Price and volume growth in the Washington area’s housing market appears to have slowed in the last quarter of 2011 following talk of federal budget cuts and a government move to lower the size of mortgages that could backed by Fannie Mae and others.

The so-called conforming loan limit for high-cost housing areas such as the Washington metropolitan area fell to $625,500 on Oct. 1 from a previous limit of $729,950 for Federal Housing Administration, Freddie Mac and Fannie Mae-backed loans, possibly limiting pricing and volume in the fourth quarter of 2011. Congress restored the higher limit Nov. 17 for FHA loans, but the lower limit continues to apply to Fannie Mae and Freddie Mac loans.

The average price of a Washington area home that sold in the fourth quarter was $382,353 — 5.5 percent lower than in the fourth quarter of 2010. This marks the first quarter in nearly two years that regionwide prices are lower on a trailing 12-month basis.

The total number of homes that sold in the area in 2011 was down 4.5 percent from 2010. Homes sold in an average of 80 days, up from 70 days one year ago but at approximately the long-term average of 78 days. Some sellers may be holding out for their asking prices, but it is likely that federal budget austerity is also creating buyer hesitance and delaying sales.

Recent market statistics indicate that the gap between buyer and seller pricing expectations has been narrowing since early 2009, bringing the market into balance. The average selling price in the fourth quarter of 2011 was 97.2 percent of list price, 40 basis points lower than the second quarter, traditionally the best quarter of the year. Sellers have become more realistic in setting their asking prices and as a result are able to hold out for nearly full value. By the same token, buyers are more aggressive, so they are stretching more to make a deal.

Inventory in the fourth quarter of 2011 was the lowest it has been since the fourth quarter of 2005 — the peak of the last housing cycle. The Washington area had an average of 3.4 months of for-sale inventory at fourth quarter 2011, down from 5.6 months of inventory one year ago.

Notwithstanding the fourth-quarter slowdown, the Washington area housing market could be due for a recovery because of the following factors:

A slowly recovering national economy.

Mortgage interest rates that remain near all-time lows through 2012.

An expanding local labor market in 2012, notwithstanding possible federal austerity measures.

An end to the local structural shift away from home ownership and toward rentals.

The pace of the recovery may remain volatile, however. In 2012, we expect that rising demand will yield modest yearly housing price gains.

Alyson Bode is vice president at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit