November/December 2006

By Peter Clute and Fred Kendrick

The DC Big Picture

September was a disappointing sales month, but a smaller than expected increase in inventory leaves room for optimism of a stronger fall market ahead. Combined sales of single-family homes, condominiums, and cooperatives fell 8% from August and were off 17% from September of last year. This was easily the worst sales month of the year, but it will be October and November that will determine the success of the second half of 2006.

At the end of the third quarter, combined sales are 17% behind 2005’s totals and 16% behind 2004. Looking at the other “boom” years beginning in 2000, this year is trailing 2003 by 11% and 2002 by 5%. There is a 2% gain over 2001 and a 2% decline from 2000. However, 2006’s totals are far ahead of the leaner years of 1990 to 1996 by an average margin of 106%. The combined inventory of homes and units only rose 13% in the month of September, a much more reasonable increase compared to the 52% gain seen in September of last year. One of the keys to the market maintaining its strength (or just preventing a further losses) in the fall is for the inventory to remain stable through October as November as well.

At the end of September there was 5.5 months of inventory on the market, a substantial increase from the 4.5 months at the end of August due to the poor monthly sales performance. If sales pick up in October and November and inventories remain the same, we might see this number move closer to the 4.0 to 4.5 level we have seen for most of the year, but at this point we are certainly moving closer to the 6 month point which is considered market equilibrium (neither a buyers nor a seller market). The average prices of single-family homes and condos/co-ops each showed a slight increase from August, with single-family home prices currently up 4.5% from 2005 and condo/co-ops down 4%. These numbers are likely skewed by the increases in seller concessions that have become much more common compared to the last few years.

Single Family Homes

The number of new contracts on single-family homes fell 6% from August, 26% below last September’s totals. This was the worst September since 1996 and the second worse overall sales month since December of 1998. All price categories registered doubledigit losses compared to last September, except the $1,000,000 to $1,250,000 range and the over $1,500,000 range, each with an 8% loss.

For the year-to-date, sales of single-family homes are 20% behind last year’s third quarter totals. The upper bracket has consistently outperformed the middle and lower ranges since the beginning of the second quarter, with only the $1,000,000 to $1,250,000 range (up 17%) ahead of last year. The sales losses over $1,250,000 are only singledigit losses, compared to double-digit losses for all ranges under $1 million.

The inventory of available homes rose 14% from August to September and is 59% higher than the same point last year, the highest level since August of 1998. Only the $1,500,000 and over range (down 9%) has fewer houses on market compared to last year, although that price range has an effective inventory of 9 months. For all singlefamily homes, the effective inventory is 5.14 months, compared to 4.25 months in August and 2.56 months a year ago.

There was an increase in the average price of a single-family home of less than one percent from August to September and the increase over 2005 now stands at 4.5%. The median price is also up 4%. It is somewhat surprising that prices have held firm while sales numbers have dropped, perhaps a sign of underlying strength in the singlefamily market.

Condominiums and Cooperatives

New contracts on condos and co-ops fell 12% from August, 9% below the same point last year. This was still the fourth best September on record (behind the Septembers of 2003 through 2005), more than doubling the sales totals seen from 1990 to 1997. Compared to 2005, only the $150,000 to $200,000 range (10% of sales, up 35%) and the $700,000 to $1,000,000 range (7% of sales, up 90%) managed to register gains. Through the third quarter, sales of condominiums and cooperatives are 13% off last year’s record pace, currently the third best year since 1990. The same price ranges that did well in September have also posted excellent year-to-date numbers. Sales of units priced from $150,000 to $200,000 are up 37%. Units priced from $700,000 to $1,000,000 are up 13%. The inventory of available units rose just 11% from August, far below the 76% increase seen in September of last year, and is now 87% higher than a year ago. While the 11% increase was smaller than expected, this level is still the second highest (behind June of this year) in over 13 years. The level of inventory combined with the drop in September sales took the effective inventory up to 5.87 months (compared to 2.82 months a year ago), the first time this number has exceeded five months since February of 1998.

The average price of a condo/co-op in DC took a small tick upward in September but is still 4% behind 2005 year-end. The median price is 5% behind.