the creation, compilation and dissemination of data, and most of all, controlling the customer.

Some in our industry are wringing their hands over the fact that the overwhelming majority of home buyers identify the home they eventually buy on the Internet, and that some of the most popular online real estate portals like realtor.com and zillow.com have wrestled control of the home search process away from us. We’re worried that we’ve lost control of the listing data that we work so hard to produce and that others have repurposed or misused our data. And the biggest concern is that we have somehow lost control of the customer - they’ve turned to these national portals, or to mortgage lenders, or heaven forbid they go and do the transaction themselves!

Here’s the reality: You can’t lose something you never had. We have never controlled the search process for real estate, we’ve never controlled the data, and we certainly have never controlled the customer - and we’re kidding ourselves if we think we ever did, could or should want to control any of those things.

The process of searching for a home has changed significantly with the advent and pervasiveness of the Internet. In 2001, 13% of homebuyers identified the house they bought online - and today it’s approaching 80%. Before technology, we relied on newspaper ads, yard signs, friends, neighbors and co-workers. In 2001, 69% of homebuyers used an agent or broker - and today, that’s 88%. Surprised? You shouldn’t be. Because it isn’t about controlling the search process - it is and always has been about providing value to the transaction.

We don’t control the data. We can and should rigorously enforce our copyrights to unique information, but our listing data is just a piece of the overall real estate portfolio - tax records, insurance info, demographic records, home plans and blueprints, mortgage loans and credit reports - so we should recognize what we have and what we don’t have. And what we clearly have is accurate data. On a Friday afternoon in November, using zip codes where we have offices, we compared the number of all agent-listed, fully available listings in the MLS with those on our website, realtor.com and zillow.com. Out of almost 1,000 listings, our website was off by only one, realtor.com showed almost 28% too many properties and zillow.com showed 30% too few. Realtor.com simply doesn’t update their data on a timely basis, and zillow.com has the same problem compounded by the fact that lots of sellers request that their homes not be listed on sites with inaccurate estimates of the market value.

Most importantly, we have never met a consumer who wants to be controlled. And there is not a lack of choices in real estate service providers. In our MLS, there are more than 4,000 real estate companies and over 40,000 agents. Sellers can sell by owner and buyers can work directly with a seller. There are discount brokers and full service brokers and everything in between. 

None of us are entitled to anything - we have to earn it with every client and every transaction. If we’re good enough, if we bring enough knowledge and skill to the table, then we have a chance to earn the business, create a brand and try to build long-lasting relationships. And that’s exactly how it should be.

 


  • The number of new contracts ratified in October 2014 was down 3.4% from October 2013.
  • Contract activity through the first ten months of 2014 is down just 1.2%, the best of any jurisdiction in the region.
  • 26.0% of all homes going under contract in October had at least one price reduction.
 

  • The available inventory for October 2014 was up 7.0% from October 2013, and that was the smallest increase in the region.
  • 38.4% of all homes on the market have had at least one price reduction since coming on the market. 
  • Three price categories dropped in inventory.
 

  • During the past 12 years, the urgency index in October has been as high as 72.6% and as low as 42.3%.
  • In October of this year, there were 21% more contracts than October 2006 - but the urgency index is 57% higher.
  • The average October urgency index in DC during the past 12 years is 48.4% - and it’s significantly higher than that now.
     
     

September-October 2014

10/10/14 by David Howell

FALL MARKET UPDATE

2014 has seen a slowdown in the DC Metro Area’s real estate market compared to the frenetic pace of 2013, and there’s no reason to believe that will change over the remaining three months of the year. However, there is no need to hit the panic button, as the overall market remains pretty solid.

Almost every major indicator is down compared to last year – there are fewer new contracts, homes are taking a bit longer to sell and they are not selling as close to list price as last year. Regionally, there has been a significant increase in the number of homes on the market, which means potential buyers who were hard-pressed to find a home of choice in last year’s exceptionally tight market are finding many more options to choose from now. This is especially true in the outer suburbs. There are 60% more homes on the market in Loudoun and Prince William Counties today than this time last year. But in the District, there has only been a 7% increase.

That highlights one undeniable fact: there is not just one set of market conditions throughout the region that will impact the likely direction of the market for the rest of the year, and there are significant differences between jurisdictions. Washington, DC has the strongest market in the region, with an overall supply of homes on the market of less than two months – although that is starting to slowly increase. That low level of supply relative to demand means that DC is still a seller’s market. At the other end of the regional spectrum, Loudoun County has a 4.5-months’ supply. It is reasonable to expect modest upward pressure on home prices in DC while the foot is coming off the gas a bit elsewhere.

We can look at the pace of new contract activity as the best indicator of short-term market direction, and every jurisdiction in the metro area has seen a decline in contract activity in August and September combined compared to last year. But we can also look at the “Urgency Index” to help us take the temperature of the market – think of it as a rudimentary consumer confidence index for housing. We look at the number of new contracts in a month and see how many of those homes were on the market for 30 days or less. In the extremes, we have seen as many as 95% of the homes sell in 30 days or less (April of 2004) and as few as 16% (December 2007). The Urgency Index today provides insight into the direction of the market over the next few months and highlights the significant differences in our region.

As the chart indicates, the District is outperforming every other jurisdiction. At just over 70%, it has the highest Urgency Index in our metro area and is even slightly ahead of last September’s Index. The other three major areas have all seen significant drops in the Urgency Index – 12% for Montgomery County, 15% for Northern Virginia, and 20% for Loudoun County.

But this is the real message behind the numbers: the lower the Urgency Index, the slower the market in will be over the next few months. That bodes well for DC, while things will be a bit slower in Northern Virginia and Montgomery County, and even slower in the outer suburbs.

 


  • The number of new contracts ratified in August 2014 was down 8.8% from August 2013, and that’s the biggest monthly % drop this year.
  • Contract activity year-to-date is down 1.7%.
  • 26.5% of all homes going under contract in August had at least one price reduction.
 

  • The available inventory for August 2014 was up 6.9% from August 2013, and that was the smallest increase in the region by far.
  • 34.6% of all homes on the market have had at least one price reduction since coming on the market. 
  • The top two price categories actually dropped in inventory.
 

  • The overall supply of homes on the market at the end of August was 1.8 months, up slightly from 1.5 months at the end of August 2013.
  • That’s the lowest supply in the metro area, more than a full month lower than Northern Virginia, the area with the next lowest supply of 3.1 months.
  • In addition to the lowest overall supply, DC has the most balanced supply in the region across all but the highest price category. 
     
     

July-August 2014

08/03/14 by David Howell

IS “COMING SOON” IN THE CLIENT’S BEST INTEREST?

 

You may have seen a sign in front of a home that says “Coming Soon,” or you may have heard the terms “pocket” or “whisper” listings. While those are not the same things, they all represent areas of possible concern when it comes to doing the right thing for a seller. 

Let’s start with some basics. 

  1. We firmly believe that a seller will get the most for their property in the shortest amount of time when it is exposed to the broadest possible market. And doesn’t that make sense? After all, you never know where that buyer is coming from. No real estate company and no real estate agent has all the buyers, so why hide a listing?
     
  2. A property receives the most traffic and the most exposure in the first few weeks on the market. We know that to be the case in good markets and bad, and everything in between. So “testing” or teasing the market in a limited way may not be the best idea.
     
  3. A home shows best when it is fully ready for the market, when all improvements or repairs have been made. You don’t see a new car showroom with a model on the sales floor that needs a paint job.
     
  4. This is the most important one: the seller of any home should give their informed consent to have their home marketed prematurely or to a limited audience.

So, with all that being said, and with inventory being tight in so many parts of the Washington, DC metropolitan area, we see a fair number of homes with a “Coming Soon” sign in the yard. There can be some very legitimate reasons for that – a home may be a couple of weeks away from being ready to go on the market and the seller wants to be sure that buyers looking in their area are aware that they will have another option in the near future, and they don’t want to run the risk they’ll lose that buyer to a home already on the market.  

But remember that the people who are aware of that sign may be limited to the people who drive by. One of them may approach the seller to see the house before it’s fully ready to be shown – or even make an offer so they get the jump on other buyers. On the surface, that may seem like a good thing: the seller gets interest and maybe even an offer before the house is fully exposed to the market, and are spared the hassle of having to make the beds every day. But that seller doesn’t know what they’re missing. They don’t know how many potential buyers there are who might have been interested in their home if they had known it was on the market. If one was interested enough to make an offer, how many more might there have been if the home had been fully marketed? If the seller wants to entertain such an offer, it is of course their prerogative to do so, and they may place a higher premium on speed and convenience than price.

Other times, that “Coming Soon” sign may be up so that the listing agent increases their chances of selling the house themselves – putting them on both sides of the transaction. And that’s especially true of a “pocket” or “whisper” listing – when the agent only tells a handful of people that a house is available with no intention to expose it to the full market. And who is best served by that? There certainly are sellers who value privacy above all else and don’t want their home “on the market.” But in most cases, it’s hard to see how a seller benefits from a stealth listing, and lots of would-be purchasers are deprived of the chance to buy at the market price.

The point is simply this: a seller should know the pluses and minuses of marketing their home to a limited audience, and it should be their decision whether to cut off part of the pool of potential purchasers.


ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for condos/co-ops priced $750,000-$999,999 in June 2014 was 32.6%; that compares to a rate of 23.7% in June 2013, and the increase means the market was better in 2014 for that type of home. If the absorption rate was less in 2014 than in 2013, we have put the more recent absorption rate in red. This month there was improvement for 8 of the 18 individual price categories.


ABSORPTION RATES - CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for June was 37.0%, a decrease from the 38.7% rate in June 2013.
  • The absorption rate for condos across most price ranges is more balanced in DC than anywhere else in the region.

 

ABSORPTION RATES - ATTACHED HOMES

  • The overall absorption rate for attached homes for June was 46.1%, which was the same rate as June 2013.
  • Again, look at the balance across most price ranges.

 

ABSORPTION RATES - DETACHED HOMES

  • June 2014’s absorption rate for detached homes was 33.8%, a decrease from 35.6% in June 2013.
  • And the balance among the price ranges is evident here as well.
     

 

May-June 2014

06/09/14 by David Howell

Valuing Your Home With The Flip of a Coin

One of the great evolutions in real estate during the past decade is the power of the Internet, and more than 90% of homebuyers begin their search there. We think that’s great, and buyers are more empowered than ever with loads of information. Some of that information can come from sites like Zillow that offer what’s called an “automated valuation model” – AVM for short – which purportedly present a great estimate of the current market value of millions of homes. It’s cool technology, amassing an enormous amount of information from publicly available sources in one place that is then scrubbed through very sophisticated algorithms to predict value. And all of the information is presented in an easy-to-use user interface. To their enormous credit, Zillow has done a tremendous job in reaching “top of mind” status with consumers. There’s just one problem: those predicted values are wildly inaccurate and inconsistent.

Beginning in 2010, McEnearney Associates has examined the accuracy of the estimates for property values that Zillow provides – their “zestimates” of value. This marks our fourth and most comprehensive analysis.

We took 500 properties in MRIS, our regional multiple listing system, which were scheduled to settle between March 24 and March 31, 2014. During that week, we looked for the zestimates of those 500 properties. Once the properties settled, we compared the actual sold price to the predicted values on Zillow.

To provide some context, we compared the results of the March 2014 research to that of our September 2012 research. Generally, Zillow’s predicted market value is not any better now than it was 18 months ago. The zestimate is within 5% of the actual sales price roughly half the time in the metro area. But in Washington, DC, their results are much worse – they get within 5% of the actual sales price for only about one third of the identified properties. In September 2012, the zestimate was just as likely to be too low as too high; now, it is more than twice as likely to be too low.

As one might expect with a computer-generated value, there are always “outliers.” In September 2012, the highest zestimate was roughly 140% of the actual sales price. The lowest was 82%. In the research we just concluded, the highest predicted value was 256% of the actual sales price and the lowest was 62.8%. 

As REALTORS®, we know that one of our most difficult tasks is pricing a home. That holds true whether we are representing a seller or a buyer. Market pressures change from week to week and from neighborhood to neighborhood. The motivation of the parties is always a factor, as is the condition of a home and those around it. No algorithm, however sophisticated, can quantify the value of a kitchen that was remodeled just before a home was put on the market or a yard that is poorly maintained. It simply isn’t possible for any AVM to predict the value of a home with a level of accuracy sufficient to make a housing decision. Zillow knows that’s true – and they say as much on their website (although you have to dig a bit to find it).

Yet not a week goes by that we don’t encounter a consumer who is fixated on a particular value for a home because that’s what Zillow says it is. Kudos to Zillow for making this kind of impression on the public – it is brilliant marketing. But our research and theirs shows that, on average, those “zestimates” are within 5% of the actual value of a home just half of the time. As REALTORS®, if we got within 5% of the value of a home that infrequently we’d be out of business. (A look at Zillow’s own analysis of their zestimates is on the next page.)

So if a consumer wants to base their valuation of a home purchase or sale on what they find on Zillow.com, we suggest they take out a coin and flip it. Heads – that value could be within 5% (high or low) of what the home is actually worth. Tails – that value could be 10%, 20% or more off target.

 


More Details on our Zillow Research

“Zestimates” are consistently inconsistent


ZILLOW'S PUBLISHED ACCURACY

We noted above that Zillow posts the accuracy of their “zestimates,” and what they publish is almost identical to what our research indicates.  In our 2012 and 2014 studies, Zillow got within 5% of the actual sales price 51% of this time – their own results say 50.9%. However, they don’t publish whether they are more likely to be high or low, nor do they indicate their high and low  “outliers.” For more details on what they have to say about their own data: zillow.com/zestimate/#acc.


RESULTS ARE BY PROPERTY TYPE

We were curious whether Zillow fared any better based on the type of property. We found that they’re a bit less accurate for condo and co-ops than for attached or detached homes. Mirroring the overall results, in all three property types Zillow is at least twice as likely to predict a value that is at least 5% lower than the actual value as predicting 5% high.



RESULTS BY PRICE RANGE

Not surprisingly, properties that sold for $1,000,000 and more were a little tougher for Zillow to estimate accurately. They got within 5% of the actual price just over one third of the time. They fared much better for homes selling between $500,000 and $999,999, getting within 5% almost 60% of the time, but for homes selling for less than $500,000 they were within 5% less than half the time.

 

March 2014

04/02/14 by David Howell

Is the Market Slower Because of the Weather?
... Or Something Else?

A recent profile on CNBC described the impact of our unusually cold and snowy winter as “frozenomics,” and there are plenty of industries and cities that have been crippled by the nasty stuff we had this year. We’ve all heard about 36-hour traffic jams in the south, and every school system in our region exhausted their supply of built-in snow days so kids will be in school well into summer. Planes were grounded, power outages were rampant, and we all added “polar vortex” to our vocabulary.

And while there is no doubt that the region’s real estate market felt the chill, Washington, DC’s market held up far better than any other in the region.

DC was the only market in the entire metro area that had an increase in new contract activity in every quarter of 2013 compared to the same quarter of 2012. But the market started to slow ever-so-slight in December with a decrease in contract activity of a little more than 1%. That was followed by a 3% drop in January. However, as a testament to the strength of DC’s market, contract activity actually increased by 2.7%, the month with the worst weather this winter.

The market is a little slower in DC for reasons beyond the weather. Rising mortgage interest rates have robbed purchasers of roughly 10% of their buying power compared to a year ago, and that has priced some first-time home buyers out of the market and lowered the price point for others. Home prices are rising faster than household income, and that puts a bit of a chill on demand as well.

The brief government shutdown in October and budget sequestration created some uncertainty in major employment sectors. And even though the number of available homes on the market is up a bit, supply is still tight. And here’s the irony about tight supply – at least in the short term, it helps keep some inventory off the market. There are homeowners who would like to be move-up buyers but they are still sitting on the sidelines because they aren’t confident they can find their next home. And if they aren’t sure they can purchase, they aren’t putting their homes on the market.

This isn’t all bad news by any means. Home prices are still going up, just not as rapidly as they did in mid-2013. Homes are still selling in an average of about fifty days, and there is still only about a two-month supply of homes on the market. But those other factors are creating just what we expected: moderation that is heading us in the direction of a more balanced market.


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $200,405 at the end of February which is $20,041 less than this time last year, and almost $12,000 less than February 2012.
  • While mortgage rates are still very low from an historical perspective, they are roughly a full percentage point higher than this time last year, reducing buying power by about 10%.

 


NEW CONTRACT ACTIVITY

  • The number of new contracts ratified in February 2014 was up 2.7% from February 2013, and DC was the only jurisdiction in the region with an increase.
  • Contract activity year-to-date is down 0.8%.
  • 22.4% of all homes going under contract in February 2014 had at least one price reduction before going under contract. 
  • 61.6% of all homes that went under contract in February were on the market 30 days or less; this time last year it was 65.2%.
 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of February was 1.6 months, exactly the same as at the end of February 2013, and that’s the lowest supply in the metro area.
  • In addition to the lowest overall supply, DC has the most balanced supply in the region across all price categories.

January 2014

01/28/14 by David Howell

NORMAL

It has been said that the only normal people are the ones you don’t know very well. The same can be said for the real estate market in Washington, DC – it’s been so long since we’ve had a “normal” real estate market that many are entirely unfamiliar with what that looks like!

During the past 10 or 12 years, we’ve seen unprecedented and rapid shifts in the real estate landscape. Starting in 2002, fueled by the enormous increases in post 9/11 defense-related spending, the market exploded. Prices started to climb, and the emerging boom went into afterburners with speculation, public policy that encouraged “everyone” to own a home, and low teaser-rate mortgage loan products that brought an enormous supply of buyers into the market hoping to cash in on the boom. The average annual price appreciation from 2002 through 2005 was more than 15%. When home prices soared to levels that could not be supported by even the ridiculous loan products, buyers all but disappeared. Prices were flat in 2006 through 2008 and then dropped by more than 10% in 2009. DC also had record foreclosures and short sales. There was nothing normal about that.

To bring the market back, we’ve seen everything from big tax breaks for first-time homebuyers to mortgage interest rates kept artificially low by Fed intervention, the so-called quantitative easing. We’re not suggesting those were the wrong moves – it’s just that when you look at the past decade, there’s been nothing normal about anything in this market.

For the first time in a long time, we think the market will be returning to normal in 2014. Rising mortgage interest rates, while still very low, will price some buyers out of the market, and that will keep a lid on demand. As the economy improves, there is going to be a big increase in household formation – but a significant percentage of those new, younger households are going to rent before they buy. They won’t be in a big a hurry to buy as their parents were a generation before. Rising home prices will bring more sellers into the market, but we need to remember that there are plenty of homeowners who have refinanced during the past few years and have locked in historically low rates for the long term – they won’t be in a hurry to sell unless they have a specific need. The currently tight supply of homes isn’t going to change quickly. 

All in all, we believe that we’ll see a much more balanced market as the year progresses, with sustainable – let’s call it normal – increases in home prices in the range of 5% - 7%. And by the way, as hard as this may be to believe, the average annual price appreciation in this area from the end of the Civil War until 2000 was slightly more than 6%.


MORTGAGE RATES

  • 30-year fixed interest rates at the end of December averaged 4.53%, compared to 3.35% at the end of December 2012.
  • One-year adjustable rate mortgages were 2.56% at the end of December 2013, which is the same as at the end of December 2012.
  • Expect rates to rise through 2014 as the Fed backs off buying mortgage-backed securities. Don’t be surprised if rates are near 6% by year’s end.

MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of December was 2.2 months, up from 2.1 months at the end of December 2012, and that’s the lowest supply in the metro area.
  • DC has, by far, the most balanced market in the region across all price categories, as well as the lowest overall supply.
 


FULLY AVAILABLE LISTINGS

  • Month-end inventory for December 2013 was up 6.1% from December 2012. There was also an increase in the number of new listings coming on the market.
  • In “normal” markets with overall tight supply, we would expect that even more owners would be putting their homes on the market to take advantage of rising prices. But most are in no hurry to do so because they’re happy where they are, they have low interest rates locked in, or they are simply cautious after seeing the market’s roller coaster ride during the past decade.

November - December 2013

11/22/13 by David Howell

RESILIENT.

The best way to describe Washington, DC’s housing market is resilient. Webster’s defines resilient as able to become strong, healthy, or successful again after something bad happens, and holy cow, we wouldn’t have to look real far to find some bad things that have happened during the past few months.

Let’s see – we had sequestration in the spring. The Federal Reserve has toyed all year with ending their quantitative easing policies that have kept interest rates low, frequently giving mixed signals to the market. More recently, we’ve seen the government shutdown, and tens of thousands of federal workers were laid off and didn’t know when they’d be going back to work or when they’d be paid – and the businesses that depended on those workers suffered as well. We witnessed the continuing battles over whether or how to extend the debt ceiling, and even more recently, we’ve seen the distraction of the launch of the Health Care Exchange created by the Affordable Care Act.

Now to be sure, every single one of these items has impact nationally, but that impact is felt disproportionately in our region. So it wouldn’t have been surprising if Washington’s housing market took a bit of a breather.

But it didn’t. As a whole, the DC metro area has fared well during the past couple of months – and the District’s market has fared best of all. Contract activity has increased almost 11%. 24% more new listings have come on the market, demonstrating confidence by an increasing number of sellers. And despite the big jump in new listings, inventory is actually 2% lower now than it was at the end of last October. The average number of days a home is on the market before receiving a contract in down by one third. The average sales price is up almost 4%, and the overall supply of homes is less than 2 months. All in all, those are indications of a very healthy market.

Now we’re not trying to sugarcoat some challenges the market will face. We’ve just entered what is historically the slowest time of the year – November through January. Eventually the Fed is going to have to stop buying tens of billions of dollars of mortgage backed securities every month, and when that happens, interest rates will rise – and that will price some folks out of the market. Also, the budget and debt ceiling battles are far from over, and it isn’t a stretch to think we’ll see more bitter battles between Congress and the White House ahead. But the fundamentals are strong, and we remain convinced we’re headed to a balanced, sustainable housing market in Washington, DC.


ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for condos/co-ops priced $500,000-$749,999 in October 2013 was 39.3%; that compares to a rate of 29.6% in October 2012, and the increase means the market was better in 2013 for that type of home. If the absorption rate was less in 2013 than in 2012, we have put the more recent absorption rate in red. This month there was improvement for 9 of the 18 individual price categories.


ABSORPTION RATES
ACONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for October was 35.1%, an increase from the 29.5% rate in October 2012.
  • The absorption rate for condos across most price ranges is more balanced in DC than anywhere else in the region.
 

ABSORPTION RATES
ATTACHED HOMES

  • The overall absorption rate for attached homes for October was 42.9%, which was an increase from 39.9% October 2012.
  • Again, look at the balance across most price ranges.

 

 


ABSORPTION RATES
DETACHED HOMES

  • October 2013’s absorption rate for detached homes was 33.2%, an increase from 31.4% in October 2012.
  • And the balance among the price ranges is evident here as well.

 

October 2013

10/03/13 by David Howell

A FEW MORE CHOICES.

 

Perhaps the biggest factor in Washington, DC’s real estate market during the past 18 months is the paltry number of listings on the market. Not only has there been low inventory, but month after month fewer new listings were coming on the market. With limited choices for purchasers, prices in most price ranges have climbed. And unlike the rest of the metro area, supply is very tight across all but the top end of the market.

Well, it’s funny how markets work. Those higher prices have tempted more sellers to take a stab at getting their homes sold. In the past five months, 20% more listings came on the market than during the same time period last year. That doesn’t mean there’s been a huge shift, but it’s at least noticeable.

There was 1.2 months of inventory on the market at the end of April, and that has inched up a bit month after month to 1.5 months’ supply now. It’s still a tight market – the tightest in the region by far - but there are a few more choices for buyers than in the spring.

So what does that mean? It’s really Economics 101. On the supply side, we have seen this modest increase in inventory. On the demand side, we’ve seen an increase in mortgage interest rates – up a full point over the past five months. That represents a loss of more than 13% in buying power and that, coupled with the lingering impact of sequestration, is serving to keep the number of buyers in the market a bit less than it was earlier in the year. And this will ease – but not reverse – the significant upward pressure on home prices we have seen this year.

Make no mistake: this modest increase in listings and modest decrease in buyers isn’t turning this into a buyers’ market. Any way you look at it, a 1.5-month supply of homes tilts the odds dramatically in the favor of sellers. We’re still seeing multiple offers and escalation clauses in the hottest neighborhoods and price ranges – just not as frequently as earlier in the year. And remember that market pressures are not the same for every type of property and in every neighborhood. As the Months’ Supply chart below indicates, there is a 1.1-month supply of homes priced between $300,000 and $499,999, and a 9-month supply for homes priced more than $1,500,000. And the seller of a detached home in Spring Valley isn’t going to see as many prospective purchasers as a seller of a condo in Adams Morgan.  

What we see is a market slowly returning to normal. But for now, most sellers continue to have the upper hand.

 


MONTHS' SUPPLY

  • Although overall supply is just 1.5 months, it is even tighter for homes priced $300,000 and $499,999 at just 1.1 months.
  • And as noted above, there is ample supply for upper brackets homes, with just over nine months for homes priced more than $1,500,000.

 


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $197,130 at the end of August which is $23,118 less than this time last year.
  • That’s a 10% drop, but the drop is even more significant since April when mortgage interest rates reached a low of 3.35%. Buying power now is 13% less that it was during the peak of the spring market.
  • Even with this loss in buying power, rates are still extremely attractive.
 


RELATIONSHIP OF SALES PRICE TO LIST PRICE vs DAYS ON MARKET

  • As we have noted in this space for years, initial pricing strategy is critical to the success of sellers.
  • More often than not, sellers who price it right are rewarded with a quick sale close to list price.
  • But even in this sellers’ market, there are listings that languish and take a deeper discount to list – or don’t sell at all.

 

July 2013

07/29/13 by David Howell

MORTGAGE RATES UP A FULL POINT IN 60 DAYS. AND THE SKY ISN'T FALLING.

 

Well, we knew rates would bottom out – and they did. From a low of 3.35% for 30-year fixed mortgages at the end of April, rates jumped to 4.46% by the end of June. (Since the end of June, rates have fluctuated about 10 basis points above and below that mark.) That jump in rates means that there was a 12.6% loss of buying power. A monthly payment to support the purchase of a $400,000 home in April now only supports a $350,000 purchase.

In the past when rates have bumped up after a prolonged period of lower rates, the number of buyers has actually increased in the short term. Folks who were waiting for the absolute bottom realized that they may have waited a bit too long and jump in before rising rates price them out of the kind of home they want. And that’s exactly what has happened this time. Through the first four months of 2013, total new contract activity in Washington, DC was up 7% compared to 2012, but contract activity rose 14% in May and June.

However, higher rates will undoubtedly put a damper on demand in the months ahead, simply because buyers may no longer be able to afford the home they want. Removing folks from the pool of possible homebuyers will ease some of the upward pressure on home prices. And this dampening of demand comes at a time when the number of homes coming on the market is finally beginning to increase. So, with the prospect of more supply and less demand, why are we so confident the sky isn’t falling.

First, we’ve seen this before. In July 1980 when McEnearney Associates opened for business, mortgage interest rates averaged 12.71%. By September 1981, rates had climbed to 18.45%, representing a 30% loss of buying power in just over a year. (Already feel a little better about today’s rates?) But people still bought homes, and believe it or not, home prices actually rose slightly during that period of time. Because owning a home made long-term sense, just like it does now, buyers, sellers and lenders figured out ways to make it work. Sellers offered financing, lenders wrapped assumable first trusts with second trusts - and people bought and sold houses.

Second, by any historical measure, today’s mortgage interest rates are still incredibly low, and there are very attractive alternatives as well. At the end of April, there was very little difference between the rates for 30-year fixed rate mortgages and those for adjustable rate loans. Today, a 5-year ARM averages 3.17%, well over a point lower than 30-year loans. It is further good news that there won’t be any of the ridiculous, teaser-rate, no-money-down mortgage products developed to bring unqualified buyers to the market like we saw during the boom last decade. People will buy homes because they need or want to move, and can afford to do so.

Today’s rising rates will moderate the market, not kill it.

 


MORTGAGE RATE TRENDS

  • 30-year fixed interest rates at the end of June averaged 4.46%, compared to 3.66% at the end of June 2012.
  • One-year ARMs were 2.66% at the end of June 2013 vs. 2.74% at the end of June 2012
  • While 3-year rates have jumped more than a point, one-year adjustable have barely moved. While not shown on this chart, 5-year adjustable rate mortgages have moved up less than half a point..

 


NEW CONTRACT ACTIVITY

  • The number of new contracts ratified in June 2013 was up 10.4% from June 2012, and contract activity year-to-date is up 9.5%.
  • 19.5% of all homes going under contract in June had at least one price reduction.
  • 73.1% of all homes that went under contract in June were on the market 30 days or less; this time last year it was 59.0%.

 

 


AVERAGE SALES PRICE

  • The average sales price in June 2013 was $638,496, an increase of 14.6% from the June 2012 average price of $557,036.
  • That’s the highest monthly average sales price in DC ever.
  • Remember that the change in the average sales price – up or down – doesn’t mean that individual home prices are impacted the same way. 

 

May 2013

06/05/13 by David Howell

THAT WAS THEN. THIS IS NOW.

To many, the current market conditions bear an eerie resemblance to the feeding frenzy of the market boom of 2004 to 2006: low inventory, multiple offers, escalation clauses, waiver of important contingencies and rapidly rising prices. And that prompts fear of a bubble burst somewhere down the road.

There’s no doubt the market is much improved, and the overall supply of homes hasn’t been this tight in nine years. But there are important differences.

Then: The market was powered by a strong economy, rising incomes and public policy that was geared to encourage home ownership. As home prices rose faster than the rate of increase in household income, mortgage programs were created to offer “teaser” rates to bring payments down (for a short time) for those who couldn’t afford market interest rates. Of course, that dramatically expanded the number of eligible buyers, keeping both demand and prices artificially high. And those rapidly rising prices fueled a market based largely on speculation. With back-to-back years of 20%+ home price appreciation, everyone wanted in on the act, with little concern about mortgage payments that would jump to prohibitively high levels in a couple of years. After all, at that point one could either refinance or just cash out. But the market collapsed when the pool of buyers who could afford even those unrealistic mortgages ran out.

Now: The “juice” for today’s market comes largely from the pent-up demand created by conditions in recent years, not because of a booming economy. Folks are appropriately more cautious, especially with the tempering impact of sequestration. To a large extent people are moving because they have a need for housing, not because the lure of making a quick buck. Prices are rising, but not at the break-neck pace we saw in the last hot market. Interest rates aren’t going lower because they are already at historic lows, and the Federal Reserve has recently given signals that it will slow the pace or even stop the $30 - $40 billion monthly bond purchases that have helped keep interest rates low. As a consequence, the pool of eligible buyers will grow only as the economy grows. Investors have certainly returned to the market and prices are rising, but not at the break-neck pace of the last market. And while multiple offers and escalation clauses are common in the hottest areas, it isn’t hot everywhere. Location, price and condition actually matter now.

Those homes in areas closest to great retail and restaurants and in trendy neighborhoods are faring better. In the last month, homes that sold Adams Morgan/Mt. Pleasant sold in an average of just 6 days and for an astounding 10% above list price. In May 2004, homes took 12 days to sell and sold for 8% above list. In Chevy Chase, homes sold in an average of 25 days last month and for 2% under list price. In May 2004, it was 19 days and 10% above list price. Any way you look at it, those are all great numbers, and it’s even a little better now in Adams Morgan than it was in 2004. But that’s not the case in Chevy Chase.

The real estate market in Washington, DC is very healthy, but – fortunately – it’s not the same as last time.

 


MONTH'S SUPPLY

  • A $1,000 principal and interest payment supported a loan of $226,931 at the end of April which is $13,364 more than this time last year, and $70,029 more than April 2006.
  • And in April 2006, it would have taken a monthly PI payment of $2,709 to purchase a median priced home. With today’s lower rates, it takes a payment of $2,071 – that’s a 23.5% drop.
     

 


FULLY AVAILABLE LISTINGS

  • Overall available inventory for April 2013 was down 34.3% from April 2012. 
  • 27.6% of all homes on the market have had at least one price reduction since coming on the market. Last year at this time, 32.7% of homes on the market had at least one price reduction.
  • All categories have seen a drop in inventory, with the most significant drops for those less than $500,000, where there has been a 46.8% drop.
 


AVERAGE NUMBER OF DAYS ON THE MARKET

  • The average number of days on the market for all homes receiving contracts in April 2013 was 42 days, which is a decrease from 53 days in April 2012.
  • Days on the market increased for homes priced more than $1,000,000.

 

 

 

March 2013

04/03/13 by David Howell

CONVERGENCE

The dictionary says that “convergence” is the act of coming together from different directions – and that is exactly what is happening with three key indicators in the Washington, DC real estate market.

In the first quarter of 2013, we’ve seen the number of new contracts, new listings, and fully available inventory converge. A specific example: in March, there were 795 new contracts, 882 new listings, and just 1,040 listings on the market at the end of the month. Two short years ago in March 2011, there were three times as many available listings and 50% more new listings than new contracts.

It’s a tight market in most prices ranges right now, and we haven’t seen these indicators so closely aligned since the peak of the market in 2005. It’s so tight that there has actually been a 5% drop in contract activity year-to-date for homes priced less than $500,000. There simply isn’t enough inventory – just a 40-day supply – to support the level of demand. But the upper brackets, while still a small slice of the market, are doing well. There’s been a 27% jump in contract activity through the first three months of the year for homes priced more than $750,000.

To give you an idea about how dramatically the market has changed, the second chart at right shows the same three indicators from January 2007 through the end of 2008. The number of active listings was as much a seven times the number of new contracts, and the number of new listings coming on the market was typically double the number of new contracts.

Low inventory continues to drive the market, with 40% fewer homes on the market right now than this time last year. We see more of the same in the months ahead. Thus far, there’s no discernible negative impact from sequestration, and there’s no reason to think that the low inventory situation is going to change anytime soon. Homebuyers below $750,000 are going to find it particularly challenging to find what they’re looking for.

 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of February was just 1.6 months, down significantly from 2.7 months at the end of February 2012.
  • DC has, by far, the most balanced market in the region across all but the highest price ranges.
  • Look at the overall supply for homes price less than $1,000,000 – just about 45 days.
     

 


AVERAGE NUMBER OF DAYS ON THE MARKET

  • The average number of days on the market for all homes receiving contracts in February 2013 was 60 days, which is a decrease from 73 days in February 2012.
  • Days on the market decreased significantly for four of the six price categories.


     
 


RELATIONSHIP OF SALES PRICE TO ORIGINAL LIST PRICE vs DAYS ON MARKET

  • Initial pricing strategy is critical to the listing process, even in this tight market. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in Feb. 2013 that received contracts their first week on the market sold, on average, 2.3% above list. Those that took 4 months or longer to sell sold for 11.0% below the original price.
     

January 2013

01/27/13 by David Howell

TIME TO RE-STOCK!

 

If a retailer had this little inventory to sell, they’d swear someone had been shoplifting! To keep the doors open, they’d have to re-stock their shelves with saleable merchandise, and that’s exactly what needs to happen in Washington, DC’s real estate market.
 
In our last issue of MarketWatch, we focused on the opportunity for buyers because of historically low interest rates. But we believe there’s an even bigger opportunity for potential sellers because there are so few listings on the market.
 
Here’s one narrow example of the acute shortage: at the end of December, there were 35 condos/co-ops priced between $500,000 and $600,000 on the market in all of Washington, DC. At the end of May, there were 82. We recognize that inventory is always lower in the middle of winter than it is in the spring, but this isn’t just seasonal. Inventory is down 39% from this same time last year, and there was an 11% drop in the number of new listings coming on the market in December as well. In the past six months, 188 condos in that $500-$600k price range went under contract, so the demand is clearly there – but right now there’s nothing to buy. When there’s plenty of demand and little or no supply, prices are going to rise – that’s just a simple economic fact of life.
 
Anyone who is thinking about selling their home in the next year or two should really consider doing it now. This includes would-be sellers who purchased at the top of the market and think they don’t have equity. A couple of caveats: every submarket is different; the time still has to be right for your personal circumstances, and given the low inventory, finding your next house could be a bit of a challenge. Nonetheless, we know there are plenty of sellers who are in for a pleasant financial surprise in the next few months. If moving up or moving out is in your agenda, give us a call and we can help you craft a strategy to accomplish your real estate goals.
 
So what’s in store for the Washington, DC’s real estate market over the next few months? We know the low-inventory issue isn’t going to be solved overnight, so expect that supply will remain very tight in significant portions of the District through at least the first six months of 2013. The Fed has made it clear that they intend to keep interest rates low, and while we know that they can’t stay under 4% forever, they should stay there for another six months as well.
 
