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.
There 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.
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.
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.
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.