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.”
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.
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.
NEW 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.