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Housing Demand in Area Outpacing Supply

The inventory of homes listed for sale in the Washington metro area dropped to just 5.1 months' worth in June, according to a report from Delta Associates, a real estate consulting firm, and Metropolitan Regional Information Systems Inc., the local multiple listings service. That's an important milestone for the local housing market. Analysts usually cite a six-month supply as normal for a balanced market. Five months' supply takes us out of a buyer's market and toward one that favors sellers.

"The metro-wide ratio of 5.1 months' worth of listings is below the normal, healthy standard of six months, signaling that demand is beginning to outpace supply," the report says.

Before you get too excited, keep in mind that prices in the April-June quarter were still 13.2 percent below what they were last year. "In recent years, Washington-area average prices tend to rise when the ratio of inventory to sales is below six months' worth," the report says. "Lender constraints may hinder a quick rise in prices, but the gap between supply and demand is closing in the Washington area." Sellers are continuing to offer subsidies to make their homes move, but those incentives are shrinking, and attractively priced homes are drawing multiple offers.

They said they expect to see price gains, compared with last year, by late this year or early 2010, especially in the District, Arlington and Alexandria. It could take until late 2010 or early 2011 for price gains to hit the outer suburbs of Loudoun, Prince William and Frederick counties.

How does that mesh with what you're seeing in your neighborhoods?

By Elizabeth Razzi  |  August 5, 2009; 6:00 AM ET
Categories:  Statistics , The economy , The market  
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It's hard to tell but it seems like houses are sitting without a lot of obvious traffic in my inner Beltway neighborhood.

We had several houses that were estate sales - people who needed to move out (or passed on) that probably would have sold last year but the market tanked. They are nice big houses, and they're just hanging around.

Maybe little houses are moving faster?

Posted by: RedBird27 | August 5, 2009 6:18 AM | Report abuse

I feel sort of like John McEnroe when he would shout at the referee "You can not be serious!" There is another item on your real estate front page that adivses people to pull their houses off the market like so many others are doing to wait for prices to recover in the coming years. Falling inventory amid crashing prices is hardly as sign of recovery, but rather hopelessness among sellers who see ever growing percentages of foreclosures clogging the market. I mean, really.

Posted by: GovFlack | August 5, 2009 6:49 AM | Report abuse

Delta Associates?? Is that a division of the NAR??

Considering that banks are still holding on to an estimated 70% of their REOs and not releasing them as foreclosures, I think we are still in the middle innings...

I think this take is closer to reality--

If you go strictly by the numbers, there's evidence that the great U.S. real estate crash may be over. But beyond the numbers, the scene is still grim.

Sales of new houses jumped 11 per cent in June – the most in eight years – and the number of unsold properties is finally edging down.

Housing starts rose in May and again in June. The scenario for existing homes is similar. And U.S. monthly home prices appear to be stabilizing, according to the Standard & Poor's Case-Shiller index of 20 major cities, which edged up in May for first time since mid-2006.

But the numbers don't impress Andrea Gaus, a real estate agent with Long & Foster Cos. in Gaithersburg, Md., a middle-class suburb of Washington.

“No, it's not better,” she says bluntly of the housing market.

Houses are taking months to sell. Many buyers are having trouble getting financing as lenders and appraisers struggle to figure out what houses are really worth in the wake of the collapse.

And aside from speculators and first-time buyers – lured by depressed prices and an $8,000 (U.S.) federal tax credit – the overall market remains very soft.

“Everything is hard work,” says Ms. Gaus, who has taken a part-time job at a department store to earn extra cash.

And this is in the nation's capital, historically one of the most stable real estate markets in the United States.

The reason Ms. Gaus isn't seeing a turnaround is because the “freefall” in prices isn't over, said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

“It would be wrong to imagine that we have hit a turning point in the market,” he said. “There is still an enormous oversupply of housing, which means that the direction of house prices will almost certainly continue to be downward.”

Mr. Baker says the inventory of unsold houses – now at the equivalent of eight months' worth of supply – is misleading because the number of vacant rental units is going up. That suggests many owners have given up trying to sell their homes and have put them up for rent instead, he said.

If accurate, it's sobering news. The collapse of house prices in the United States helped trigger the global recession, and until the market recovers, U.S. consumers are unlikely to be a major force in the global economy.

