McEnearney MarketWatch- The Real Story Is Inventory- And 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.

The 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.

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MarketWatch, authored by David Howell, is published on a bi-monthly basis by McEnearney Associates, Inc. It provides useful and insightful summaries of current housing market trends. MarketWatch statistics include housing sales from all companies serving our Virginia - Washington DC - Maryland Metropolitan area.