The Washington area housing market experienced healthy growth in the first quarter, compared with the same period in 2012, and it continues to improve as solid demand bids up prices.
The market has not quite entered a full-fledged expansion phase as month-over-month indicators reflect the continuing uncertainty that is hindering the region’s economic growth. Because the full impact of sequestration has yet to be felt, the region’s housing market is likely to experience some volatility during the balance of 2013. Overall, however, the market is expanding and prices are likely to rise in the year ahead.
What the numbers tell us:
First quarter prices: Up 9.2 percent from last year at this time. The average price of a Washington area home sold in the first quarter was $417,665. Average prices in the region’s core were higher than the metropolitan average, while average prices in the inner ring and outer suburbs were below.
Unit volume: Up 7.8 percent during the quarter compared to the same period in 2012. Unit volume has been sustained fairly well as regional job creation has been modest but steady. However, the private sector may not create enough high-wage jobs in the near-term to fully offset the economic impact from the reduction in government payroll, which is being driven by mandatory furloughs.
Days on market: Fell 23 days over the year to 60 days and is below the 10-year average of 63 days. Time on market remained about the same for the inner and outer suburbs and in the region’s core.
Months of inventory: Limited new listings, coupled with steady demand, drove inventory to a new low. Months of inventory, at 1.9 months, is down from 3.2 months one year ago. This is the lowest level since the peak of the housing cycle during the 2nd quarter of 2005.
Prices in several jurisdictions are nearing the prices seen at the peak of the bubble. Median prices as a percentage of peak bubble price in the Washington region are 87 percent. Many jurisdictions surpassed this metro-wide rate with the core outperforming other areas. Median prices in the District and the City of Alexandria are at 101 percent and 106 percent, respectively, of the peak bubble price.
When the housing bubble burst, most Washington area homeowners shared the misery of tremendous wealth loss. Housing wealth rebounded as the economic recovery began and prices started to appreciate, reaching into the double digits in a year-over-year comparison at times. This benefits the region’s economy in two ways:
Greater wealth in homeownership is a means to offset the net worth effects of federal consolidation. The most immediate impact of sequestration will be felt by federal employees with forced furlough days. This translates into diminished buying power by a notable share of Washington’s labor force. Since Washington was one of the first major regions to enter into the housing recovery phase, wealth through homeownership has had time to accumulate. Strong market fundamentals are expected to sustain the upward momentum of home prices even as the effects of sequestration are realized.
A recovering housing market supports the recovery of supply-chain industries such as construction and manufacturing. Wealth growth through homeownership may afford some with the opportunity to purchase a new home, while others may utilize new equity for remodeling, appliance, and furniture purchases. Steady price appreciation and increased homeowner wealth have led to new home construction. Subsequent payroll increases in the construction and manufacturing sectors that service the housing market add to continuing economic growth.
We expect several factors to bring gains to the Washington for-sale housing market in 2013:
Mortgage interest rates that remain near all-time lows.
Higher pricing that may incentivize more potential sellers to list their homes, thus bringing more buyers into the market through a greater array of options.
A local economy that adapts to the realities of federal budget reductions.
The region’s housing market recovery will likely continue as price appreciation means more homeowners get above-water on their mortgages. This transition will happen slowly, however, as many potential sellers struggle with the cash required to cover transaction costs. On balance, buyers will likely continue to outnumber sellers, putting upward pressure on prices.
Christopher Dubberly is a senior associate and Mid-Atlantic research director at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.