Bubble Bursting?

July 25, 2005

The Washington Post is reporting this morning:

D.C. Area Housing Market Cools Off

Inventory Up 50%; Region Still Strong

Home sales tend to slow in the summer, but the number of houses for sale in the Washington area has climbed by 50 percent in recent months. The available inventory has risen to about 35,300 homes, up from an average of about 23,000 in the past three years, according to Metropolitan Regional Information Systems Inc., which runs the local multiple-listing service.

The average number of days a house stays on the market has crept up by two days in Fairfax County, to 16 days in June from 14 days a year earlier. In Montgomery County it has risen to 20 days from 18 days, according to MRIS. Those are, however, still short turnaround times by historic standards.

Should we panic? Not yet. July and August are historically slower months in the real estate cycle. It should pick up a bit after school starts. Plus or minus a few days on the market doesn't constitute a major shift. No doubt about it. Some properties are taking longer to sell, especially above the $700,000 price point. There are properties in the $300,000 to $400,000 range that sell in less than a week.

Loudoun County: Data show that since the first of the year, average prices increased nearly 16%...down from nearly 25% the last couple of years. We fully expect prices to settle down with more normal appreciation rates in the single digit range in the future. There are three forces counter balancing the housing market in the D.C. Metro area:

• Job growth: The metro area is still experience healthy job growth and is expected to do so for the foreseeable future creating housing demand.
• Inventory: While the Post reports inventory rising, there is still a several thousand-unit shortage of new homes built. In addition, as counties struggle with growth controls, the inventory shortages will continue.
• Interest rates: Every report I read say rates are going higher. Listen to Greenspan. This fact alone will moderate demand, as potential move up buyers will think twice about getting into potentially higher mortgage payments.

The regions more significant real estate problem is affordable housing. In many cases, our teachers, police and emergency personnel can't afford to live in the jurisdictions in which they serve! We need to demand that our elected officials treat this issue with high priority.

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