So what’s really ahead is more of the same: a healthy market with tight supply, low rates and rising prices. But – and there’s always a but - we’re still keeping a watchful eye on the sequestration and budget ceiling negotiations. Some defense contractors have already started job layoffs given the uncertain situation, and folks don’t buy houses when they’re out of work. The nation’s economy - and the region’s housing market - remains vulnerable if Congress and the White House can’t find a long-term solution.
 

ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for condos/co-ops priced $500,000-$749,999 in December 2012 was 32.8%; that compares to a rate of 14.7% in December 2011, and the increase means the market was better in 2012 for that type of home. If the absorption rate was less in 2012 than in 2011, we have put the more recent absorption rate in red. This month there was improvement for 16 of the 18 individual price categories.


New Listings, New Contracts, and Active Lstings - Northern Virginia


ABSORPTION RATES - CONDOS & CO-OPS

  • The overall absorption rate for condos and co-ops for December was 30.8%, an increase from the 18.7% rate in December 2011.
  • The absorption rate for condos across most price ranges is more balanced in DC than anywhere else in the region..

 


Fully Available Listings - Northern Virginia October 2011 vs October 2012

ABSORPTION RATES - ATTACHED HOMES

  • The overall absorption rate for attached homes for December was 36.0%, an increase from the 26.3% rate in December 2011.
  • Again, look at the balance across most price ranges.

 


Month's supply of housing October 2011-October 2012 Northern Virginia

ABSORPTION RATES - DETACHED HOMES

  • December 2012’s absorption rate for detached homes was 30.3%, an increase from 22.0% in December 2011.
  • And the balance among the price ranges is evident here as well..

November 2012

11/27/12 by David Howell

THE REAL STORY IS INVENTORY – AND THE LACK OF IT


There’s just a two-month supply of homes on the market in Washington, DC, the lowest we’ve seen at this time of year in almost a decade. This is due in part to an increase in new contract activity, but it’s primarily due to plummeting inventory.

Available Inventory Comparison - October 2011 - October 2012 Washington DCThe average number of fully available homes on the market for the past six years at the end of October was 2,900. Right now, it’s less than half that, at 1,400. The market is tightest for homes priced between $750,000 - $1,000,000, where there is only about a 40-day supply. American University Park and Adams Morgan, among others, are seeing multiple offers frequently, and we think that DC as a whole is the hottest jurisdiction in the region.

We’re firm believers that markets seek balance. In those areas and price ranges where inventory is very low, we’ve seen the return of multiple offers, and those multiple offers bring rising prices. Rising prices will eventually bring more sellers back to the market. But that’s going to take time, so expect low inventory to prevail for at least the next several months.

The other piece of the story is affordability. With 30-year fixed rate mortgage rates continuing well below 4%, the principal and interest payment for a median-priced home is 27% lower than it was in October 2005. And that payment is also less than the median rented price for a home in Washington, DC. We continue to believe that this is a uniquely great opportunity for buyers to lock in at these historically low interest rates precisely at the time home prices are beginning to rise.

So what’s ahead for the Washington, DC real estate market? We expect to see steady improvement in the market over the next several months – a modest rebound in inventory as buyers continue to return to the market. But there is one major caveat: the ‘fiscal cliff.’ We’re writing this in late November, right as Congress is heading into its lame duck session. If Congress and the White House can’t reach an agreement to either postpone or avoid the expiration of the Bush-era tax cuts and the automatic sequestration of $1.2 trillion in federal spending, then all bets are off for this market. It could mean a significant loss in federal jobs, and we could see the regional unemployment rate could jump a full percent virtually overnight. People who don’t have  jobs don’t buy houses. We hope and trust that cooler heads will prevail.


New Listings, New Contracts, and Active LIstings
NEW LISTINGS, NEW CONTRACTS, AND ACTIVE LISTINGS

  • That green line tells the story – listing inventory has dropped in a big way.
  • Increasing contract activity has certainly contributed to a much tighter market, but not nearly as much as the drop in inventory.
  • As mentioned above, inventory is less than half the market average during the past 7 years, and it’s even 37% lower than it was this time last year.

 



Fully Available Listings - Washington DC FULLY AVAILABLE LISTINGS

  • The drop in inventory isn’t isolated to a few price categories – it’s down across the board.
  • The biggest drop is for homes priced less than $300,000, with 47% fewer on the market than this time last year.
  • Total inventory under $750,000 is down 41%. 
  • Total inventory over $750,000 is down 22%.

 

 



Month's supply of housing October 2011-October 2012 Washington DCMONTHS' SUPPLY

  • The overall supply of homes on the market at the end of August was 2.1 months, down significantly from 3.6 months at the end of August 2011.
  • DC has, by far, the most balanced market in the region across all but the highest price ranges.
  • Even the 6.6 month supply in the top price range is considerably lower than anywhere else in the metropolitan area.

September / October 2012

10/02/12 by David Howell

Horseshoes and Hand Grenades!

One of the great evolutions in real estate during the past decade is the power of the Internet, and more than 90% of homebuyers begin their search there. We think that’s great, and buyers are more empowered than ever with loads of information. Some of that information can come from sites like Zillow that offer what’s called an “automated valuation model” – AVM for short – that purportedly offer a great estimate of the current market value of millions of homes. It’s cool technology, amassing an enormous amount of information from publicly available sources in one place that is then scrubbed through very sophisticated algorithms to predict value. And all of that is typically presented in an easy-to-use interface. There’s just one problem: those predicted values are wildly inaccurate and inconsistent.

We check on the accuracy, or lack thereof, of these sites every year. We identified almost 300 properties throughout the Washington, DC metro area that went to settlement in the first two weeks of September 2012, and compared their actual sales prices to the predicted values from three prominent AVMs – Zillow, Eppraisal and Chase Home Valuator – as well as the relevant taxing jurisdiction’s current assessments. To be as generous as possible, we excluded new homes since it would be unlikely that any of these AVM sites could have the details on just-completed homes. We selected all types of homes – condos, townhomes and detached – across all price ranges. To top it off, we looked at the predicted value after the properties had gone to settlement, knowing full well that the AVMs could have had the opportunity to update their models with the actual sales price. We broke the result down by area, and the chart to the right shows the dismal results of the 60 homes evaluated in Washington, DC.

Zillow was the “best” of the bunch, getting within 5% of the actual value 41% of the time, and the rest fared much worse than that. (Look at the tax assessed value – it was within 20% of the value just half the time!) We call this the “horseshoes and hand grenades” home valuation model. You know the old cliché that close only counts in horseshoes and hand grenades – well “close” isn’t nearly good enough when it comes to valuing a home. That’s precisely why we don’t offer the estimated values from any of the site on our website – we think our clients deserve up-to-date knowledge about the market, not just a data dump. Before you decide to put a lot of confidence in these AVMs, consider this comment in an email to us from a senior Zillow executive this summer when we complained about the problems caused by the inaccuracy of their “Zestimates” of value: “You are correct – this is nothing new for any of us. But because consumers are so fond of the Zestimate, it is not going anywhere.” OK, we get it – they know it’s inaccurate but don’t really care because it brings eyeballs to their site. But since they know they’re not accurate, we think you should too.



ABSORPTION RATES CONDOS AND CO-OPS
BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $220,248 at the end of August which is $16,243 more than this time last year, and $60,849 more than August 2006.
  • In August 2006, it would have taken a monthly PI payment of $2,509 to purchase a median priced home. With today’s lower rates, it takes a payment of $1,993 – that’s a 20.6% drop.

 



Absorption Rates Attached HomesNEW CONTRACT ACTIVITY

  • The number of new contracts ratified in August 2012 was up 14.1% from August 2011, and was up in every price range as well.
  • Contract activity YTD is up 6.9%.
  • 28.2% of all homes going under contract in August had at least one price reduction.. 
  • 52.8% of all homes that went under contract in August were on the market 30 days or less.

 



Absorbtion Rates Detached HomesMONTHS' SUPPLY

  • The overall supply of homes on the market at the end of August was 2.1 months, down significantly from 3.6 months at the end of August 2011.
  • DC has, by far, the most balanced market in the region across all but the highest price ranges.
  • Even the 6.6 month supply in the top price range is considerably lower than anywhere else in the metropolitan area.

July 2012

07/30/12 by David Howell

 

Opportunity Knocking!

When 2012 comes to a close, we believe we’ll look back on it as a year of tremendous opportunity for home buyers and sellers alike – but for some it will be a missed opportunity.

We are witnessing something for the first time in our memory in Washington, DC real estate: the principal & interest payment for a median-priced home is now less than the median rental price. At the market’s peak in June 2006, the mortgage payment for a median priced home was 36% greater than the median rental price. Today, it’s 13% lower. We know there’s more to the cost of owning a home than the mortgage payment, and we’re certainly not suggesting that everyone should buy a home. But home prices are beginning to rise, and interest rates will almost certainly be higher a year from now – and we think that it will be a long time before we see the total cost of buying a home this low again.

Another indicator we look at is the percentage of homes going under contract in a given month that have been on the market 30 days or less. In times other than a boom or bust in Washington, DC, roughly 50% of homes going under contract are on the market for a month or less. In June 2004, during the boom, that climbed to 84% as buyers were snapping up everything in sight. In June 2009, it dropped to 44% as buyers were pretty nervous about market conditions. It’s now at 59%, a sure sign that buyers are willing to buy when they see value. Buyers still remain appropriately cautious – even in multiple offer situations they are rarely waiving home inspections and appraisals, and that’s a good thing.

These unique circumstances also mean there is great opportunity if you’re thinking of selling – inventory is very low and buyers in some areas and price ranges are having a tough time finding what they want. Take a look at the absorption rates tables that follow to see the hottest price ranges and property types. Attached homes priced between $500,000 and $750,000 have absorption rates in excess of 53%, and detached homes priced between $750,000 and $1,000,000 have rates exceeding 52%. DC also has the highest absorption rates for home priced more than $1,000,000 among all area jurisdictions. Still, your personal circumstances have to be right to consider making a move, but if they are, this is a great time to sell.


ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for condos/co-ops priced $500,000-$749,999 in June 2012 was 28.4%; that compares to a rate of 22.4% in June 2011, and the increase means the market was better in 2012 for that type of home. If the absorption rate was less in 2012 than in 2011, we have put the more recent absorption rate in red. This month there was improvement for 15 of the 18 individual price categories.

ABSORPTION RATES CONDOS AND CO-OPS
CONDOS & CO-OPS

  • The overall absorption rate for condos and co-ops for June was 28.6%, an increase from the 18.5% rate in June 2011.
  • The absorption rate for condos across all price ranges is more balanced in DC than anywhere else in the region.

 



Absorption Rates Attached HomesATTACHED HOMES

  • The overall absorption rate for attached homes for June was 37.5%, an increase from the 29.9% rate in June 2011.
  • Again, look at the balance across most price ranges.

 



Absorbtion Rates Detached HomesATTACHED HOMES

  • June 2012’s absorption rate for detached homes was 32.0%, an increase from 25.0% in June 2011.
  • And the balance among the price ranges is evident here as well.

May 2012

05/31/12 by David Howell


“No Chipped Paint; All Horses Jump” - Disneyland and Your Home.

A carousel ride for his young kids spurred Walt Disney’s goal for creating the perfect customer experience when he opened Disneyland – and that goal is a great one for homeowners as well.

From a distance, that Los Angeles amusement parkRide Mac's Mercury at Clemijontri Park in McLean! ride looked great to Disney and his two young daughters, but as they drew closer they found that only the horses on the outer ring moved and the paint was shabby and peeling. He was both disappointed and inspired, determined that his guests would have an entirely different experience, and his mantra for the creation of Disneyland quickly became “No Chipped Paint; All Horses Jump.

It was a direct and passionate expression that simply meant that everything had to work, everything had to look good, and nothing should be left to chance. And Disney and his cast acted on that directive to perfection.

Creating the right customer experience when selling a home matters just as much. Making sure everything works properly and everything sparkles gives prospective purchasers the confidence that the home they are considering buying has been well cared for. Most buyers aren’t looking to take on a “project,” and those that are will drive a harder bargain. The seller will pay for maintenance and condition one way or another. If they DO the right things, and PRICE it right, they’ll be rewarded. If they don’t – well, purchasers won’t pay as much for a poorly kept house, and those homes take longer to sell.

Remodeling Magazine, in cooperation with the National Association of REALTORS®, publishes an annual “Cost vs. Value” report that directly addresses this issue. This is among the conclusions of their most recent survey: “The…research…shows that maintenance, repair, and replacement projects take precedence with homeowners. Cost vs. Value data confirm this once again this year, as replacement projects continue to perform better in resale value than other types of remodeling projects. Seven of the 10 top-ranked projects are siding-, window-, or door-replacement projects.”

Proper maintenance is the single, best way to improve the value of your home, regardless of when or if you plan to sell. Before you think about adding a room, or “granitizing” your kitchen, call your favorite McEnearney Associates REALTOR®.  We can give you advice and recommend professional contractors for projects that will ensure the best price when the time is right to sell your home. Relationships with our clients, both buyers and sellers, are for the long term. They don’t begin and end with the transaction!




ABSORPTION RATES CONDOS AND CO-OPS
FULLY AVAILABLE LISTINGS

  • The number of homes on the market at the end of April 2012 was down 33.0% from April 2011. That’s the biggest drop in the region.
  • 32.7% of all homes on the market have had at least one price reduction since coming on the market. Last year at this time, 38.3% of homes on the market had at least one price reduction.
  • All price categories have seen a drop in inventory, with the most significant drops under $500,000.



Absorption Rates Attached HomesNEW CONTRACT ACTIVITY

  • The number of new contracts ratified in April 2012 was up 8.3% from April 2011.
  • Contract activity year-to-date is up 7.5%.
  • 27.0% of all homes going under contract in April had at least one price reduction.
  • 60.3% of all homes that went under contract in April were on the market 30 days or less. That’s considerably higher than any time since the “boom” years when the market was picking off 80% of the inventory in 30 days or less.

 



Absorbtion Rates Detached HomesMONTH'S SUPPLY

  • The combination of the significant drop in the number of homes on the market and the increase in contract activity makes for a pretty tight market.
  • Overall supply of homes on the market at the end of April was 2.1 months, down from 3.4 months at the end of April 2011.
  • DC has, by far, the most balanced market in the region across all price ranges.
  • There’s actually a greater supply of homes priced less than $300,000 than priced between $1 million and $1.5 million – not sure we’ve ever seen that before in any other jurisdiction!

March 2012

03/28/12 by David Howell

“Is it a Buyers' Market or a Sellers' Market?”

That was the question recently posed in an online forum for area REALTORS®. After five years of a very challenging market, it is encouraging that this is even a plausible question – but it is based on the false premise that market conditions are the same everywhere and for every type of property in Washington, DC.

ThrougAbsorption Ratesh the first three months of the year, contract activity is up more than 8% from the same time last year, and listing inventory is down 29%. And that means that there is less than a three-month supply of homes on the market. By any historical measure, that looks a lot like a sellers’ market: relatively low supply being chased by more purchasers. But let’s also put this into perspective from the low point in the market – 2008. 

We took a look at the four key market indicators for the first three months of this year and compared that to the same time period of 2008. Clearly the biggest difference is the number of listings on the market. The average month-end inventory in the first quarter of 2008 was slightly less than 3,000 and it has been slightly more than 1,600 so far this year. That’s a 44% drop. In 2008, the market was flooded with an overwhelming number of new listings – more than 3,000 in the first quarter – as many sellers recognized that the boom market was truly over and tried to cash in. So buyers had plenty of choices, and took their time making a decision. The average time on the market for properties going under contract was 84 days. This year, a third fewer new listings have come on the market, so buyers have fewer choices and they are acting a bit more quickly when they see an appropriately priced listing. The average time on the market has been 75 days so far this year. Note that contract activity hasn’t increased nearly as much as inventory has declined. Now, we’re thrilled that 1,800 homes have gone under contract so far this year – that’s an almost 30% jump from 2008 – however, this year’s contract activity is still well below the levels seen in the first quarter of 2007. Buyers are incented by very, very low mortgage interest rates, but they are still cautious. The reality is that the tight market has far more to do with limited inventory than high demand.

The tight market does mean that there are hot spots, but it’s not hot everywhere. The market is absorbing almost half of the available inventory of townhomes priced between $500,000 and $750,000 every month – and less than 3% of condos priced more than $1,500,000. There’s just a 45-day supply of homes in Adams Morgan, and more than nine months in Foggy Bottom. There are areas and price ranges where short sales and foreclosures are still having a negative impact on the market, and it will take longer for those areas to recover.

Sellers in a hot spot have more negotiating power today than they have had in years, and we’ve seen a resurgence in multiple offers on some properties. But buyers are still hesitant to overpay, and we rarely see escalation clauses accompany those multiple offers. Buyers who are used to having their way may find it a lot tougher to drive a hard bargain in some areas. As we have noted many times before, market conditions are “hyper-local,” and careful and thorough research is required to evaluate any individual property before making a buying or selling decision.

Absorption Rate by Property Type

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for detached homes priced $500,000-$749,999 in February 2012 was 28.6%, indicating that more than a quarter of the homes on the market for this category of homes went under contract in February. That compares to a rate of 22.5% in February 2011, and the increase means the market was better in 2012 for that type of home. If the absorption rate was less in 2012 than in 2011, we have put the more recent absorption rate in red. This month there was improvement for 14 of the 18 individual price categories.


September 2011 Interest Rates
ABSORPTION RATES
CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for February was 26.1%, an increase from the 17.7% rate in February 2011.
  • The absorption rate for condos across all price ranges is more balanced in DC than anywhere else in the region.



Absorption Rates Attached HomesABSORPTION RATES
ATTACHED HOMES

  • The overall absorption rate for attached homes for February was 31.2%, an increase from the 22.8% rate in February 2011.
  • Again, look at the balance across most price ranges.

 



Absorbtion Rates Detached HomesABSORPTION RATES
DETACHED HOMES

  • February 2012’s absorption rate for detached homes was 21.5%, a slight increase from 21.4% in February 2011.
  • And the balance among the price ranges is evident here as well.

January 2012

01/31/12 by David Howell

“Lessons Learned and a Look Ahead”

We learned a lot about Washington, DC’s market in 2011, and the most important lessons bode well for 2012

There were a number of factors at play last year. Home prices were stable at best and still declining at worst, mortgage qualification standards rose making loans more difficult to obtain, the national unemployment rate remained persistently high, and there was the looming threat of federal job losses locally. And for the first time since 2008, there were no special tax credits to incent home purchasers. That challenging combination could have made 2011 a very difficult year, but there were positives as well. The combination of lower home prices and incredibly low interest rates meant homes were dramatically more affordable, and our regional economy remained relatively strong. So what did buyers and sellers do in this environment? They acted logically – in today’s environment, “logically” means “cautiously.”
 
