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.
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.
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