DC Condo Market is Hot! Inventory Drops 43.1%

Hot, Hot, Hot:
The condominium and cooperative market in Washington, DC is very hot now, according to the most recent sales statistics made available by the Greater Capital Area Association of Realtors®.

Supply Side:
There were 465 condos and co-ops available for sale at the end of January. That’s a 43.1% drop in available homes compared to 2012, which  was a strong year.

By way of comparison, the highest level of inventory of condos/co-ops was in June of 2008 when there were 1,684 available. That means inventory has plummeted 72.4% from its highest level.

Before there is too much celebration it’s important to remember where the levels were at the lowest point. In April of 2005 there were only 376 condos and co-ops available. That means that inventory is still 23.7% above where it was at the lowest point.

Demand Side:
Equally impressive has been the level of demand for condominiums and cooperatives. In January 2013, 281 contracts were ratified versus 210 in January of 2012. That’s a 33.8% increase in the number of contracts  year-over-year. This indicates that despite the limited inventory there is great demand for more condominiums.

Again, for comparisons sake the slowest month of contract acceptance was December of 2008 when only 132 were accepted. This January’s market is 53% better than that.

On the other hand, the peak month of contracts accepted for condos and co-ops was May 2005 when there were 508 accepted contracts. That’s 80.1% more contracts than were accepted last month.

Prices Increasing:
With supply restricted and demand increasing prices have started to rise. There are generally multiple offers on properties and those offers are competing on price to get the seller’s attention. A good guidepost at this point is that prices are at, or very near their highs in 2005 in most neighborhoods in DC.

Appraisers are now the biggest constraint on price increases. They will not value homes at the price agreed to by the buyer and seller. Low appraisals are forcing buyers and sellers to reopen negotiations after the contract has been accepted. Frequently the seller will simply refuse to lower the price and the buyer is stuck deciding between walking away, changing loan terms or bringing more cash into the transaction.

What’s Next?
While nobody can predict the future, the trends indicate that there will continue to be a restricted number of available properties. Primarily there are three reasons that the market will remain tight.

First, there has been very little new condominium development for the past several years to meet this new demand.

Second, during the downturn owners who had units that were underwater rented them out rather than take the loss. Now that the market is perking up they can’t simply kick-out tenants to sell; they must wait for the tenants to leave of their own accord. This prevents the market from being flooded with many new listings.

Third, owners who would be willing to sell have nowhere to move because there is a limited supply of move-up homes available.

With interest rates still at historic lows and employment slowly improving there is a continued expectation for demand to be strong. And this combination of low inventory and high demand foretells more price increases in the near-term.