By David Howell, McEnearney CIO & VP
This year has seen a slowdown in the Washington area’s real estate market compared to the frenetic pace of 2013, and there’s no reason to believe that will change over the remaining three months of the year. However, there is no reason to hit the panic button, as the overall market remains pretty solid.
Almost every major indicator is down compared to last year — there are fewer new contracts, homes are taking a bit longer to sell and they aren’t selling as close to list price as last year. Regionally, there has been a significant increase in the number of homes on the market, and that means that would-be buyers who were hard-pressed to find their home of choice in last year’s exceptionally tight market are finding many more choices now.
That is especially true in the outer suburbs. There are 60 percent more homes on the market in Loudoun and Prince William Counties today than this time last year. In the District, there are only 7 percent more homes on the market.
And that highlights one undeniable fact: There isn’t one set of market conditions throughout the region, and in fact, there are significant differences that impact the likely direction of the market for the rest of the year.
Washington has the strongest market in the region, with an overall supply of homes on the market of less than two months. This low level of supply relative to demand means that D.C. is still a seller’s market. On the other hand, Loudoun County has the highest in the region with a 4.5-month supply. It is reasonable to expect continuing upward pressure on prices in D.C. while the foot is coming off the gas a bit elsewhere in the region.
We look to the pace of new contract activity as the best indicator of short-term market direction, and every jurisdiction in the metro area has seen a decline in contract activity in August and so far in September compared to last year.
But we also look at something we call the “Urgency Index” to help us take the temperature of the market — think of it as a rudimentary consumer confidence index for housing. We look at the number of new contracts in a month and then see how many of those homes were on the market for 30 days or less. In the extremes, we have seen as many as 95 percent of the homes going under contract sell in 30 days or less (in April of 2004) and as few as 16 percent (December 2007). The Urgency Index today not only provides some insight into the direction of the market over the next few months but also highlights the significant differences in our region.
As this chart indicates, every jurisdiction has seen a drop in the percentage of homes going under contract in 30 days or less, but D.C.’s drop has been very modest. At just over 60 percent, it is the highest in our metro area. Last year, Northern Virginia had the highest Urgency Index in August at 67 percent, and that has now dropped to 50.2 percent, settling Northern Virginia in as the third best jurisdiction in the region.
But this is the real message behind these numbers: The lower the Urgency Index, the slower the market in that region will be over the next few months. That bodes well for D.C. and Prince George’s County, while things may be a bit slower in Northern Virginia and elsewhere.
Bear in mind that none of the indicators we track point to a bad market anywhere in the metro area – we simply expect the last three month of 2014 to be slower than the last three months of 2013.