Buyers pulled back just a bit, with the total number of properties going to settlement dropping 7.3% from 2010. Correctly understanding that there were few areas where prices were going up, buyers were generally pretty picky. If a home was overpriced, buyers were quite content to take a pass and either wait for something better – and more realistically priced – to come along, or for a price reduction that brought that home more in line with the market. But when a home was priced right, buyers knew it and would make a quick decision; almost half of what went under contract was on the market 30 days or less. By contrast, the average number of days all currently available homes have been on the market is 158, suggesting there are sellers who either won’t or can’t price their homes where buyers wants them. 

Sellers were appropriately cautious as well. The number of listings coming on the market dropped significantly – 15.7% in 2011 compared to 2010 – indicating that fewer folks decided to attempt to sell in a fairly flat market. For some, perhaps many, prices have not returned to acceptable levels and they will wait until market conditions are better. As noted above, sellers who are willing and able to price their homes in line with the market are getting their homes sold – so the most motivated are seeing results. And that’s exactly what one would expect.

All these factors mean that overall supply is more balanced than at this time last year, as shown in the “Months’ Supply” chart on the following page. Fewer homes on the market for buyers empowered by historically low interest rates will eventually start to move prices higher, and we’re already seeing signs of that in lower price ranges. And when prices begin edging up, more sellers will feel like they have a better chance of selling. There are some wildcards out there including the possibility that we’ll see more foreclosures and short sales come on the market, and the ongoing battles over the federal budget could negatively impact jobs here. Markets adjust, sometimes more slowly than we’d like, but we believe the table is set for 2012 being better than 2011. Make no mistake – we don’t expect dramatic improvement, just continuation of the long climb back to “normal.”



September 2011 Interest Rates
BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $210,732 at the end of December which is $21,445 more than this time last year, and almost $50,000 more than at the peak of the market.
  • This dramatic increase in buying power, combined with significantly lower prices, means that it costs roughly 40% less to purchase a median priced home in Loudoun County today than it did in December 2005.
  • And that fact will slowly bring more buyers back to the market.



New Contract ActivityMONTHS’ SUPPLY

  • As we mentioned on above, overall supply is reflective of a more balanced market.
  • Supply of home priced less than $1 million is amazingly consistent, ranging from 2.3 to 3.9 months’ supply.
  • Basic market economics indicates that this tight supply will – slowly –cause a rise in prices. And when prices do start to rise, that will bring more buyers back, with a higher level of confidence that the market really has bottomed out.




Month's SupplyNEW LISTINGS, NEW CONTRACTS AND ACTIVE LISTINGS

  • We think this chart really captures what market pressures do.
  • In the white-hot market of 2005, contract activity soared, spurring more sellers to sell – and then they became buyers.
  • When buyers started to exit the market in 2006, listing inventory soared – and the market has been adjusting rather painfully ever since.
  • Other than the spring of 2010, when the homebuyers’ tax credit created a short-term surge, the market is more balanced now than any time since the bust.

December 2011

12/06/11 by Kathy McEnearney

“Parts of Area Housing Market Almost Back to Pre-Recession Levels”


That’s the headline in a recent Washington Examiner article about the state of the region’s real estate market. Um...we think there are a lot of sellers who would call the veracity of that attention-grabber into question.

Slippery When Wet What the article goes on to say is that the median sales price in Washington, DC is now nearly 90% of its peak in June 2006. (There were several jurisdictions mentioned that are nowhere near their peak levels, by the way.) While that may be statistically accurate, we respectfully submit that the headline confuses a mathematical calculation with a home’s value.

Remember that the “median” is simply the midpoint of a list of numbers ranked highest to lowest. As such, a change in the mix of what is selling can have a significant impact on the “median” value. The table at right shows the impact. In month 1, there are 15 homes that sold, ranging from a low of $300,000 to a high of $1,000,000. The median price is $650,000. In month 2, 13 of these same homes sell for exactly the same price as the previous month, but the two most expensive homes are dropped from the list. So even though there’s no change in the actual sales prices, the median price drops $50,000. And in month 3, 13 of these same homes sell again at the same price, but this time the two least expensive homes don’t sell – the median price increases $50,000.

Given current market conditions and recent changes that make getting a mortgage a bit more difficult, there are fewer first-time home buyers right now. As a result, there’s been a drop in the number of lower-priced homes selling. There were 58 sales under $150,000 in Washington, DC in October 2010 and 39 such sales in October 2011. As a result, the median price would rise simply because there are fewer low-priced sales on the list. Another example: the median sales price of all homes sold in Washington, DC was 5.24% higher in October 2011 than the same month of 2010. Does anyone really believe that home values have risen more than 5% in the last year?

Anyone who has read MarketWatch over the years knows that we like statistics, and we try to use them to help educate our clients so that they can make sound real estate decisions. But we try to be very careful about placing the numbers in context, with an effort to explain what they mean and what they don’t mean. And that’s why we don’t focus on average and median prices in our reports – they can be very misleading

We’re as optimistic as anyone about the long-term prospects for the Washington, DC real estate market, but the reality is that home values are nowhere near their boom-market peak. Don’t be fooled into thinking a simple arithmetic computation means anything – only a careful analysis of an individual property will give a buyer or seller a good idea of the value of that home. 

Absorption Rate by Property Type

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for attached homes priced between $750,000 and $999,999 in October 2011 was 25.3%, indicating that a quarter of the homes on the market for this category of homes went under contract in October. That compares to a rate of 22.6% in October 2010, and the increase means the market was better in 2011 for that type of home. If the absorption rate was less in 2011 than in 2010, we have put the more recent absorption rate in red. This month there was improvement for 12 of the 18 individual price categories.


September 2011 Interest RatesABSORPTION RATES
CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for October was 18.7%, an increase from the 13.6% rate in October 2010.

  • The absorption rate for condos across all price ranges is more balanced in DC than anywhere else in the region.



New Contract ActivityABSORPTION RATES
ATTACHED HOMES

  • The overall absorption rate for attached homes for October was 26.2%, an increase from the 19.9% rate in October 2010.

  • Again, look at the balance across most price ranges.

     



Month's SupplyABSORPTION RATES
DETACHED HOMES

  • October 2011’s absorption rate for detached homes was 22.0%, a decrease from 17.9% in October 2010.

  • And the balance among the price ranges is evident here as well.

October 2011

10/27/11 by David Howell

"I’M NOT GOING TO GIVE MY HOUSE AWAY!"

Slippery When Wet

This is a common refrain from prospective home sellers in today’s market, and we understand that sentiment. No owner wants to get less than their home is worth, and when we’re representing a seller it’s our job to make sure they get full market value. An important part of that task is making sure that the homeowner is equipped with the best information about the market to help them make rational decisions. 

This can be a rough market, and sometimes sellers don’t have any choice but to sell. A job transfer, a tough time making the mortgage payments, a change in family circumstances – any of those factors and more may necessitate a sale in less than ideal market conditions. And even when the sale is by choice, sellers can get pretty ornery when confronted with what it takes to sell. It’s their home, and the prospect of making changes to accommodate an as-yet-to-materialize purchaser is just too much to handle. Along with our headline statement, here’s a sample of things we’ve heard from defensive sellers:

  • I know what the comps are, but I need to get more to buy my next house.
  • I hung that wallpaper myself 15 years ago; I love it and I’m not going to take it down.
  • My daughter loved that deep red color in her bedroom and we’re not going to change it.
  • We lived with it that way for years and it never bothered us.
  • I’m not going to take up that 20-year old carpet.
  • I don’t care that the same model sold for $50,000 less than my house – my house is better.

Here’s the best piece of advice we can offer to sellers: Buyers don’t care about any of that, and are in no mood to reward sellers who are not realistic. That’s a simple fact, and it shows up in the numbers. In September 2011, almost half (46.4%) of the homes in Washington, DC that went under contract were on the market for 30 days or less. Only 3% of those homes had any reduction in their list price before receiving a contract, and those price reductions averaged just 3.6%. By contrast, of those homes that received contracts after more than 30 days on the market, 60% had to reduce their original list price before getting a contract, and the average price reduction was 9.4% of original list. And that’s for properties that went under contract – what about those that are still on the market? At the end of September, 71% of the fully available homes had been on the market for more than 30 days, and only half of those had reduced their price. Buyers will recognize a properly priced home and will make a move – and will happily take a pass on those homes that aren't priced right.

So, if you are thinking about selling your home, ask yourself this important question: Am I a tester or a seller? Testers don’t think price and condition really matter because there will be that one buyer who will fall in love with their home and will give them what they need. Sellers adopt the attitude that they aren't selling their home, they’re selling an asset that needs to be presented to the market in the best way possible and will do everything necessary to make that happen.

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September 2011 Interest Rates
FULLY AVAILABLE LISTINGS

  • Inventory decreased in all six price categories compared to September 2010, with overall inventory down 18.5%.
  • Almost 40% of all homes on the market have had at least one price reduction since coming on the market, indicating that a lot of homes come on the market at an unrealistic price.

 


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New Contract Activity
MONTHS’ SUPPLY

  • The overall supply of homes on the market at the end of September was 4.5 months, exactly the same as at the end of September 2010.
  • DC has, by far, the most balanced supply in the entire metro area across all price ranges.

 


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Month's Supply

RELATIONSHIP OF SALES PRICE TO ORIGINAL LIST PRICE vs. DAYS ON MARKET

  • Homes settling in September 2011 that received contracts their first week on the market sold, on average, for just 0.55% above original list price. Those that took 4 months or longer to sell sold for 13.06% below original list.
  • Initial pricing really matters, and there is a great opportunity to sell a house quickly if the price is right.

September/October 2011

09/19/11 by David Howell

 

TURN INTO THE SKID AND TAKE YOUR FOOT OFF THE ACCELERATOR

Slippery When WetThat’s wise advice when driving in bad weather. When you hit a rough spot in the road and start to skid, every instinct screams out to hit the brakes and turn the steering wheel hard in the opposite direction. But Driver’s Ed 101 teaches us that gentle corrective action will let you straighten out and start heading the right way – and then equally gentle pressure on the accelerator lets you get moving again. We hope that simple lesson isn’t lost on our nation’s housing policy makers.

One of the major reasons the market is in such a significant skid is that it was driving way too fast and was ignoring some very basic rules of the road. There were times that the traffic not only looked the other way, but urged even more speed. No one in their right mind would suggest that keeping the pedal to the metal – in the form of issuing mortgages to anything that moves – is the remedy. But we’re concerned that there may be too much braking and over correcting. It’s almost certain that the conforming loan limits are going to drop, making loans more expensive for homes priced more than $750,000 – and that’s a very important segment of our market here. And there are other new traffic laws being contemplated – increasing down payment requirements, a significant reduction in Fannie and Freddie’s role, and reducing or eliminating the home mortgage interest deduction. The motivation for the latter seems to have more to do with raising new revenue than addressing the problems in the housing market. The adoption of any one of these policy initiatives could slow the market, and if all were enacted it would amount to jerking the steering wheel and stomping on the brakes of the market.

As concerned as we may be about policy decisions that are ultimately beyond our control, we are also reminded of our company’s history. When John McEnearney opened his doors for business in July 1980, mortgage interest rates were 17% and most loans required 10% or even 20% down. And people still bought and sold houses. It wasn’t easy and it took a lot of creativity, but people still needed a place to live and were still attracted to the dream of owning their own home. In the intervening 31 years, we have witnessed just about every kind of market condition imaginable, and current conditions could certainly be better. Yet this week, and next week, and the week after, more than 150 sellers and buyers will reach agreement on contract terms to buy and sell a home in Washington, DC, and more than 1,000 in the metro area. That’s surprising to some in the face of all the negative news, but it is reassuring to us.

This is a resilient market, and folks will find ways to adapt to whatever conditions exists, just like we always have.



September 2011 Interest Rates
MORTGAGE RATES

  • Interest rates have nothing to do with a sluggish market, as rates are lower than any time since the Eisenhower administration.
  • 30-year fixed interest rates at the end of August averaged 4.22%, compared to 4.36% at the end of August 2010.
  • That 4.22% figure represents a new historical low, besting the October 2010 number of 4.23%.

 




New Contract Activity
NEW CONTRACT ACTIVITY

  • There were almost 560 homes that went under contract in August, traditionally one of the slowest months of the year.
  • That includes 28 homes priced more than $1 million.
  • Almost half of all the homes going under contract in August were on the market for 30 days or less, suggesting that buyers will act quickly when they see well-priced homes.

 




Month's Supply
MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of August was 3.6 months, down from 4.5 months at the end of August 2010.
  • DC has, by far, the most balanced market in the region across all price ranges. Take a look at the four lower price categories: the lowest supply is 2.8 months and the highest is 3.8 months. In Northern Virginia, the range is 1.6 to 3.9 months.

July/August 2011

07/01/11 by David Howell

A Double-Dip is Great - When It's Ice Cream

But not when it's the real estate market. Six months ago, the national conversation was about when the housing market recovery would start, but there's far more talk now about whether we're headed back downhill. So how likely is a double-dip in the District's market? Let's take a look at six key indicators: Prices, unemployment, inventory, contract activity, mortgage delinquencies, and "velocity."

PRICES:

The Case-Shiller Index says metro DC is the only region in the country where prices are going up – 4.0% in the last year. The Federal Reserve Bank of Richmond says they're down 3% in the same time frame. Who are you to believe? In our view, they're both wrong, even though they have a few more economists on their staffs than we do. Although the statistical average price is up 4.6% in Loudoun County through the first six months of the year, that is entirely due to a significant shift in what is selling. Last year, homes priced less than $350,000 were 50% of the market and homes priced more than $600,000 were 14%. This year, the market for $350K or less is 45% of the total and $600K or more is 16%. That shift alone accounts for the arithmetic increase in average prices. Based on our boots on the ground experience, prices are stable in most of Loudoun; there's just not much movement either way.

UNEMPLOYMENT:

The unemployment rate in DC is 9.8%, higher than the national average of 9.1% - and that's a weak spot. But DC's rate has always run higher than that of the suburbs and as a result, the real estate boom was not as huge. Ironically, that has contributed to the DC market being more stable than the burbs. As is true for the entire region, the cloud on the horizon is the potential for significant cuts in federal spending, and that would have a negative impact on this region.

INVENTORY:

There are 14.6% fewer homes on the market right now than this time last year, and there has been a 13.4% reduction in new listings through the first six month of 2011. In a handful of areas, there is actually a modest shortage of quality homes for sale. Excess inventory isn't going to slow the market down.

MORTGAGE DELINQUENCIES:

Another weak spot. Slightly more than 10% of all DC homes with a mortgage are either 90 days or more delinquent or are already in foreclosure. Although that is a bit better than this time last year, it is above the national average. Homes that reach this stage almost always enter the market as distressed sales, so the attractive inventory situation described above may be negatively impacted.

CONTRACT ACTIVITY:

Contract activity was up almost 9% in June compared to June 2010, and year-to-date activity is down only 5.3%. That's second best in the entire region. But we clearly see that there's no sense of urgency among buyers. There's plenty of interest, but it takes a bargain to get a purchaser to put pen to paper, and we don't see anything in the near term that is likely to change that.

VELOCITY:

That's our term for how fast properties are selling, and there is an interesting split in the market. During the last several months, half of homes going under contract have been on the market for 30 days or less. That tells us that buyers will make a move when they see value. But if a property doesn't sell quickly, it is likely to languish on the market, as overall average days on the market have ticked up a bit.

So…based on these indicators, we think a double-dip in the housing market in Washington, DC is unlikely.

But so is any significant recovery or price appreciation. It is simply going to take time to pull out of the protracted slump, and we stand by our view that we won't see "normal" price appreciation until sometime next year.

Absorption Rate by Property Type

This is another indicator of why we believe we're not headed for a "double-dip" in Washington, DC. The tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for condo/co-op homes priced between $750,000 and $999,999 in June 2011 was 26.2%, indicating that slightly more than one quarter of the homes on the market for this category of homes went under contract in June. That compares to a rate of 14.6% in June 2010, and the increase means the market was better in 2011 for that type of home. If the absorption rate was less in 2011 than in 2010, we have put the more recent absorption rate in red. This month there was improvement for 16 of the 18 individual price categories.

Condo / Co-opFee Simple AttachedFee Simple Detached
Files: June/July

May/June 2011

05/01/11 by David Howell

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March/April 2011

03/01/11 by David Howell

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January/February 2011

01/01/11 by David Howell

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November/December 2010

11/01/10 by David Howell

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September/October 2010

09/01/10 by David Howell

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July/August 2010

07/01/10 by David Howell

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05/01/10 by David Howell

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March/April 2010

05/01/10 by David Howell

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January/February 2010

01/01/10 by McEnearney Associates Inc, Realtors

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November/December 2009

11/01/09 by David Howell

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September/October 2009

09/01/09 by McEnearney Associates Inc, Realtors

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November 2018

11/27/18 by David Howell

 

Zillow's "Zestimates" Are a Bit Better Than They Used To Be

But They Are Still Inexplicably Bad

We have just completed our fifth and most comprehensive evaluation of the accuracy of Zillow.com’s “Zestimate,” the major calling card for their website. Going back to 2010, Zillow has been able to predict the market value of the homes they evaluate within 5%, high or low, a little over half the time. Evaluating 1,000 properties late this summer, they got that “close” roughly 64% of the time.

Among the reasons for that marginal improvement is that Zillow now has a direct feed from the region’s multiple listing system, giving them more timely and comprehensive information on available and sold listings. Yet Zillow seemingly ignores the most important information of all: the list price of the property, especially when there is a pending contract. 

In the table below, you can see the evolution of Zillow’s estimates – how often they get within 20%, 10% and 5% of the market value – and they have gotten a little better over time. The last two lines show the “outliers,” just how far off the mark Zillow can be. (As an example, in one case in our most recent analysis, the Zestimate was 744% higher than the actual sales price!) The last column is Realtor® pricing, showing how close the original list price of a home was to the actual sales price.

So with just two pieces of information – the original list price and the fact that the property has a pending offer – the consumer can get closer to predicting the sales price than Zillow does. The list price is within 5% of the sales price almost 90% of the time. Zillow’s model is so reliant on their sophisticated algorithms and data scientists that they choose to ignore the power of a seller and their Realtor® evaluating the property and market conditions to decide on an offering price. And if Zillow is this far off the mark when they have list price info, just how far off do you think they are for home that aren’t on the market? 

