Is there a mismatch between housing inventory and demand in the Washington region?

June 26, 2013

Sturtevant, deputy director of GMU’s Center for Regional Analysis, writes an occasional column analyzing local housing data.

Home sales in the Washington metropolitan area continue to be strong, and for the first time in years new listings surged in April and May.

Active inventories of homes for sale are still below where they were a year ago because the pace of sales activity has been faster than the pace at which new listings have come on the market. The double-digit percent growth in new listings in April and May suggest that inventories may grow and potential buyers will certainly have more choices.

But are the offerings on the market what buyers are looking for?

Across the metropolitan area (which includes 22 jurisdictions in the District, Maryland, Virginia and West Virginia), there were about 7,600 sales of existing homes in May, according to Rockville-based multiple listing service MRIS. That same month, there were about 11,400 newly listed homes for sale, and at the end of the month the active inventory totaled about 14,900.

Given where sales activity has been, the shares of new listings and active inventory in suburban Maryland are somewhat high, while the inventory in the District and Northern Virginia is disproportionately low relative to recent sales.

While 32.7 percent of May sales were in suburban Maryland, nearly 40 percent of the Washington region’s active inventory is there. By contrast, the District had 10.1 percent of May sales but is the location of only 7.8 percent of end-of-May inventory. Northern Virginia captured 57.2 percent of May sales and has only 50.8 percent of the region’s current inventory of homes for sale.

The geographic mismatch in sales and inventory is mirrored by the shares of sales and inventory by product type. Single-family detached homes accounted for 55.8 percent of sales in the Washington metropolitan area but comprise more than 70 percent of the current active inventory.

Townhouses and condominiums comprised a greater share of sales than they did of either new listings of active inventory. This suggests that the inventory of homes for sale may be growing, but there remains an increasingly deficiency of townhouses and condominiums.

The active inventory is priced higher and has been on the market much longer than the properties sold in May. For example, the median price of a single-family detached home sold in the region in May was $435,000 and was on the market an average of 54 days.

In the active inventory of single-family detached homes in the region, the median list price is $495,000 and these homes have been on the market for an average of 130 days. Trends were similar for townhouses and condominiums.

The increase in new listings suggests that there will be more choices for would-be buyers.

In the short-term, the increase in inventory could increase the pace of sales activity. Over the next few months, however, the increase in the supply of homes for sale could ease pressure on prices.

The slower growth in prices will be more likely among single-family detached homes and in suburban Maryland where the share of sales has been lower than the share of the inventory.

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