Observations on Market & 2006

My Observations on the Current Market and 2006

It seems like every day you hear news clips or see articles on the cooling real estate markets. Often they drama portrayed in "bubblicious" :) It takes so much longer to sell a home now that just 6 months ago that there must be a crisis/bubble just around the corner assuming we have not already been ensnared. And so with the 20 second news clips designed to keep us tuned into the broadcast until the end of the show we sit on the edge of our seats wondering, "Should I wait a couple of years for the market to deflate before buying?" "Have I missed selling at the peak of the market?" So I thought I'd add some perspective on the matter using experience and some numbers from recent summits and reports that have been released regarding our local MLS system.. .

Housing prices fall nearly every autumn and and the supply of homes rises nearly every autumn as well with an increase in the DOM--days on the market--for homes being sold.. There are several main reasons for this: 1) in the spring/summer the weather is better making showing properties easier 2) companies give bonuses at Christmas and early spring and tax refunds occur during this same period.. These funds are often used for down payments or to pay closing costs. 3) Perhaps most importantly families tend to move in the late spring/summer so as to not disrupt their children's school years.. Also late autumn is when the holiday seasons are kicking in from Halloween to New Years and who wants to be house hunting at this time--not families.. . . .

. . . . . . . Looking at data from our local MLS from June/October of 2004 and 2005 we see these trends demonstrated: housing prices cool off in the autumn and the DOM increases.. It does not mean we are in a crises of any kind.. It's just the annual cycle of real estate and one could go back to news clips from 2004 and find the same drama in them of our cooling markets.. In June 2004 the average sold price was $462,000 with a DOM of 14.. In October 2004 the average sold price was $443,000 with a DOM of 22.. So the average sold price decreased 4% and DOM went up 57%.. In June 2005 $556,000 was the average sold price with a DOM of 15.. In October 2005 the sold price was $550,000 with a DOM of 34.. The sold price retratcted--albeit very slightly--but the DOM increased 127%.. Looks like sellers (many investors probably) were refusing to accept the trend that prices retract in the autumn and therefore the DOM was increased markedly.. . . .

. . . . . A very significant change occured in condos though.. The # of condos in June/October of 2004 was 781/702.. But in 2005 it was 967 condos in June and 2173 condos in October.. Instead of staying almost flat like previous year the inventory of condos for sale increased over 200%.. That is very consequential and played a role in the increased DOM stats.. . . .

These condos (many of the more newly constructed that were bought by investors who planned on putting them on the market as soon as they delivered) are impacting DOM & sales price stats which makes reading the data in terms of single family homes only trends hard to do. In Arlington county there were 153 condo listings in Oct. 2004 and 465 condos in Oct. 2005. Many of those were from several condos that immed. had a huge portion of them get put up for sale as soon as the owner/investor took possession. They are just sitting there begging for buyers. I WOULD NOT INVEST IN NEW CONSTRUCTION (DELIVERY 2006 OR LATER) CONDOS RIGHT NOW. And there are still 4300 more condos being built in Arlington in the next few years. But houses are following the normal fall pattern of taking much longer to sell and slightly dipping in value. The amount of time to sell now though is longer than last year at this time (fall).

According to a big economic summit pertaining to real estate (believe at GMU), the DC metro area is going to be short 25,000 units of housing this year alone. The trend due to the amount of jobs coming here is expected to continue for some time according to the article and the economists quoted. Over the past 5 years DC metro created 287,000 jobs-nearly 100,000 more than Miami which was 2nd in job growth. Of the 287,000 jobs created, 144,000 of them were in Northern Virginia. This is why our markets have been appreciating. Another interesting stat is that "over the past 30 years the population has grown 54%, but the number of jobs has increased 112%. Even better, our gross regional product is up 223%, which means the jobs we are creating are high paying positions."

This report was from nvar.com monthly Realtor Update magazine. The economists I've read see modest 8% bump of residential sales prices next year in the local marketplace-I don't know that would apply to condos though. So I'm not too worried about it yet because of the job forecasts I've read. One thing is for sure, buying a home next year is likely to cost more than buying it between now and the end of February 2006.

November 2005

RE/MAX Allegiance--3315 Lee Highway--Arlington, VA 22207