Why does Zillow produce these estimates of market value? According to their website, “The purpose of the Zestimate is provide data in a user-friendly format to promote transparent real estate markets and allow people to make informed decisions.” We agree with the first part of that statement, but not the second. If the purpose was to help people “make informed decisions,” then Zillow wouldn’t publish such misleading and inaccurate information. The real purpose is to drive traffic to Zillow.com. We get it – that’s the business they are in and they do that exceptionally well. As Realtors®, we live in a world where accuracy and accountability matter, and Zillow doesn’t. We succeed or fail based on our knowledge and service; Zillow succeeds or fails based on their ability to sell leads to agents, and that depends on web traffic. To be clear, we have no problem with Zillow’s business model or the fact that they publish estimates of property values. We simply don’t want people to think they are making “informed decisions” based on these numbers.

 


MARKETWATCH ARCHIVE - MONTGOMERY COUNTY, MARYLAND

Summer 2018

08/17/18 by David Howell

 

No One Has All The Buyers.

The Perils of "Off-market" Sales

The Washington metro area has a strong real estate market characterized by remarkably low inventory, so we’re a little puzzled by the frequency of “off market” listings – those listings that are not put in the multiple listing system (MLS). One may hear them referred to as private exclusives or pocket listings, but under either banner these are homes that are not exposed to the broadest possible market.

In a market where buyers are clamoring for choices, why would a seller intentionally choose to do that?

There are some perfectly legitimate reasons – convenience, security, privacy – and sellers should get to make those choices. But as with any marketing strategy, there are winners and losers, pros and cons.

When a property is sold by word of mouth, or can only be shown by the listing agent or agents with their company, or simply not marketed in a way that every buyer has a shot at seeing, the seller may be able to get a quick, no fuss sale. If that’s the seller’s objective, so be it. But a “private exclusive” listing – by definition – excludes people.

When supply is tight, does it really make sense to restrict the demand - the number of people who have an opportunity to buy? Because that’s really what these “off-market” listings do. They limit the pool of purchasers. Sellers run the risk of missing a better offer. If the “off market” listing strategy is so wise, let’s take it to its logical conclusion: if every seller and listing agent decided to restrict the availability of their listing, wouldn’t everyone be hurt? Buyers would have nowhere to turn for ready access to every home on the market, and sellers would not have access to all the buyers.

Sellers might be attracted to an agent’s “pitch” that they or their company have the buyer for their home. But here’s the reality: no agent, no company has all the buyers, or even most of the buyers. We see these “off market” listings a bit more often in the luxury market where some may perceive that there are dominant players. In the first four months of this year, there have been just over 1,600 homes sold in the metro area in the MLS for $1,000,000 or more. There were 1,050 different agents from over 300 different companies who brought the buyers to those homes. But is the luxury market all that different? So far this year in Fairfax County, there have been 1,650 homes sold in the MLS between $500,000 and $700,000. Over 1,100 different agents from 350 companies represented the buyers of those homes. In Prince George’s County, 2,500 homes have sold between $200,000 and $400,000, and there have been over 1,500 different agents from 550 different companies.

Before a seller decides to sell their home “off-market,” perhaps the most important question to ask is this: “How many buyers do I want to miss?”

 

 


NEW CONTRACT ACTIVITY

  • The number of new contracts ratified in July 2018 was up 4.0% from the number of contracts ratified in July 2017. There were decreases for three price categories.
  • Year-to-date, contract activity is down 1.7%.
  • 32.4% of all homes going under contract in July 2018 had a price reduction before going under contract.   

 

 


MONTHS' SUPPLY

  • The overall supply of homes on the market at the end of July was 2.1 months, down 12.5% from 2.3 months as at the end of July 2017.
  • Supply is lower for five price categories, and one remained the same.

 

 


AVERAGE DAYS ON THE MARKET

  • The average number of days on the market for homes receiving contracts in July was down for four categories.
  • Overall, the average number of days on the market for all homes receiving contracts in July 2018 was 42 days, down from 44 days in July 2017.

 

Winter 2018

03/13/18 by David Howell

 

More of the Same?

2017 ended with a bit of a whimper, as contract activity on our region’s real estate market cooled off along with the weather. But it was an overall solid year, with Washington, DC continuing to outpace its suburban neighbors. What’s ahead for 2018?

We’ll put our forecast into three categories: Steady State, the Wildcard, and the Tantalizing Possibility.

Steady State – With inventory in short supply, especially inside the Beltway, we expect 2018 to look a lot like 2017. There will continue to be considerable upward price pressure close-in, but we do not expect the DC market to maintain the 8%-9% annual appreciation rates of the past three years. We think it will be more like 5%, and probably less in the upper brackets. The suburbs will still be strong, particularly as more frustrated buyers look outside the inner city because of prices and inventory. Even with those factors, we’d be very surprised if the appreciation rate exceeds 3% in those areas. And regarding mortgage interest rates, it is almost inevitable that they will (finally) rise as the overall economy improves, ending 2018 around 4.75%. That rate shouldn’t discourage homebuyers.

The Wildcard – With the ink drying on the sweeping tax reform legislation, residential real estate will be impacted in at least three ways. First, with the cap on deductibility of state and local taxes and the diminished value of the mortgage interest deduction for expensive homes, it is likely that upper end home prices won’t increase as much as they would have had reform not passed. Second, the overall tax decreases for most wage earners will put money in their pockets, particularly for millennials who may be thinking about buying their first home. This should help with student loan debt, saving for a down payment, and/or increased spending – and that’s good for real estate. And third, if the economy grows as it did after the Kennedy- and Reagan-era tax cuts, that means more jobs, more income and a much healthier economic climate. Overall, we think the tax reform legislation in 2018 will be a modest, net positive for the region’s real estate market.

The Tantalizing Possibility – Three communities in our region made the short list of 20 semi-finalists for Amazon’s HQ2, with a promise that their final decision will come in 2018. Should one of those three areas be anointed to host 50,000 new employees, acres of office space, and the traffic that will come along with it over the next several years, the whole region wins. Amazon won’t be turning dirt for their second headquarters anytime soon, but the real estate boom for some city on that list of 20 could begin later this year.

 

 

November 2017

11/22/17 by David Howell

 

Absorption Rates and Sell-by Dates

Determining the appropriate list price for a home or figuring what to offer is equal parts art and science. The “art” has a lot to do with the motivation and level of risk tolerance of the parties, as well as the degree of emotional attachment to the outcome. The focus of the “science” has typically been on knowing overall market and financing conditions, and picking the most “comparable” properties to see how the subject property stacks up. Unsurprisingly, there’s a lot more to it than that.

Among the factors to consider are absorption rates and what we call “sell-by” dates. Absorption rates simply measure the percentage likelihood a property will sell in a given month. Absorption rates above 35% are reflective of a seller’s market, and rates below 20% create more leverage for buyers. Anything in between indicates a more balanced market. Sell-by dates reflect how much of the inventory sells before list price reductions are needed. Generally, when homes sell quickly they sell closer to list price, and the discount from the original list price is greater the longer they are on the market. Let’s look at some specific examples.

We analyzed the contract activity for detached homes with a list price of $800,000 to $899,999 from July through October for three communities in the metro area: Great Falls, Virginia, Bethesda/Chevy Chase, Maryland and the Spring Valley/American University Park area of Northwest DC. Great Falls had the lowest absorption rate at just under 20%, meaning that of all the inventory of available homes, only 20% on average sold in a given month. The average number of days a home was on the market before getting a contract was 37. Advantage: Buyers. At the other end of the spectrum, almost two thirds of the available inventory sold each month in Spring Valley/AU Park. The average days on the market was a remarkably low 10 days. Advantage: Sellers.  

 

 

The “sell-by” date is the threshold for considering a list price reduction. In Great Falls, homes that sold in 30 days or less sold for an average of 99% of the original list price. Those that sold after 30 days on the market sold for an average of 92% of original list, and almost all had to lower their price before receiving an offer. In Bethesda/Chevy Chase, homes selling in 21 days or less sold for 99% of original list; those that took longer sold for just 94% and all but one had to drop their list price. In the hotter Spring Valley/AU Park market, homes on the market 25 days or less sold for 105.5% of list price, but after 25 days the average dropped to just 94.3%.  Even in this market, 75% of sellers had to drop their list price to receive an offer after their home had been on the market for 25 days.

Despite very different pricing dynamics in these markets, sellers need to understand there is a critical window of opportunity to sell for the highest price. And buyers understand that if they wait for the inventory to “age” a bit, they might be able to drive a harder bargain.

 


FULLY AVAILABLE LISTINGS

  • The overall inventory decreased 7.1% in October 2017 compared to October 2016, but there was a slight 0.1% increase in the number of new listings coming on the market. 
  • Inventory decreased for four price categories.
  • 44.6% of all homes on the market have had at least one price reduction since coming on the market. In October 2016, 42.5% of all homes on the market had at least one price reduction.

 



MONTHS' SUPPLY

  • The overall supply of homes on the market at the end of October was 2.3 months, down 8.8% from 2.5 months as at the end of October 2016.
  • Supply is lower for four price categories.

 


 

RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON MARKET​

 

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in October 2017 that received contracts their first week on the market sold, on average, 0.86% above list price. Those that took 4 months or longer to sell sold at 7.96% below original list!

September - October 2017

09/09/17 by David Howell

 

 

Champagne, Baths – and Real Estate

Bubbles are great to have in champagne, baths, and a host of other things, but they are not good for the real estate market.

A real estate bubble generally is caused by unjustified speculation in the housing market that leads to a rapid and unsustainable increase in prices. When it bursts, prices decline quickly – often to levels lower than when the run up in prices began. The whole country experienced a painful bursting bubble almost a decade ago, and its impact was felt far beyond the real estate market.

There is no doubt that home prices have risen significantly in the metro area during the past several years and affordability, especially for first-time homebuyers, is a real concern. But are we in a bubble? The short answer is no.

From 2002 through 2005, home prices in the Washington, DC metro area skyrocketed. Demand was artificially high, driven by ridiculously low “teaser” interest rate mortgages. Prices were up 14% in 2002, 15% in 2003, 20% in 2004, and 21% in 2005. Since mortgage underwriting guidelines were essentially non-existent, more and more buyers rushed into the market to buy homes they could not afford, with the expectation they could cash in their gains later.

When those artificially low adjustable rate mortgages started to adjust and guidelines tightened, demand plummeted. There was a 40% drop in the number of home sales in 2009, compared to the peak in 2005. At the same time, the market was flooded with new inventory as homeowners rushed to sell homes they could no longer afford. With the enormous drop in demand and the jump in homes on the market, prices dropped almost 15% in 2009. Prices only started to head back up in 2012.

None of those supply and demand conditions exist today.

Let’s take a look at demand. There are three basic ways to increase the desire for housing: an upturn in economic activity, an increase in population, and generally low interest rates. To a large degree, all three of those exist today. The region’s economy is doing pretty well, especially in The District. Further, the region has grown by 1,000,000 residents in the last 14 years. Finally, low mortgage interest rates have created an extremely attractive environment for prospective home purchasers, and yet, demand has not exploded. The number of home sales this year in the metro area will be virtually identical to the number that sold in 2003. There have been significant demographic shifts – people are waiting longer to marry and form households, and student loan debt makes it harder for many to buy their first home. And despite those low interest rates, it is harder to qualify for a loan. In short, demand is reasonable, and it not being fueled by speculation.

On the supply side, inventory of available homes is at a historic low. Just as buyers are waiting longer, homeowners are staying put longer. Nationally, the median number of years sellers have been in their homes has risen from six years in 2000 to 10 years today. New construction isn’t keeping pace with household formation.  

Low inventory has certainly contributed to increasing home prices, but even in the hottest market area in The District, annual appreciation rates have been between 6% and 8% during the last three years. It is far lower in the suburbs. If demand were greater, the lack of inventory would have pushed prices much higher.

Markets seek balance over time, as long as they are not artificially stimulated or restricted. The hottest areas in our region are due for an adjustment because 6%-8% appreciation isn’t sustainable forever. In our more suburban markets, current appreciation rates are in line with historic norms. And we know that eventually, mortgage interest rates will climb, and that will ease some of the upper pressure on home prices. We believe the inevitable market adjustment will come in the form of lower appreciation rates, not a drop in prices.


 

ABSORPTION RATE BY PROPERTY TYPE


The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for detached homes priced between $500,000 and $749,999 in July 2017 was 29.4%; that compares to a rate of 27.9% in July 2016, and the increase means the market was better in 2017 for that type of home. If the absorption rate was less in 2017 than in 2016, we have put the 2016 rate in red. This month there was improvement for 11 of 18 individual categories.



ABSORPTION RATES – CONDOS AND CO-OPS

The overall absorption rate for condos and co-ops for July 2017 was 32.4%, an increase from the 29.9% rate in July 2016.



ABSORPTION RATES – ATTACHED HOMES

The overall absorption rate for attached homes for July 2017 was 35.6%, down from the 39.3% rate in July 2016.


 

ABSORPTION RATES – DETACHED HOMES

July 2016’s absorption rate for detached homes was 27.1%, up moderately from the 26.9% rate of July 2016.

And as we have seen in the other property types, the absorption rates are higher for the lower-priced categories.

May-June 2017

05/18/17 by David Howell

 

MILLENNIALS FEELING THE PINCH

As millennials are entering their prime as homebuyers, they are feeling the pinch between very low inventory for entry-level priced homes and rising interest rates in the metro DC market.

Contrary to much of the conversation these days, the overall inventory of homes is not at a record low. At the end of April 2014, there were almost 5% fewer fully available homes than there are right now. However, a huge shift of the price range of homes on the market has occurred.

In April 2014, 45% of all homes on the market were priced less than $500,000, and homes in this price category constituted 67% of all sales. Today, just 33% of homes are priced less than $500,000, and the percentage of total sales has dropped to 62% of the market.

No question – inventory is down significantly from this time last year, but the decreases have not been evenly distributed. While overall inventory is down 15%, the number of homes priced less than $500,000 is down 26%. But there are 3% more homes available priced more than $1,000,000.  

In the suburban markets, the differences are even starker. In Northern Virginia and Loudoun County, there are 32% fewer homes priced less than $500K than last year, and Montgomery County is down 23%.

It isn’t just the scarcity of inventory facing millennials – or any other first-time buyer – that makes this a challenging market. Mortgage interest rates are about a half point more than they were in November, making homes slightly less affordable. And ironically, those higher rates are contributing to the relative paucity of new listings coming on the market. In our robust sellers’ market, one might expect there would be a significant jump in the number of sellers taking advantage of very favorable market conditions.

However, new listings are up only 2% in the metro area year-to-date compared to the same time last year. Plenty of homeowners who purchased or refinanced in the last few years and locked in sub-4% mortgages are in no hurry to sell their homes. The prospect of giving up those very favorable rates, only to face the prospect of buying a home in a tight market at higher rates, is keeping people in their homes longer.

Another factor preventing many millennials from buying homes is student loan debt, and that’s certainly not unique to the Washington area. In their “Student Loan Debt and Housing Report – 2016,” the National Associations of REALTORS® found that, among those who are current in their debt repayments, 71% of non-homeowners cite student loan debt as the factor delaying them from buying a home. The level of debt impacts both their ability to save for a down payment, as well as their debt-to-income ratios to qualify for a mortgage. The delay in buying a home among non-homeowners and homeowners alike is five years.

So, buyers of entry-level homes are truly feeling the pinch of low inventory and higher interest rates.  Nonetheless, perspective and patience are both virtues.  Mortgage rates are still extraordinarily low from a historical perspective, and markets seek balance over time. Millennials and anyone else can be successful buyers with planning and persistence.

 


FULLY AVAILABLE LISTINGS

  • Overall inventory decreased 15.2% in April 2017 compared to April 2016, and there was an 18.6% decrease in the number of new listings coming on the market. 
  • Inventory increased for homes priced more than $1.5 million.
  • 31.5% of all homes on the market have had at least one price reduction since coming on the market. In April 2016, 31.7% of all homes on the market had at least one price reduction.

 

 


CONTRACT ACTIVITY

  • The number of new contracts ratified in April 2017 was down 11.7% from the number of contracts ratified in April 2016. There was an increase in just one price category.
  • As noted on page 3, contract activity year-to-date is down 3.0%.
  • 21.0% of all homes going under contract in April 2017 had a price reduction before going under contract.
     

 

 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of April was 1.8 months, which was basically the same as the end of April 2016.
  • Supply is lower for four price categories, and is particularly low under $500,000.

 

 

 

March-April 2017

03/30/17 by David Howell

 

THE IMPACT OF RISING MORTGAGE RATES

It finally happened – after years of speculation and expectation, mortgage interest rates have climbed since the national elections in November.

During the past forty years, the interest rate for 30-year fixed rate mortgages has averaged 8.2%. From the beginning of 2000 through 2012, the average was just under 6.0%. But from early 2013 until mid-November of last year, rates averaged an astoundingly low 3.8%. It’s a funny thing – when rates stay low for an extended period of time, people get used to them, and also tend to forget that they couldn’t stay that way forever.

 

 

In the weeks after the election, rates moved from 3.5% to 4.3%, and have since floated between 4.0% and 4.2%. To be sure, mortgage interest rates are still very low, but potential homeowners have lost about 6% of their purchasing power in just a few weeks. The monthly principal and interest payment on a $400,000 mortgage in early November was roughly $1,800. A borrower getting that same mortgage today would pay $1,925.

So a big jump in a short time is a market killer, right? In fact, at least on the short term, exactly the opposite is happening. Many buyers who have been sitting on the fence have decided to purchase before rates go much higher. During the past three months, contract activity is up 12% compared to the same time period a year earlier. This uptick in activity may seem counterintuitive, but it is what we have always seen when rates rise.

From May to August 2013 rates jumped a full percentage point from 3.5% to 4.5% – but contract activity rose 13% from the same time in 2012 when rates averaged 3.6%. It is also likely that, given the recent action by the Federal Reserve Chair raising its target rate, mortgage rates will continue to trend higher through the rest of 2017.

We’re not suggesting that rising rates are good for the real estate market, and there is no doubt that higher rates will price some out of the market and prompt others to lower their price point. Yet rising rates are not a huge negative either, at least in the short term. It is important to view these increases in a broader context. The fundamental reason that rates are climbing is that the national economy is improving. And that means household income is rising, the job market is improving and more people will be in a position to buy.

We’d like to offer one more bit of historical perspective. When John McEnearney opened the doors to our company in July 1980, mortgage rates stood at 12.0%. One year later they were 17.0%. That’s right: 17.0%. And people still bought houses. To be sure, it was a lot tougher, but owning a home was just as important then as it is now.