Posted by: misssymoto | August 5, 2009 7:32 AM | Report abuse

The lower priced homes might be selling, in certain areas, but the mid to higher priced homes will sit for a long time as we head into the Fall and begin the second leg down in prices...

Also--Why is no one talking about the HUGE waves of ARM and Prime re-sets coming in 2010 and 2011? In addition to the banks holding so much foreclosed inventory off the markets, these next waves will be incredibly damaging.

Also, the banks are facing HUGE defaults with consumer credit and Commercial Real Estate, so until the employment picture improves radically, we will continue the slide. (It's Econ 101 sorts of stuff)...

Posted by: misssymoto | August 5, 2009 8:08 AM | Report abuse

I agree with the other commenters. Realtors have been telling potential sellers not to sell unless they absolutely must. Many sellers are holding off because they think prices will be back 2006 levels in a year or two. Also, the banks are slow to foreclose and are holding the REOs off the market. It's all an attempt to keep the supply down and prices high. Many people I personally know are struggling to make payments, the banks won't modify their mortgage, and they're just trying to hold on a little longer until prices rise and they can sell. We're just kicking the can down the road and it will be a long, slow recovery.

Posted by: paroxysm33 | August 5, 2009 9:04 AM | Report abuse

In the neighborhood that I wish to buy in, the inventory is essentially nonexistent. There are plenty of short sales, most listed at attractive prices, but who knows how realistic those prices are? There are a fair number what would be regular sales, but the owners are holding out for prices that are too high for their homes. These homes on the market for months, sometimes empty, because their owners aren't willing to sell them at a price people are willing to pay. I don't understand this mentality--there is a home that has been on the market since November. There have apparently been multiple offers in the $350K range, but the owner started out with a price of $409K and has dropped to $389K. She would reportedly consider an offer of $375. But in nine months, no one has been willing to pay that much. I'd think that at some point you would find that continuing to make payments on the property you haven't lived in for months is a sufficient incentive to consider that you don't have a realistic understanding of your home's market value. When a regular sale that is priced reasonably comes on the market, it is gone in days with multiple offers.

Some homes are priced a little too high, and it turns out that the reason is that if it was priced reasonably it would be a short sale. I understand this. What I don't understand is the people who could sell their home at a price the market would bear, but refuse to because they remember the boom years and want that sort of price for their home. It seems greedy to me. I, too, would have liked to get a 2005 price for my home when I sold it a few months ago. Heck, I would have been happy with a 2008 price. But since I was selling it in 2009, I had to settle for a 2009 price. I know sellers who are convinced that the market is about to recover, and that is why they are holding on to their unrealistic price. Well, it may be turning around, but since prices are still about 50% more than they were in 2000, I think there is still room to go down. And with all the foreclosures still waiting to happen, I don't see how a turn around can happen yet.

Posted by: janedoe5 | August 5, 2009 9:41 AM | Report abuse

Does anyone know what the "Washington metro area" is for this information? I could almost believe it if the data exclude Loudoun County, Prince William County, Manassas and Manassas Park. I also wander if the numbers include bank-owned properties and house not in the MLS.

Posted by: KS100H | August 5, 2009 11:02 AM | Report abuse

This is just my "finger in the air" sampling, but seems like out here in the MD burbs that homes priced very competitively are moving much faster off the market. Prices are still low, but we are seeing a whole ton of activity in the past month. I guess this is the result of pent-up buyer demand. I think we've hit bottome and the buyers know it.

Posted by: anonforthis | August 5, 2009 11:43 AM | Report abuse

Their definition of "Washington area" does include Loudoun and Prince William counties.

Posted by: Erazzi | August 5, 2009 2:52 PM | Report abuse

I don't know that applying a broad brush rule of thumb of 6 months of inventory is appropriate for the DC metro area. If all real estate is local, then this metric is local too, and we have a lot more intrinsic turnover in this region than most areas do. Besides, having under 6 months of inventory in the height of the spring summer selling season, with the $8k on the table and the lowest rates practically ever, isn't all that impressive. If inventory stays under 6 months through the winter, now that will be saying something.

Posted by: kingstowne_renter | August 6, 2009 9:18 AM | Report abuse

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