The average effective price per square foot for new condominium sales in the region declined by 1.2 percent in 2011. Condominium prices rose in several neighborhoods, including Arlington/Alexandria and Prince George’s County, as well as mid-east and east D.C. neighborhoods such as Shaw, Columbia Heights, the 14th Street corridor, NoMa, Southwest, Capitol Riverfront and east of the Anacostia.
Another indicator of whether prices are moderating is the percentage of actively selling projects that have price declines from a year ago. Condominium prices are now lower in less than half of all actively marketing projects.
Concession rates are very low in the District, as more projects with long-standing inventory finally reach sell-out — most neighborhoods in the District are offering very few concessions. Prince George’s County saw a drop in concessions from a year ago, as well as Loudoun and Prince William counties. Regionwide, concessions are up slightly, at 2.6 percent of the selling price of a condominium at year-end 2011 compared with 2.5 percent at year-end 2010.
There were 302 net sales during the fourth quarter. For all of 2011, there were a total of 1,458 sales, a 30 percent drop in sales since 2010 and lower than the previous floor set in 2008. While current economic conditions play a role in the reduced sales activity, another factor that was not an issue three years ago is a growing shortage of “fresh product” to appeal to buyers. We believe that some of the reduction in new unit sales volume is because of a lack of sales-worthy units, and much of this demand is being siphoned off by the resale market which has plenty newer units available. However, more than 2,100 units are planned to begin sales in 2012, which should help replenish the market.
The number of unsold units in projects currently marketing or under construction rose to 3,542 units at year-end 2011, the first significant increase in pipeline from one quarter to the next since 2006. In addition, there are 1,976 units that are planned to start sales within the next 36 months. On top of that, around 11,800 units are in the longer-term condominium pipeline and 57,600 multifamily units can be built either as condominiums or apartments.
The Washington area has 2.4 years of inventory at current sales rates. Banks still do not appear willing to finance large-scale condominium projects without significant pre-sales or the deal needs to pencil as an apartment project. This has a tendency to limit construction to smaller projects with significant pre-sales or thate are in select neighborhoods that can support $3-per-square-foot rents as an exit strategy.
On balance, we see the introduction of new units starting last year and into 2012 as the beginning of the price traction spiral of the next cycle, beginning perhaps in late 2012 or sooner. This year should bring improved sales velocity to the market as newer product makes up a majority of units available on the market for the first time in several years. We estimate sales to improve from 2011 — perhaps in the 1,500-unit to 1,800-unit range for the year.
William Rich is vice president at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.
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