 


FULLY AVAILABLE LISTINGS

  • The overall inventory decreased 15.9% in February 2017 compared to February 2016.

  • Inventory increased for homes priced more than $1 million.

 

  • 31.4% of all homes on the market have had at least one price reduction since coming on the market. In February 2016, 35.3% of all homes on the market had at least one price reduction.

 

 


CONTRACT ACTIVITY

  • The number of new contracts ratified in February 2017 was down 2.0% from the number of contracts ratified in February 2016. However, there were increases in three price categories.

  • Contract activity year-to-date is up 3.4%.

  • 26.5% of all homes going under contract in February 2017 had a price reduction before going under contract.

 

 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of February was 1.7 months, down 14.2% from 2.0 months at the end of February 2016.

  • Supply is lower for five price categories. 

 

 

 

November - December 2016

12/04/16 by David Howell

 

IS THERE AN INVENTORY PROBLEM?

With the number of fully available homes on the market near record lows for this time of year and with fewer new listings coming on the market, is there any relief in sight for buyers who are frustrated by their lack of choices? And why aren’t more sellers taking advantage of this low inventory by putting their homes on the market?

We don’t see any relief on the horizon. There are really only three ways to create a net increase in inventory. The first is new construction, and while construction permits have increased, there is an estimated shortfall of 50,000 units over the next 5 years just to meet new household formation. The second way inventory increases involves investors selling units that they have been holding as rental properties. With rents rising faster than home prices, there is no market pressure for that to happen. And the third way is homeowners leaving the area and selling their residences. While there is always emigration from the metro area, we are still attracting more people than we are losing.

We’re not minimizing the impact of current homeowners who sell and buy another home in the area, but that doesn’t create a net increase in inventory. On top of that, the current low inventory climate actually discourages some from moving. While they may be confident they can sell their current home, they lack confidence they can find their next one with relatively few homes on the market.

 

 

There is another undeniable fact that is keeping a lid on movement by existing homeowners: people are staying in their homes longer than they used to. In their 2016 Profile of Home Buyers and Sellers, the National Association of REALTORS® reported that the median number of years a seller remained in their home was 10 years. From 1987 – 2008 it was just six years. That is a seismic shift. A large part of that jump is the simple fact that many could not move even if they wanted to during and after the crash of the real estate market that started in 2006. But even as equity has returned to the overwhelming majority of the nation’s homeowners, they just aren’t in a big hurry to sell.

Economist Elliot Eisenberg summed up the impact of this demographic trend in a recent post: “The percentage of Americans that moved fell to an all-time low of 11.2% in 2016 from a peak of 42% in the early 1950s. Numerically, moving activity topped out in 1984 at 45 million and has steadily fallen to 35 million today, the same level as in 1962.” The population of the United States was 186,000,000 in 1962; today it is over 324,000,000.
When people don’t move as often, inventory is going to suffer.

The Washington area is certainly more transient than the nation as a whole, but we’ve seen our “seller tenure” change as well. In 2000, the median number of years a seller was in their home was 6.5 years. So far in 2016, it’s 8.5 years. We know this period of tight inventory won’t last forever, but there are some fundamental reasons it won’t change any time soon.

***

MARKETWATCH ARCHIVE - MONTGOMERY COUNTY

 


FULLY AVAILABLE LISTINGS

  • The overall inventory decreased 20.4% in October 2016 compared to October 2015. 

  • Inventory increased slightly for the highest price category.

  • 42.5% of all homes on the market have had at least one price reduction since coming on the market. In October 2015, 47.1% of all homes on the market had at least one price reduction.

 


MONTH'S SUPPLY

  • The overall supply of homes on the market at the end of October was 2.5 months, down 19.5% from 3.1 months at the end of October 2015.

  • Supply is lower for homes priced less than $1 million.

 


RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON THE MARKET

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.

  • Homes settling in October 2016 that received contracts their first week on the market sold, on average, 0.4% above list price. Those that took 4 months or longer to sell sold at 9.6% below original list!

 

 

September - October 2016

09/02/16 by David Howell

 

DO ELECTIONS REALLY IMPACT OUR REAL ESTATE MARKET?

32,000 jobs. Theoretically, that is how many are up for grabs in this town in our quadrennial election cycle, and that much potential turnover has to have an impact on the real estate market, doesn’t it?

Let’s take a look at the Executive Branch. Regardless of the outcome, there will be a change in the occupant of the White House, and there are roughly 3,000 presidentially appointed jobs. Let’s assume the every one of those jobs changes and a considerable number of lower level staff positions change along with them. That could be as many as 8,000 jobs. The reality of Washington’s political job market is that many who will fill those jobs already live here. People cycle in and out of public sector jobs with considerable frequency. But let’s be generous and estimate that half of those 8,000 jobs will be filled by people who relocate to the metro area. Let’s also assume that half of those will buy homes sometime in their first year here. Although our experience tells us that is a dramatic overestimate, that would be 2,000 home sales.

There are 24,000 jobs on Capitol Hill, but close to 9,000 are considered “non-partisan” and generally do not change with election cycles. So, the “political” staff on The Hill numbers about 15,000. But even with 435 House and 33 or 34 Senate seats on the line each election cycle, there is usually not an enormous amount of turnover. In 2014, 95% of the members of the House running for re-election won. 41 members retired - and their party kept the seat in each and every case. There was a significant change in the Senate, however, with a net change of 9 seats. 2010 saw the biggest party change in recent memory with a 15% change in the House and a 16% change in the Senate. So, if we take an extreme example and assume we have another major “change” election like 2010 with a 15% turnover in Congress and also assume that there was a 100% turnover in the staff of those newly-elected members, that would translate to 2,250 jobs changing hands. Most staff jobs on Capitol Hill pay less than $50,000 per year, and many newly elected officials look for rental housing or even live out of their offices. As is true with the Executive Branch positions, some of the people who will fill the new Congressional staff positions already live in the Washington area. But we’ll apply the same logic ñ let’s assume that half of the new hires come from out of town and half of those buy a home sometime in their first year in town. That would be about 560 home sales.

 

 

How much impact would 2,500 additional home sales have on our market? There were slightly more than 50,000 home sales in the immediate DC metro area last year, so that would be a 5% increase. But as the table shows, there is no historical correlation between home sales and election results. On the heels of the major changes in the makeup of Congress in 2010, the number of sales in the immediate DC area fell almost 5% the following year. The election of 2008 brought a change in the White House and a change of 29 seats in Congress. There was an increase of almost 20% in the number of sales in 2009 compared to 2008 - so on the surface one might be tempted to say these elections had a major impact on the region’s real estate market. However, in February of 2009 Congress passed and the new President signed into law the first round of the Homebuyer’s Tax Credit, and the number of sales jumped nationally, too. 

As we have discussed many times, there are other significant factors at play in the real estate market. Individuals do not make a decision to purchase a home in a vacuum. Just moving to the area to take a new job - even a new job on the Hill or in the Executive Branch - does not cause an individual to ignore overall market conditions or their personal circumstances. Also remember, that while there may be new occupants of these jobs, these are not “new” jobs like those we see created when a company moves to the area. National elections may make a big difference when it comes to policy, but not to the local real estate market.

 

MarketWatch Archive for Montgomery County

 


MORTGAGE RATES

  • 30-year fixed interest rates at the end of July averaged 3.48%, compared to 3.98% at the end of July 2015.

  • One-year adjustable rate mortgages were 2.78% at the end of July 2016, which is up from 2.52% at the end of July 2015.

 


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $223,250 at the end of July, which is $13,282 more than July 2015 and $57,880 more than July 2004.

  • Just after the market’s peak in July 2006, it would have taken a monthly PI payment of $3,068 to purchase a median-priced home. Today’s lower rates have had a dramatic impact - now it takes a payment of $2,292 to buy a median-priced home. That’s a 25.3% decrease.

 


RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON THE MARKET
  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.

  • Homes settling in July 2016 that received contracts their first week on the market sold, on average, 0.39% below list. Those that took more than 120 days to sell sold 7.76% below the original price.

 

July - August 2016

07/26/16 by David Howell

 

A TALE OF THREE CITIES

 

With apologies to Charles Dickens, these are neither the best of times nor the worst of times for the Washington, DC metropolitan area real estate market. We’d like to take a little poetic license and discuss pricing trends in our area with “A Tale of Three Cities.”

How much have home values changed during the past year? That’s probably the question we’re most often asked. Here’s a direct answer: the average sales price in the metro DC area is up 1.2% from this time a year ago. And how does that relate to the value of your home? It doesn’t. Market conditions vary from area to area, and we think the recent market activity in three “cities” illustrates this perfectly.

Chevy Chase is a close-in community that straddles both Maryland and Washington, DC. Great Falls, Virginia is a suburban oasis between McLean and bustling Loudoun County. Potomac, Maryland is home to large estates just 15 miles from downtown DC. All three communities have average sales prices just above $1,000,000, and during the past decade all have had roughly comparable market metrics, with one exception. Those key indicators are: average days on market, the ratio of sales price to list price, the percentage of homes selling above list price, and the percentage of homes selling in a week or less. Taken together, think of these as pricing dynamics. The exception, by the way, is that Chevy Chase has always had shorter average days on the market than Potomac and Great Falls.

So far this year, the pricing dynamics in these three cities has shifted significantly, as the chart below indicates.

 

 

There has been a clear change in consumer demand, as more than one-third of the buyers in Chevy Chase have been willing to pay above list price and almost half of the homes have gone under contract in a week or less. It’s no wonder that there is upward pressure on prices. We’re seeing the opposite effect in Great Falls and Potomac. Roughly one in 20 homes sells above list price and one in four sells in the first week on the market. The pricing dynamics in these communities have changed in ways that mirror what we’re seeing elsewhere in the market. Demand has shifted more toward walkable communities convenient to employment centers and public transit.

We’d also like to make a note about “average” prices. The table above indicates that the average sales price in Chevy Chase is up 13.3% over the last year, and that’s absolutely true. Keep in mind that this is an arithmetic computation that gives a general, very positive indication of the direction of the market, not the market value of an individual home.

 

MarketWatch Archive for Montgomery County


ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for detached homes priced between $500,000 and $749,999 in June 2016 was 32.1%; that compares to a rate of 23.4% in June 2015, and the increase means the market was better in 2016 for that type of home. If the absorption rate was less in 2016 than in 2015, we have put the 2016 rate in red. This month there was improvement for 11 of 18 individual categories.

 


ABSORPTION RATES – CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for June 2016 was 32.9%, an increase from the 29.8% rate in June 2015.

 


ABSORPTION RATES – ATTACHED HOMES

  • The overall absorption rate for attached homes for June 2016 was 34.5%, up from the 32.3% rate in June 2015.

 


ABSORPTION RATES – DETACHED HOMES
  • June 2016’s absorption rate for detached homes was 28.7%, up from the 25.4% rate of June 2015.
  • And as we have seen in the other property types, the absorption rates are higher for the lower-priced categories.

 

March - April 2016

04/04/16 by David Howell

 

 

Time Kills

We know from experience that most of the time, homes that sell quickly sell much closer to their original list price than those that take longer to sell. Why is that? It’s because time kills.

With the nature of the Internet, buyers know the moment a property comes on the market. In the old days, if a potential buyer was interested, they might arrange a showing to go see the property. Today, that showing is online and immediate. Based on its price, condition, and location, a home either communicates value to that consumer – or if it doesn’t, they move on and look elsewhere. Bringing them back to that property means changing the value equation – which usually means changing the price.

Think of it this way: When a home first comes on the market, everyone who is looking for that type of home in that price range and location sees it right away. If it doesn’t sell, those potential buyers have moved on and, as time goes by, only buyers new to the market are discovering the home. There are always new buyers coming into the market – but by definition, it is a smaller group than all the buyers that were looking when the house first came on the market.

The charts to the right show the web traffic for two of our listings that recently went under contract. To make sure the comparison is fair, these are homes that are in the same neighborhood, listed by the same agent and at very similar list prices.

The first property was listed in September of last year. Web traffic – online showings – spiked quickly in the first week and then began a steady decline. A price reduction in late October increased web traffic, but not to the levels seen when the house was first on the market. An early December price reduction had almost no impact on traffic, and it wasn’t until a substantial price drop in early January that traffic spiked again – and the property finally went under contract three weeks later. Total time on the market was more than 150 days, and the total price reduction was 14% before someone felt compelled to make an offer. And that offer was 3% lower than that new list price.

The second chart shows the benefits of coming on the market at the correct initial price. Just like the first example, traffic spiked and then started to taper off. The difference is that buyers perceived value at the initial list price, and in a week, a contract was successfully negotiated. The sellers came on at a compelling price, rode the online traffic wave and got their home sold at almost full list price.

We’re not suggesting that it works this way every time because there are always exceptions. But time after time, listing after listing, we see the consequences of pricing strategy – both good and bad. And far more often than not, for sellers, the wrong price means a longer time on the market, and time kills.

MarketWatch Archive for Montgomery County


  • As we have noted above – time kills, and initial pricing strategy is critical to seller’s success.
  • Homes settling in February 2016 that received contracts their first week on the market sold, on average, at list price. Those that took 4 months or longer to sell sold at 10.84% below original list price!

  • The average number of days on the market for homes receiving contracts in February was down for two price categories.
  • Overall, the average number of days on the market for all homes receiving contracts in February 2015 was 78 days, up 9.9% from 71 days in February 2015.

  • The overall supply of homes on the market at the end of February was 2.0 months, which was a decrease of 6.8% compared to the end of February 2015, when supply stood at 2.1 months.
  • Price category supply ranges from a low of 1.4 months for homes priced between $300,000 and $749,999 and a high of 9.0 months for homes priced $1,500,000 and higher.

January - February 2016

02/04/16 by David Howell

WHAT’S AHEAD FOR 2016?

2015 was better than 2014 across the entire metro DC area for the two most important metrics – total settlements and new contract activity – but most other indicators were a little worse. With the exception of Washington, DC itself, homes took a little longer to sell, price appreciation was moderate at best and overall supply rose as more new listings came on the market. 

What’s ahead for 2016? We think the market is headed toward something we haven’t seen in almost 15 years: normalcy. During the past decade and a half we’ve seen some wild swings in real estate, from the pause after the horrors of September 11, to the rapid run up in home prices 10 years ago with teaser rate mortgages and people buying homes who could not possible afford them, to the crash that followed.

“Normal” means a supply of three to four months of inventory along with modest and sustainable price appreciation in the range of 1%-3%. Of course, there will continue to be regional differences, with walkable communities and those areas close to major employment centers and Metro faring better than others. And that means that DC will still outperform its suburban neighbors in 2016.

There are three fundamental reasons we think 2016 is going to look a lot like 2015:

The first is the economy, regionally and nationally. The overall news isn’t bad, but it isn’t great either. Sure, the employment numbers are very encouraging – but real incomes haven’t risen. Lower oil prices have put more money in people’s pockets, but oil producers are going to take a big hit – and so are their employees. That won’t be good for the overall economy. We just don’t see anything on the horizon that tells us things are going to be a lot better.

The second is interest rates. Today, mortgage interest rates are still under 4% and we haven’t seen anyone project rates by year-end any higher than 4.9%. There’s no doubt that rising rates will make home slightly less affordable, but the bigger hurdles for buying a home for most people are the down payment and debt-to-income ratios, not the payment. We’re not suggesting that rising rates are good for the housing market – we just don’t see a major negative impact in 2016.

The third reason: Urgency. A couple of years ago, we created a rudimentary indicator of the health of the market called the “Urgency Index.” This is simply the percentage of homes going under contract in any given month that were on the market for 30 days or less. The higher the percentage, the greater “urgency” buyers felt to act. DC has consistently had the highest Urgency Index in the region during the past several years. For all of 2015, the suburbs had a UI of about 50% while DC’s was 67%. Over the last several months, the suburban markets have seen their UI drop a bit while DC’s has held steady. But in both cases, buyers aren’t in a huge hurry to snap up homes the moment they come on the market.

In short, we think 2016 will be a good – not great - year with a return to normalcy.

One more thought: This is an election year, and every election cycle we hear the speculation that the outcome will have a major impact on the local real estate market. It won’t – regardless of the results. As we get a little closer to November, we’ll talk about why. Just don’t change your plans to sell or buy because there’s an election on the horizon – make the move when it makes the most sense for your personal circumstances.

MarketWatch Archive for Montgomery County


New Contract Activity

  • The number of new contracts ratified in December 2015 was up 9.9% from the number of contracts ratified in December 2014, and there was improvement in all six price categories.
  • Contract activity for 2015 was up 11.4%.
  • 47.9% of all homes going under contract in December 2015 had a price reduction before going under contract.

Buying Power

  • A $1,000 principal and interest payment supported a loan of $209,209 at the end of December, which is $3,579 less than December 2014 and $24,738 more than December 2008.
  • We expect the interest rates on a 30-year fixed mortgage will increase to no more than 4.9% by the end of 2016 – and we won’t be at all surprised if they top out at 4.5% this year.

Urgency Index

  • During the past 12 years, the December Urgency Index has been as high as 61.4% and as low as 18.9%.
  • Look how much buyer expectations changed from December 2005 to 2006.
  • The number of ratified contracts rose by 9.1%, But the Urgency Index fell by 52.4%, indicative of some real buyer pessimism.
  • The average December Urgency Index during the past 12 years is 35.1% - higher than where we are today.

November - December 2015

12/04/15 by David Howell

GETTING IT RIGHT THE FIRST TIME

Market Watch with David Howell from McEnearney Web Team on Vimeo.

It is critically important to price a home correctly when it first comes on the market. The reason is simple: The greatest numbers of buyers are going to see the house during the first two or three weeks.

Sellers who price their home correctly are likely to be rewarded. Those who overreach, who think they can “just wait for the right buyer to come along,” are likely to be disappointed. That usually means sitting on the market and taking a big hit financially.

We took a look at all resale homes that went to settlement in Montgomery County as well as the Metro DC area in October and November 2015 and broke them down into just two categories: Those that had to reduce their initial list price before receiving a ratified contract (homes with the “wrong” price); and those that came on the market at the “right” price and never had to drop their list price.

The consequences of pricing strategy were starkly different, as the tables below show. Homes that had to reduce their price before attracting a buyer in both areas were on the market an average of three times longer – an average of 100 days in Montgomery County and 98 days in metro DC, compared to correctly priced homes that sold in just 33 days in Montgomery County and 30 days in metro DC. Sellers of homes with the right initial price were less likely to pay any subsidy, and when they did, it was likely to be a smaller subsidy. In both cases, fewer than half of sellers of correctly priced homes had to pay a subsidy.

