The recovery of the Washington condominium market is beginning to give way to an expansion, at least as defined by new-age metrics.
Sales volume has been strong so far in 2012 and remained so during the third quarter, despite the fact that the summer months typically make up the weakest quarter of the year for sales activity.
There were 533 sales contacts that moved forward during the third quarter, the second consecutive quarter that had ongoing deals topping 500 units. The Federal Reserve’s recent decision to keep interest rates low may continue to spur housing sales of all types.
The pace of sales per project has increased dramatically in recent months as well. Projects that have sold out since 2011 have averaged 2.7 sales per month, but the average pace for projects that have been introduced to the market over the past 12 months is 6.3 sales per month. Meanwhile, the unsold pipeline is at record low levels.
The amount of time needed to sell units currently on the market is now at 1.2 years, and some areas of the District have less than six months of inventory. Regionwide, there are only 2,797 units currently marketing or under construction, of which 2,299 are available for sale today.
At these levels, a shortage of product has developed in select neighborhoods across the area and as a result, prices are on the rise. New unit prices rose by 3.1 percent in the metropolitan area, with stronger price growth seen in parts of the District and Northern Virginia. For instance, prices rose by 8.7 percent in Arlington and Alexandria, where more than 95 percent of units up for sale have been on the market for two years or less, and only one year’s worth of inventory is currently available.
About 1,000 condo units are slated to start construction in the area during 2012, which is unlikely to meet demand. Compare this to the rental apartment market, which is on its way to being oversupplied with more than 8,000 units under construction and available — just in the District.
Condominium resales are also doing well. The pace of sales has remained constant for at least the past three years while inventory has tightened to its lowest level since 2004. As a result, median resale prices are up 8.1 percent across the area from a year ago, which compares favorably to the 2.4 percent increase in single-family median resale home prices during the same 12-month period.
Despite these advances locally, an expansion may be slowed by macroeconomic factors. For the most part, banks are still not willing to finance large-scale condo projects without significant pre-sales or the deal needs to be financed as an apartment project. Consequently, developers need to provide more equity to get projects built. On the buyer end, historically-low interest rates are just a tease for many since FHA financing guidelines are in a state of flux, which can make it a challenge when trying to purchase a home. In addition, there is uncertainty over the European debt crisis, as well as domestic spending and tax policy that will be in place after January 1. Tepid local job growth can also be a drag on the market, making it difficult to sustain expansion.
William Rich is senior vice president at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.