The District’s 2016 housing market – how low can our inventory go?

By Dean Cottrill

Dean Cottrill is president of the Coldwell Banker Residential Brokerage, Mid-Atlantic region.

Washington’s residential real estate market in 2016 was good, with both sales and prices up versus 2015, but one big low prevented it from being even better: the number of homes for sale (or inventory).

Inventory levels have started to trend up, but remain extremely low.

In real estate, a six-month supply of inventory – which means the time it would take to sell all of the homes for sale at the current sales pace – is considered a balanced market, one that favors neither buyers nor sellers. Anything less than a six-month supply is typically a sellers’ market, and more than six months’ worth is a buyers’ market. While inventory levels have been trending up, the pace is slow and the year ended with only a 1.9 months’ supply – still a solid sellers’ market.

Seller uncertainty was a contributing factor.

So what’s behind the low inventory levels? Two things. First, the housing bubble burst of 2008 is still fresh on the mind of some homeowners, who remain reluctant to list their homes for sale. Additionally, the 2016 presidential election consumed people’s attention and created a sense of uncertainty, causing them to temporarily delay any real estate transactions – though there was a small surge in activity when it was finally over.

The 2016 market fared well despite those challenges.

Despite the reduced inventory, the total number of properties sold was up year over year and the average sales price was steady. Here’s a look at how the 2016 market-wide numbers compared to 2015. The figures below are from Metropolitan Regional Information Systems1 for Alexandria, Arlington, Clarke, Fairfax, Falls Church, Fauquier, Loudoun, Manassas, Manassas Park, Prince William and Washington, D.C. for all property types, in all price ranges.

Properties Sold: 44,833 in 2016 vs. 42,791 in 2015, an increase of 4.8%

Average Sales Price: $537,002 in 2016 vs. $523,050 in 2015, an increase of 2.7%

Property Inventory: 6,277 in Dec. 2016 vs. 8,426 in Dec. 2015, a decrease of 25.5%

Days on the Market: 46 days in Dec. 2016 vs. 52 days in Dec. 2015, a decrease of 11.5%

Higher inventory levels gave us a softer luxury market.

Overall, things look decent. In contrast, the luxury market was a bit softer. A larger supply of homes for sale in the $1 million and up price-point caused prices to drop, though strong demand resulted in more sales and fewer days on the market. Here are the stats2:

Properties Sold: 2,827 in 2016 vs. 2,632 in 2015, an increase of 7.4%

Average Sales Price: $ 1,493,666 in Dec. 2016 vs. $1,643,411 in Dec. 2015, a decrease of 9.1%

Property Inventory: 1,241 in Dec. 2016 vs. 1,178 in Dec. 2015, an increase of 5.3%

Days on the Market: 67 days in Dec. 2016 vs. 90 days in Dec. 2015, a decrease of 25.5%

Up-and-coming areas saw the strongest interest and activity.

The market got off to a slow start, with our spring selling season ramping up later but lasting longer than usual, another slow down in late summer/early fall, and finally our post-election surge. We saw a lot of interest and activity in up-and-coming neighborhoods like Bloomingdale, Petworth and the NW Quadrant, resulting in rising prices, bidding wars and new pocket developments.

Mortgage rates, inventory levels and buyer demographics are the areas to watch in 2017.

Whether or not these market trends will continue in 2017 depends on a number of factors, including a few worth watching closely. The first is mortgage rates, which have started to tick up. That could encourage any buyers or sellers who have been on the fence that now is the time to act. And if more potential sellers become motivated to list their homes, that could help bring inventory levels up. Finally, keep an eye on two groups of potential home buyers: Millennial first-time buyers and foreign buyers. Both have slowly been making their move into our housing market, but they have the numbers to really make an impact in the year ahead.

1. Based on statistics for residential single family, condominium and townhouse properties in Alexandria City, Arlington, Clarke, Fairfax, Falls Church City, Fauquier, Loudoun, Manassas City, Manassas Park City, Prince William and Washington, D.C. at all prices as reported by MarketQuest on Jan. 4, 2017, for the period of Jan. 1-Dec. 31, 2016. MarketQuest includes data from Metropolitan Regional Information Systems. 2. Based on statistics for residential single family, condominium and townhouse properties in Alexandria City, Arlington, Clarke, Fairfax, Falls Church City, Fauquier, Loudoun, Manassas City, Manassas Park City, Prince William and Washington, D.C. at prices of $1 million and above as reported by MarketQuest on Jan. 4, 2017, for the period of Jan. 1-Dec. 31, 2016. Data is deemed reliable but not guaranteed.