But the biggest impact of pricing strategy is on the final sales price. Homes that sold without having to reduce their price sold for an average of 97.9% of the list price in Montgomery County and 98.4% in the metro area. Those that came on the market too high had to reduce their price by 7.3% in Montgomery County and 6.2% in the metro area before a buyer was willing to make an offer. And when that offer came in, those sellers had to negotiate a further reduction, ultimately settling at an average of almost 11% below their original price in Montgomery and 10% below the original price in the metro areas.

So let’s sum it up. Homes that hit the market at a price that attracts buyers are on the market an average of just one month and sell very close to list price. The wrong price means much longer time on the market and a very deep discount off the original price.

Buyers will move forward on homes that are priced correctly, and they will take a pass on those that aren’t. Getting the price right from the beginning is the most important thing a seller can do. It really is that simple.


MarketWatch Archive for Montgomery County


NEW CONTRACT ACTIVITY

  • The number of new contracts ratified in October 2015 was up 5.9% from the number of contracts ratified in October 2014, and there was improvement for all but one price category.
  • Contract activity year-to-date is up 11.8%.
  • 42.0% of all homes going under contract in October 2015 had a price reduction before going under contract.

Fully Available Listings

  • Overall inventory increased 2.2% in October 2015 compared to last October.
    Inventory increased for four price categories.
  • 47.1% of all homes on the market have had at least one price reduction since coming on the market. In October 2014, 46.2% of all homes on the market had at least one price reduction..

RELATIONSHIP OF SALES  PRICE TO ORIGINAL PRICE vs. DAYS ON MARKET

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in October 2015 that received contracts their first week on the market sold, on average, 0.18% above list price. Those that took 4 months or longer to sell sold at 11.14% below original list!

September-October 2015

10/07/15 by David Howell

A SOLID – BUT UNEVEN - RECOVERY

Market Watch with David Howell from McEnearney Web Team on Vimeo.

2015 has been a recovery year for the real estate market in metropolitan Washington, DC, with every jurisdiction seeing an increase in contract activity compared to last year. Some areas are faring better than others, and we have taken a deeper look at how different today’s market is than the real estate boom a decade ago.

The significant market expansion that occurred from the early 2000s through 2005 or 2006 started out on a very firm foundation of an expanding national economy with demand being driven by rising incomes and significant household formation. This may be a bit of an over simplification, but we all know the story of how that expansion was artificially extended by risky mortgage programs that brought millions of purchasers to the market who ultimately couldn’t afford to make payments when their interest rates rose and prices started to fall. A bust followed that boom, and it has taken the better part of 8 years to climb out of the deep trench.

We’re fortunate that today’s recovery isn’t like the boom – it has been slower, mirroring the slow pace of the national economy returning to health. And there are no “funny money” mortgages this time around to artificially create demand. In general, people are buying or selling because they need to. Another big difference is where people are buying.

A decade ago, the Northern Virginia suburbs were on fire, in no small part due to the boom in defense spending. The entire region benefited from that, but Northern Virginia especially so. Among the four jurisdictions we track most closely – Northern Virginia, Loudoun and Montgomery Counties and Washington, DC – almost 50% of home purchases in 2004 occurred in Northern Virginia. Montgomery County got about a quarter of all home sales, Loudoun was at 14% and DC was at 13%. So far this year, Northern Virginia’s share has dropped to 44% while DC’s has risen to 17%. At a quick glance, that may not seem like a lot, but that’s a 32% increase in the size of DC’s piece of the pie.

We compared contract activity for the first eight months of 2015 to the first eight months of the peak year of the last boom for each of four key areas. So far this year, The District is just 4.2% below the contract activity of its top year, 2005. The suburbs are still well off the peaks they experienced in 2004, with Montgomery County contract activity off 24.1%, Loudoun County off 27.0% and Northern Virginia off 31.5%. It’s remarkable to know that The District is seeing almost as many homes go under contract as it did at the absolute top of the market a decade ago while the suburbs are not yet seeing a commensurate number of transactions.

There isn’t any one reason for Washington, DC’s remarkable performance, but there is no doubt that suburban traffic congestion plays a role, as more people are willing to sacrifice the space of larger suburban homes for the convenience of being closer to work.

 


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $213,567 at the end of August, which is $6,613 more than August 2014 and $53,499 more than August 2008.
  • In August 2008, it would have taken a monthly PI payment of $2,548 to purchase a median-priced home in Montgomery County. With today's lower rates, it takes a payment of $1,873 - that’s a 26.5% drop.

AVERAGE NUMBER OF DAYS ON THE MARKET – NEW CONTRACTS

  • The average number of days on the market for homes receiving contracts in August was up for all but one price category.
  • Overall, the average number of days on the market for all homes receiving contracts in August 2015 was 62 days, almost unchanged from 61 days in August 2014.

RELATIONSHIP OF SALES PRICE TO ORIGINAL PRICE vs. DAYS ON MARKET

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in August 2015 that received contracts their first week on the market sold, on average, 0.17% below list price. Those that took 4 months or longer to sell sold at 13.28% below original list!
     

July-August 2015

07/29/15 by David Howell

DON’T MISS YOUR PERFECT HOME

Market Watch with David Howell from McEnearney Web Team on Vimeo.

More than 90% of people start the process of looking for their next home by going online, and if one searches the term “Washington DC homes,” there are more than 134,000,000 results. How can you be sure not to miss the perfect house buried in all that info?

If you are like most Americans, you’ll skip to one or more of the big, national portals – Zillow, Trulia and/or Realtor.com. Each has assembled an enormous amount of information in a consumer-friendly interface. While we encourage you to look at these sites, we also want you to understand they simply do not have complete and accurate listing content.

We recently took a snapshot of listings in our local multiple listing system (MLS) in zip codes where we have offices. The results showed 910 listings for sale, active or pending. In Zillow, there were only 703. In Trulia, there were 706. And Realtor.com showed too many listings with 940. This is due to the enormous amount of data feeds these portals are receiving from local brokerages (like us) and MLS systems across the country. It’s a challenge for them to assimilate all the data on a timely basis. And for Zillow and Trulia, lots of sellers opt-out of having their home displayed due to the inaccuracy of the computer-generated estimate of their home’s value. We just completed our annual research project for the accuracy of Zillow’s “zestimates” and looked at the portal’s estimated value of over 450 properties across all price ranges in the Metro DC Area, before they were scheduled to settle. We then compared those estimates to the actual sales price – and, as found in our prior studies, they continue to be inaccurate. Zillow’s estimates were only within 5% high or low of the actual sales price less than half of the time. And one in 10 properties showed wildly inaccurate estimates at mor

e than 20% high or low of actual sales price. These computer-generated estimates simply cannot take into account the condition of a specific home nor local market conditions that can and do change daily; and it is no wonder that some sellers may wish to not have their home appear side-by-side with an estimated value that is so frequently inaccurate.

What does all that mean for you, especially if you’re looking for a home? Reliance on only the national portals means you will miss listings that are on the market, and you will find listings for sale that have already sold. At best, that leads to frustration – at worst, it means missing the home that was perfect for your needs. So what should you do? By all means, look at those national portals, but remember to rely on your local brokerage for accurate information. Remember those 910 listings that were in our local MLS? On McEnearney.com, there were 911. We update our listing content every 15 minutes.


90% of people start their search online – and 85% use a REALTOR® to help them buy their home. Partnering with a great agent can give you the confidence that you will find your perfect home. Knowing what to offer, negotiating the right price, and attending to all of the details between contract and closing simply cannot be done by a national search portal. It can be done only by a great agent who knows the local real estate market and understands your interests and needs.

 

ABSORPTION RATE BY PROPERTY TYPE - MONTGOMERY COUNTY

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for attached homes priced between $500,000 and $749,999 in June 2015 was 27.5%; that compares to a rate of 27.4% in June 2014, and the decrease means the market was better in 2015 for that type of home. If the absorption rate was less in 2015 than in 2014, we have put the more recent absorption rate in red. This month there was improvement for 9 of 18 individual categories, and one remained the same.


ABSORPTION RATES – CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for June 2015 was 29.8%, a decrease from the 30.9% rate in June 2014.

ABSORPTION RATES – ATTACHED HOMES

  • The overall absorption rate for attached homes for June 2015 was 32.3%, up slightly from the 31.8% rate in June 2014.

ABSORPTION RATES – DETACHED HOMES

  • June 2015’s absorption rate for detached homes was 25.4%, up slightly from the 24.7% rate of June 2014.
  • And as we have seen in the other property types, the absorption rates are higher for the lower-priced categories.

May-June 2015

06/04/15 by David Howell

IN A SELLER’S MARKET, EVERYTHING SELLS - RIGHT?

Market Watch with David Howell from McEnearney Web Team on Vimeo.

We’ve had a very healthy spring market in the Washington, DC area. Of course, some areas are faring better than others and pockets in DC and some of the close-in suburbs are seeing multiple offers and homes selling for more than list price. By almost every measure, this is a seller’s market. And in a seller’s market, everything sells – right?

Well, not exactly. Despite a strong spring market, there are still plenty of properties that have not sold. And there are three market indicators that can help explain why the wanna-be sellers are not getting their homes sold.

The first is the fall-through rate – those are the homes that go under contract that, ultimately, do not go to settlement. As hard as this may be to believe, 1 in every 8 homes that have received ratified contracts this year have fallen through and did not make it to settlement. This may be due to home inspection issues or purchaser financing – but whatever the cause, 13% of sellers who initially think they have their home sold find that’s not the case.

The second is homes that linger on the market. Right now, there are more than 3,000 homes on the market in the immediate Metro area that have been on the market for 90 days or longer. And it’s not just homes at the upper end of the market. More than 500 of those homes are priced less than $300,000.

And the third is homes that are removed from the Multiple Listing Service (MLS) without selling. In April, there were almost 1,000 homes that were on the market for at least 90 days that had expired as unsold or were withdrawn. Some of those may be re-listed, but to put it in perspective, there were just over 4,000 homes that went to settlement in April and 1,000 that were taken off the market.

Does this mean that the market is shifting or turning softer? No. And we continue to see positive indicators across all jurisdictions.  But it does mean that proper marketing matters. Negotiating skills matter. And above all, price matters.

The price at which a home comes on the market is critically important. That requires careful research by a knowledgeable REALTOR® and a seller who is willing to avoid the trap of believing that everything sells. It requires listening to what the market is saying and making a price adjustment sooner rather than later, if an offer doesn’t materialize.

The significant numbers of homes that have been on the market for a long time, and those that have been removed from the market, certainly stand in stark contrast to the homes that are priced right and sell quickly.

It’s still a very good market – for homes that are priced right.

While “private exclusives” exist in all price ranges, they seem to be more prevalent for upper bracket properties. There were 369 homes that sold in the District of Columbia for $1,000,000 or more in the last six months in the MLS. There were 58 different real estate firms, and even more remarkably, 258 different agents representing those buyers.

Additionally, as the table indicates, this broad diversity of firms and agents selling upper bracket homes isn’t any different in Maryland or Virginia. What’s important to note is that most of these buyers never knew about other homes for sale on the market that were tagged “private exclusive” with “quiet” or minimal marketing. Those sellers simply missed out on those buyers – and those buyers missed out on those homes.

Sellers should also consider that privately listing their home could be seen as an intention to screen interested buyers in ways that could appear to be discriminatory. Care has to be taken that no one is excluded from a “private exclusive.”

Think twice if you are a homeowner contemplating a “private exclusive” sale. Ask yourself whether going that route is best for you and whether you would get the best price for your home.

 


New Contract Activity

  • The number of new contracts ratified in April 2015 was up 11.0% from the number of contracts ratified in April 2014, and there was improvement in all six price categories.
  • Contract activity year-to-date is up 11.9%.
  • 23% of all homes going under contract in April 2015 had a price reduction before going under contract.
 

FULLY AVAILABLE LISTINGS

  • The overall inventory increased 21.4% in April 2015 compared to last April.
    Inventory increased for all six price categories.
  • 32.8% of all homes on the market have had at least one price reduction since coming on the market. In April 2014, an almost identical 32.3% of all homes on the market had at least one price reduction.
 

List Price to Sales Price

  • Initial pricing strategy is critical to the listing process, regardless of market conditions. The longer a home sits on the market, the deeper the discount to its original list price will likely be.
  • Homes settling in April 2015 that received contracts their first week on the market sold, on average, 0.90% above list price. Those that took 4 months or longer to sell sold at 7.34% below original list!
 
 

March-April 2015

04/02/15 by David Howell

ARE PRIVATE EXCLUSIVES A GOOD IDEA?

Market Watch with David Howell from McEnearney Web Team on Vimeo.

You may have heard the term “private exclusive” listing – it refers to a property that is not broadly marketed to the public, but instead, offered by word of mouth or other very limited marketing.

A seller may find this to be an attractive option for a variety of reasons, such as they think they won’t have to put up with the hassle of showing their home to a lot of people, an agent has said they have buyers in that area and price range, or they like the idea that they can enjoy privacy while their home is “quietly” marketed. However, a big disadvantage is the lack of exposure to the full market.

After all, doesn’t it make sense that any commodity is more likely to sell, and at a better price, the more people know about it? The first step for broad exposure is getting a home into the Multiple Listing Service (MLS). That is not because REALTORS® control it or want to limit access to the information – it is precisely the opposite. There are 40,000 agents in the DC Metro Area with buyer clients and the MLS is the on-ramp for the Internet to thousands of broker and agent websites and national and regional real estate search portals. More than 90% of today’s buyers across all price ranges start their home search on the net, so why wouldn’t a seller want to be there?

Decades ago, REALTORS® created the MLS for the express purpose of sharing information. It has created a broad marketplace for the sale and leasing of homes, and most remarkably, established the rules of the road for real estate firms to cooperate with each other while still fiercely competing with each other in the marketplace. The MLS accommodates every business model, from full service to limited service to discounters to tech startups. Most importantly, buyers and sellers alike have benefited from a marketplace that fosters the wide dissemination of information and the market-based transactions that flow from that.

Can there be situations where a seller could logically choose to go the “private exclusive” route? Of course, but those situations are few and far between. Every seller should know that no real estate firm and no agent have all the buyers, or even the majority of buyers. Anyone who says otherwise simply isn’t being truthful.

While “private exclusives” exist in all price ranges, they seem to be more prevalent for upper bracket properties. There were 369 homes that sold in the District of Columbia for $1,000,000 or more in the last six months in the MLS. There were 58 different real estate firms, and even more remarkably, 258 different agents representing those buyers.

Additionally, as the table indicates, this broad diversity of firms and agents selling upper bracket homes isn’t any different in Maryland or Virginia. What’s important to note is that most of these buyers never knew about other homes for sale on the market that were tagged “private exclusive” with “quiet” or minimal marketing. Those sellers simply missed out on those buyers – and those buyers missed out on those homes.
Sellers should also consider that privately listing their home could be seen as an intention to screen interested buyers in ways that could appear to be discriminatory. Care has to be taken that no one is excluded from a “private exclusive.”

Think twice if you are a homeowner contemplating a “private exclusive” sale. Ask yourself whether going that route is best for you and whether you would get the best price for your home.

 


New Contract Activity

  • The number of new contracts ratified in February 2015 was up 8.4% from the number of contracts ratified in February 2014.
  • Contract activity year-to-date is up 9.5%.
  • 32.5% of all homes going under contract in February 2015 had a price reduction before going under contract.
 

FULLY AVAILABLE LISTINGS

  • The overall inventory increased 24.6% at the end of February 2015 compared to last February.
  • Inventory increased for all six price categories.
  • 33.6% of all homes on the market have had at least one price reduction since coming on the market.
  • In February 2014, 29.5% of all homes on the market had at least one price reduction.
 

URGENCY INDEX

  • During the past 12 years, the Urgency Index has been as high as 82.4% and as low as 29.5%.
  • The average February Urgency Index in Montgomery County during the past 12 years is 50.4% - the same as where we are today.
  • Note that contract activity increased 8.4% from February 2014, but the Urgency Index dropped from 54.6% to 50.5%.
     
     

January-February 2015

02/05/15 by David Howell

HOW IS THE MARKET?

Market Watch with David Howell from McEnearney Web Team on Vimeo.

One of the questions we get asked most frequently is “How’s the market?” The simple answer is that the market in Metro DC is strong. Prices are going up and sales are steady. And that’s all true – but it’s also fairly meaningless when you get right down to it. The real question is “How’s the market for me?”

Think of it this way: if someone asked how the stock market is doing, it would be accurate to say it’s doing very well. The Dow Jones average has hit record highs, and it has been on a solid, upward path for several years after bottoming out in 2007. Sounds a lot like the real estate market. But someone who has owned Radio Shack stock – currently trading for less than one dollar after being at $20 five years ago – will have a slightly different perspective on how the market is doing than someone who has owned Apple, Google or Disney shares.

Housing Inventory Supply December 2014 for DC NoVa and Montgomery CountyFortunately, we don’t see such wild swings in value in the real estate market, and homes rarely become worthless. But there are significant differences in our local marketplace. Let’s look at months’ supply of inventory as an example. This number tells you how many months it would take for all homes currently available on the market to sell, given the current pace of new contracts.

The overall supply of homes in Washington, DC is less than two months, and in some price ranges it is considerably tighter. DC’s sweet spot – homes priced between $500,000 and $750,000 – is 1.7 months. At the other end of the local spectrum is Loudoun County, where there is a four-month supply. In that same $500,000 to $750,000 price range, there is a five-month supply. While both of these markets would be considered healthy by any historical standard, DC is a seller’s market while Loudoun’s is balanced. Conditions in Northern Virginia and suburban Maryland also differ from Loudoun and DC, with an overall supply of 2.9 months and 3.2 months respectively.

We are also frequently asked whether prices are going up or down. For all of 2014, the average sales price was up 2.7% for Metro DC compared to 2013. But once again, let’s take a look at the differences in all jurisdictions. While DC was up 5.2%, Loudoun County was up 4%, Northern Virginia rose 2%, and Montgomery County was up just 0.8%. And we want to add a cautionary note. Remember that the “average sales price” is just an arithmetic calculation and isn’t indicative of what is happening to individual properties. Let’s go back to those examples. One of the challenges in DC is that many first-time buyers are being priced out of the market, so there have been fewer lower-end sales. When there is a reduction in the number of lower-priced sales, by definition, the average sales price will go up. On the flip side, there has been an increase in lower-priced sales in Montgomery County, so that reduces the average sale down. That doesn’t mean that prices aren’t going up faster in DC – it just means that it may be a bit overstated.

