The news about the Washington area condo market has been encouraging in recent weeks.
Following the housing bust, the single-family market in the region rebounded relatively quickly and shows sustained priced growth month after month. The condo market, however, languished, primarily because of the difficultly faced by would-be condo buyers in getting a loan. A recent report released by Delta Associates showed that in the first half of 2012, condo sales were up, inventories were down and a shortage of condos in the region was predicted.
While the condo market has looked much healthier in recent months, we are unlikely to see a major price surge regionwide, even with the dwindling supply.
Condo sales picked up appreciably in the first seven months of 2012. According to MRIS data analyzed by the Center for Regional Analysis at George Mason University, there were more than 1,200 condo sales in the 22 jurisdictions making up the Washington metro area in July 2012. Sales have climbed steadily since January, and 2012 summer condo sales totals are at the highest levels since 2007.
With the rise in sales came declines in inventories. At the end of July, condos made up about 16 percent of the inventory regionwide but were more than 20 percent of July sales. The availability of supply varies across the region. In Arlington County, for example, the demand for condos has far outpaced the supply in recent months.
Declining inventories have led to price growth. While the average price for all homes — single-family and condo — has been up in 29 of the past 33 months in the D.C. region, condo prices have lagged. But spring and summer of this year have brought strong price appreciation. Condo prices have been up every month since March, and in July the average condo price in the Washington metro area was $310,000, nearly 9 percent higher than a year ago. Condo prices were up 12 percent in Arlington and Fairfax counties in July. Average condo prices in Prince George’s County have been up by around 40 percent for three months in a row.
Rising sales, declining inventories and price growth seemingly indicate that the condo market here in the D.C. region seems poised to take off. However, several other factors suggest that while the condo market will continue to stabilize, the recovery will start to look more modest.
First, thousands of new rental units are set to become available over the next few months. The rental market in the D.C. region had become very tight — with very low vacancy rates and fast-rising rents in many neighborhoods. Some would-be renters who had a sufficient downpayment and credit began seeing a condo purchase as a better deal. Trulia, an online real estate listing service, reported in March that D.C. was one of the markets where it was cheaper to buy a house than to rent. With the delivery of so many new rental units, rents will drop — or at least stop rising so fast — in many neighborhoods and renting will be comparatively more attractive. While still quite low, mortgage interest rates have been edging up in recent weeks, which also enters into the buy vs. rent calculus.
But the primary risk to the condo market is the same uncertainty in the overall housing market — a softening of demand as the pace of job growth in the region slows. For the past three years, workers have flocked to the D.C. region because our economy was growing when other regions were not. Many of these newcomers were younger, entry-level workers finding jobs with the federal government and with the government contractors that have been the engine of our economy. These workers ultimately would become the stock of potential homebuyers, many of whom would be looking to the condo market.
The Washington area continues to attract new people, but it is now competing with other regions that have stronger local economies and are adding jobs faster than we are. And as uncertainty over the looming “fiscal cliff” continues to weigh on the hiring decisions of the federal government agencies and the private sector, the demand for new workers will decelerate.
As a result, the pool of potential homebuyers — and in particular young potential condo buyers — will also grow more slowly.
In the second half of 2012, then, several factors will coincide to temper the revival of the condo market here in the Washington area.
Lisa A. Sturtevant is an assistant research professor at George Mason University’s Center for Regional Analysis.
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