Our point is simply this: market conditions can be captured by a few key stats, but those numbers do not directly relate to what is going on in a specific neighborhood, a specific type of property or a particular price range. To understand what’s going on with an individual property, one cannot rely on broad market indicators. It takes an evaluation by a knowledgeable Realtor® who can look at the factors unique to that home.

 


Montgomery County MD - Dec 2014 - NEW CONTRACT ACTIVITY

  • The number of new contracts ratified in December 2014 was up 10.0% from the number of contracts ratified in December 2013.
  • Contract activity for all of 2014 was down 4.3%.
  • 48.7% of all homes going under contract in December 2014 had a price reduction before going under contract.
 

Montgomery County MD - Dec 2014 - FULLY AVAILABLE LISTINGS

  • The overall inventory increased 32.6% in December 2014 compared to last December.
  • Inventory increased for all six price categories.
  • 43.2% of all homes on the market have had at least one price reduction since coming on the market. This time last year, 40.4% of all homes on the market had at least one price reduction.
 

Montgomery County MD - Dec 2014 - URGENCY INDEX

  • During the past 12 years, the Urgency Index has been as high as 63.9% and as low as 18.9%.
  • The average December Urgency Index in Montgomery County during that same time period is 37.7% - higher than where we are today.
  • Note that contract activity increased 10.0% from last Dec., but the Urgency Index dropped from 44.6% to 31.9%.
     
     

November-December 2014

12/04/14 by David Howell

CONTROL: YOU CAN'T LOSE SOMETHING YOU NEVER HAD

McEnearney Associates MarketWatch December 2014 from McEnearney Web Team on Vimeo.

One of the topics generating a lot of buzz - and a lot of consternation - in the real estate business these days is - control. Everyone is worried about controlling the search process, or controlling the creation, compilation and dissemination of data, and most of all, controlling the customer.

Some in our industry are wringing their hands over the fact that the overwhelming majority of home buyers identify the home they eventually buy on the Internet, and that some of the most popular online real estate portals like realtor.com and zillow.com have wrestled control of the home search process away from us. We’re worried that we’ve lost control of the listing data that we work so hard to produce and that others have repurposed or misused our data. And the biggest concern is that we have somehow lost control of the customer - they’ve turned to these national portals, or to mortgage lenders, or heaven forbid they go and do the transaction themselves!

Here’s the reality: You can’t lose something you never had. We have never controlled the search process for real estate, we’ve never controlled the data, and we certainly have never controlled the customer - and we’re kidding ourselves if we think we ever did, could or should want to control any of those things.

The process of searching for a home has changed significantly with the advent and pervasiveness of the Internet. In 2001, 13% of homebuyers identified the house they bought online - and today it’s approaching 80%. Before technology, we relied on newspaper ads, yard signs, friends, neighbors and co-workers. In 2001, 69% of homebuyers used an agent or broker - and today, that’s 88%. Surprised? You shouldn’t be. Because it isn’t about controlling the search process - it is and always has been about providing value to the transaction.

We don’t control the data. We can and should rigorously enforce our copyrights to unique information, but our listing data is just a piece of the overall real estate portfolio - tax records, insurance info, demographic records, home plans and blueprints, mortgage loans and credit reports - so we should recognize what we have and what we don’t have. And what we clearly have is accurate data. On a Friday afternoon in November, using zip codes where we have offices, we compared the number of all agent-listed, fully available listings in the MLS with those on our website, realtor.com and zillow.com. Out of almost 1,000 listings, our website was off by only one, realtor.com showed almost 28% too many properties and zillow.com showed 30% too few. Realtor.com simply doesn’t update their data on a timely basis, and zillow.com has the same problem compounded by the fact that lots of sellers request that their homes not be listed on sites with inaccurate estimates of the market value.

Most importantly, we have never met a consumer who wants to be controlled. And there is not a lack of choices in real estate service providers. In our MLS, there are more than 4,000 real estate companies and over 40,000 agents. Sellers can sell by owner and buyers can work directly with a seller. There are discount brokers and full service brokers and everything in between. 

None of us are entitled to anything - we have to earn it with every client and every transaction. If we’re good enough, if we bring enough knowledge and skill to the table, then we have a chance to earn the business, create a brand and try to build long-lasting relationships. And that’s exactly how it should be.


  • The number of new contracts ratified in October 2014 was down 1.8% from the number of contracts ratified in October 2013.
  • Contract activity through the first ten months of 2014 is down 5.8%.
  • 43.3% of all homes going under contract in October 2014 had a price reduction before going under contract.

  • The overall inventory increased 37.6% in October 2014 compared to last October.
  • Inventory increased for all six price categories. 
  • 46.2% of all homes on the market have had at least one price reduction since coming on the market. This time last year, 40.1% of all homes on the market had at least one price reduction.

  • During the past 12 years, the urgency index in October has been as high as 74% and as low as 27%.
  • The average October urgency index in Montgomery County during the past 12 years is 48.3% - almost 7% higher than where we are today.
  • Note that contract activity dropped 1.8% from last October - but the urgency index dropped from 57% to 45%.

September-October 2014

10/10/14 by David Howell

FALL MARKET UPDATE

2014 has seen a slowdown in the DC Metro Area’s real estate market compared to the frenetic pace of 2013, and there’s no reason to believe that will change over the remaining three months of the year. However, there is no need to hit the panic button, as the overall market remains pretty solid.

Almost every major indicator is down compared to last year – there are fewer new contracts, homes are taking a bit longer to sell and they are not selling as close to list price as last year. Regionally, there has been a significant increase in the number of homes on the market, which means potential buyers who were hard-pressed to find a home of choice in last year’s exceptionally tight market are finding many more options to choose from now. This is especially true in the outer suburbs. There are 60% more homes on the market in Loudoun and Prince William Counties today than this time last year. But in the District, there has only been a 7% increase.

That highlights one undeniable fact: there is not just one set of market conditions throughout the region that will impact the likely direction of the market for the rest of the year, and there are significant differences between jurisdictions. Washington, DC has the strongest market in the region, with an overall supply of homes on the market of less than two months – although that is starting to slowly increase. That low level of supply relative to demand means that DC is still a seller’s market. At the other end of the regional spectrum, Loudoun County has a 4.5-months’ supply. It is reasonable to expect modest upward pressure on home prices in DC while the foot is coming off the gas a bit elsewhere.

We can look at the pace of new contract activity as the best indicator of short-term market direction, and every jurisdiction in the metro area has seen a decline in contract activity in August and September combined compared to last year. But we can also look at the “Urgency Index” to help us take the temperature of the market – think of it as a rudimentary consumer confidence index for housing. We look at the number of new contracts in a month and see how many of those homes were on the market for 30 days or less. In the extremes, we have seen as many as 95% of the homes sell in 30 days or less (April of 2004) and as few as 16% (December 2007). The Urgency Index today provides insight into the direction of the market over the next few months and highlights the significant differences in our region.

As the chart indicates, the District is outperforming every other jurisdiction. At just over 70%, it has the highest Urgency Index in our metro area and is even slightly ahead of last September’s Index. The other three major areas have all seen significant drops in the Urgency Index – 12% for Montgomery County, 15% for Northern Virginia, and 20% for Loudoun County.

But this is the real message behind the numbers: the lower the Urgency Index, the slower the market in will be over the next few months. That bodes well for DC, while things will be a bit slower in Northern Virginia and Montgomery County, and even slower in the outer suburbs.

 


  • The number of new contracts ratified in August 2014 was down 11.6% from the number of contracts ratified in August 2013.
  • Contract activity year-to-date is down 7.0%.
  • 37.8% of all homes going under contract in August 2014 had a price reduction before going under contract.
 

  • The overall inventory increased 42.6% in August 2014 compared to last August.
  • Inventory increased for all six price categories.
  • 43.7% of all homes on the market have had at least one price reduction since coming on the market. This time last year, 37.3% of all homes on the market had at least one price reduction.
 

  • The overall supply of homes on the market at the end of August was 3.3 months, up from 2.1 months at the end of August 2013.
  • Supply is higher for all price categories as well.
     
     

July-August 2014

08/03/14 by David Howell

IS “COMING SOON” IN THE CLIENT’S BEST INTEREST?

 

You may have seen a sign in front of a home that says “Coming Soon,” or you may have heard the terms “pocket” or “whisper” listings. While those are not the same things, they all represent areas of possible concern when it comes to doing the right thing for a seller. 

Let’s start with some basics. 

  1. We firmly believe that a seller will get the most for their property in the shortest amount of time when it is exposed to the broadest possible market. And doesn’t that make sense? After all, you never know where that buyer is coming from. No real estate company and no real estate agent has all the buyers, so why hide a listing?
     
  2. A property receives the most traffic and the most exposure in the first few weeks on the market. We know that to be the case in good markets and bad, and everything in between. So “testing” or teasing the market in a limited way may not be the best idea.
     
  3. A home shows best when it is fully ready for the market, when all improvements or repairs have been made. You don’t see a new car showroom with a model on the sales floor that needs a paint job.
     
  4. This is the most important one: the seller of any home should give their informed consent to have their home marketed prematurely or to a limited audience.

So, with all that being said, and with inventory being tight in so many parts of the Washington, DC metropolitan area, we see a fair number of homes with a “Coming Soon” sign in the yard. There can be some very legitimate reasons for that – a home may be a couple of weeks away from being ready to go on the market and the seller wants to be sure that buyers looking in their area are aware that they will have another option in the near future, and they don’t want to run the risk they’ll lose that buyer to a home already on the market.  

But remember that the people who are aware of that sign may be limited to the people who drive by. One of them may approach the seller to see the house before it’s fully ready to be shown – or even make an offer so they get the jump on other buyers. On the surface, that may seem like a good thing: the seller gets interest and maybe even an offer before the house is fully exposed to the market, and are spared the hassle of having to make the beds every day. But that seller doesn’t know what they’re missing. They don’t know how many potential buyers there are who might have been interested in their home if they had known it was on the market. If one was interested enough to make an offer, how many more might there have been if the home had been fully marketed? If the seller wants to entertain such an offer, it is of course their prerogative to do so, and they may place a higher premium on speed and convenience than price.

Other times, that “Coming Soon” sign may be up so that the listing agent increases their chances of selling the house themselves – putting them on both sides of the transaction. And that’s especially true of a “pocket” or “whisper” listing – when the agent only tells a handful of people that a house is available with no intention to expose it to the full market. And who is best served by that? There certainly are sellers who value privacy above all else and don’t want their home “on the market.” But in most cases, it’s hard to see how a seller benefits from a stealth listing, and lots of would-be purchasers are deprived of the chance to buy at the market price.

The point is simply this: a seller should know the pluses and minuses of marketing their home to a limited audience, and it should be their decision whether to cut off part of the pool of potential purchasers.


ABSORPTION RATE BY PROPERTY TYPE

The following tables track absorption rate by property type, comparing the rates in the just-completed month to the rates in the same month of the previous year. The absorption rate is a measure of the health of the market, and tracks the percentage of homes that were on the market during the given month and in the given price range that went under contract. [The formula is # Contracts/(# Contracts + # Available).] An example: The absorption rate for detached homes priced between $500,000 and $749,999 in June 2014 was 26.3%; that compares to a rate of 35.4% in June 2013, and the decrease means the market was better in 2013 for that type of home. If the absorption rate was less in 2014 than in 2013, we have put the more recent absorption rate in red. This month there was improvement for just 4 of 18 individual categories, and one remained the same.


ABSORPTION RATES - CONDOS AND CO-OPS

  • The overall absorption rate for condos and co-ops for June 2014 was 30.9%, a decrease from the 40.5% rate in June 2013.

 

ABSORPTION RATES - ATTACHED HOMES

  • The overall absorption rate for attached homes for June 2014 was 31.8%, down significantly from the 48.2% rate in June 2013.

 

ABSORPTION RATES - DETACHED HOMES

  • June 2014’s absorption rate for detached homes was 24.7%, down from the 33.0% rate of June 2013.
  • And as we have seen in the other property types, the absorption rates are higher for the lower-priced categories.
     

 

May-June 2014

06/09/14 by David Howell

Valuing Your Home With The Flip of a Coin

One of the great evolutions in real estate during the past decade is the power of the Internet, and more than 90% of homebuyers begin their search there. We think that’s great, and buyers are more empowered than ever with loads of information. Some of that information can come from sites like Zillow that offer what’s called an “automated valuation model” – AVM for short – which purportedly present a great estimate of the current market value of millions of homes. It’s cool technology, amassing an enormous amount of information from publicly available sources in one place that is then scrubbed through very sophisticated algorithms to predict value. And all of the information is presented in an easy-to-use user interface. To their enormous credit, Zillow has done a tremendous job in reaching “top of mind” status with consumers. There’s just one problem: those predicted values are wildly inaccurate and inconsistent.

Beginning in 2010, McEnearney Associates has examined the accuracy of the estimates for property values that Zillow provides – their “zestimates” of value. This marks our fourth and most comprehensive analysis.

We took 500 properties in MRIS, our regional multiple listing system, which were scheduled to settle between March 24 and March 31, 2014. During that week, we looked for the zestimates of those 500 properties. Once the properties settled, we compared the actual sold price to the predicted values on Zillow. 

To provide some context, we compared the results of the March 2014 research to that of our September 2012 research. Generally, Zillow’s predicted market value is not any better now than it was 18 months ago. The zestimate is within 5% of the actual sales price roughly half the time in the metro area. It is a little worse in suburban Maryland*, about 43%. In September 2012, the zestimate was just as likely to be too low as too high; now, it is more than twice as likely to be too low.

As one might expect with a computer-generated value, there are always “outliers.” In September 2012, the highest zestimate was roughly 140% of the actual sales price. The lowest was 82%. In the research we just concluded, the highest predicted value was 256% of the actual sales price and the lowest was 62.8%. 

As REALTORS®, we know that one of our most difficult tasks is pricing a home. That holds true whether we are representing a seller or a buyer. Market pressures change from week to week and from neighborhood to neighborhood. The motivation of the parties is always a factor, as is the condition of a home and those around it. No algorithm, however sophisticated, can quantify the value of a kitchen that was remodeled just before a home was put on the market or a yard that is poorly maintained. It simply isn’t possible for any AVM to predict the value of a home with a level of accuracy sufficient to make a housing decision. Zillow knows that’s true – and they say as much on their website (although you have to dig a bit to find it).

Yet not a week goes by that we don’t encounter a consumer who is fixated on a particular value for a home because that’s what Zillow says it is. Kudos to Zillow for making this kind of impression on the public – it is brilliant marketing. But our research and theirs show that, on average, those “zestimates” are within 5% of the actual value of a home just half of the time. As REALTORS®, if we got within 5% of the value of a home that infrequently we’d be out of business. (A look at Zillow’s own analysis of their zestimates is on the next page.)

So if a consumer wants to base their valuation of a home purchase or sale on what they find on Zillow.com, we suggest they take out a coin and flip it. Heads – that value could be within 5% (high or low) of what the home is actually worth. Tails – that value could be 10%, 20% or more off target.

*Suburban Maryland includes Montgomery and Prince George’s Counties.


More Details on our Zillow Research

“Zestimates” are consistently inconsistent


ZILLOW'S PUBLISHED ACCURACY

We noted above that Zillow posts the accuracy of their “zestimates,” and what they publish is almost identical to what our research indicates.  In our 2012 and 2014 studies, Zillow got within 5% of the actual sales price 51% of this time – their own results say 50.9%. However, they don’t publish whether they are more likely to be high or low, nor do they indicate their high and low  “outliers.” For more details on what they have to say about their own data: zillow.com/zestimate/#acc.


RESULTS ARE BY PROPERTY TYPE

We were curious whether Zillow fared any better based on the type of property. We found that they’re a bit less accurate for condo and co-ops than for attached or detached homes. Mirroring the overall results, in all three property types Zillow is at least twice as likely to predict a value that is at least 5% lower than the actual value as predicting 5% high.



RESULTS BY PRICE RANGE

Not surprisingly, properties that sold for $1,000,000 and more were a little tougher for Zillow to estimate accurately. They got within 5% of the actual price just over one third of the time. They fared much better for homes selling between $500,000 and $999,999, getting within 5% almost 60% of the time, but for homes selling for less than $500,000 they were within 5% less than half the time.

 

March 2014

04/02/14 by David Howell

Is the Market Slower Because of the Weather?
... Or Something Else?

A recent profile on CNBC described the impact of our unusually cold and snowy winter as “frozenomics,” and there are plenty of industries and cities that have been crippled by the nasty stuff we had this year. We’ve all heard about 36-hour traffic jams in the south, and every school system in our region exhausted their supply of built-in snow days so kids will be in school well into summer. Planes were grounded, power outages were rampant and we all added “polar vortex” to our vocabulary.

And there is no doubt that Montgomery County’s real estate market felt the chill. New contract activity was down 10% in January and February compared to the same two-month period last year.

But it’s not just the weather – the market actually started to slow in November. After very strong second and third quarters in 2013, the number of new contracts in November rose just 5% compared to 2012. New contract activity was down slightly in December. This happened before the snow and ice set in.

So if it wasn’t the weather, what was it? Well, rising mortgage interest rates have robbed purchasers of roughly 10% of their buying power compared to a year ago, and that has priced some first-time home buyers out of the market and lowered the price point for others. Home prices are rising faster than household income, and that puts a bit of a chill on demand as well.

The brief government shutdown in October and budget sequestration created some uncertainty in major employment sectors. And even though the number of available homes on the market is up a bit, supply is still tight. And here’s the irony about tight supply – at least in the short term, it helps keep some inventory off the market. There are homeowners who would like to be move-up buyers but they are still sitting on the sidelines because they aren’t confident they can find their next home. And if they aren’t sure they can purchase, they aren’t putting their homes on the market.

This isn’t all bad news by any means. Home prices are still going up, just not as rapidly as they did in mid-2013. Homes are still selling in an average of about two months, and there is still only about a two-month supply of homes on the market. What we’re seeing is the expected moderation that is heading us in the direction of a more balanced market.


BUYING POWER

  • A $1,000 principal and interest payment supported a loan of $200,405 at the end of February which is $20,041 less than this time last year, and almost $12,000 less than February 2012.
  • While mortgage rates are still very low from an historical perspective, they are roughly a full percentage point higher than this time last year, reducing buying power by about 10%.

 


NEW CONTRACT ACTIVITY

  • The number of new contracts ratified
    in Feb. 2014 was down 14.6% from the
    number of contracts ratified in Feb.
    2013.
  • Contract activity year-to-date is
    down 13.0%.
  • 27.9% of all homes going under
    contract in February 2014 had