Prices rise as the
supply dwindles Realtor Cindy Jones saw a sign of hope amid the wreckage of the Prince William County real estate market when she noticed that buyers were making offers on town houses that were substantially higher than their list prices.
That was about a year ago, when low prices on town houses caused demand to start outstripping supply.
Now the same thing is happening throughout the Washington region, suggesting that the dwindling inventory of town houses signals the area’s real estate recovery.
Across the region, there was a 3.5-month supply of town houses on the market at the end of 2009, compared to a 5.4-month supply at the end of 2008, according to Metropolitan Regional Information Systems, which tracks real estate data. That is the ratio of the current inventory of active listings compared to sales in the last month. The falling trend is significant because real estate experts typically view a ratio of 5-to-6-month supply as a sign of a market balanced between supply and demand.
In other words, this is beginning to look like a healthy market, at least for someone with a town house for sale.
“The inventory is really low,” said Jones, an agent with Re/Max Allegiance based in the Lake Ridge section of Woodbridge. “I’m seeing a lot of first-time buyers looking at town houses because they either don’t want to deal with a large house and yard or they don’t want a condo with neighbors living above and below them.”
The strength in demand for town houses shows up in the region’s median sales price, which increased 7.2 percent to $231,335 last year across the region, MRIS reported. By comparison, the median sales prices for all housing increased 4.1 percent.
But Jones is not yet ready to call it a seller’s market, saying town house sales are showing a healthy balance that reflects “more realistic pricing.” That is reflected in the number of days town houses stay on the market, which fell last year to 60, down from 107 at the end of November 2008.
“There is no new supply, and if something does come on the market for resale and is well-priced and is in good condition, it’s going to move fast,” Jones said.
One reason is there simply aren’t many newly built town houses coming on the market, because builders are wary of offering new units alongside previously owned homes that often are listed as short sales or at prices dragged down by the continuing increase in foreclosures. The supply of new town houses shrank 21.3 percent last year, the MRIS year-end report shows. But that is because there were so few listings to begin with, with 905 new town houses for sale as 2009 ended, compared to 1,150 at the end of 2008. By contrast, the supply of previously owned town houses tumbled 31.5 percent, falling to 7,434 listings, down from 10,856 at the end of 2008.
But the MRIS data suggest that the region’s residential real estate market — as reflected by the shrinking supply of town houses — is near a tipping point that could help the broader economy. That will happen only when builders are enticed back into the market.
In the meantime, sales of town houses have been slowed by the lack of supply of new properties on the market. As a result, pending sales of new and existing town houses in the 12 months ending in November were up 7.8 percent over 2008, but that lags behind other housing segments, which still have a big supply of choices. For example, sales of detached houses were up 18.3 percent, and condo sales jumped by 20 percent.
With home prices still depressed far below levels before the market crashed in 2008, most builders have frozen plans for new construction. Even many developers that currently are moving earth on ambitious mixed-use projects are waiting for conditions to improve before they go forward with new single-family housing. Chevy Chase-based JBG Cos., for example, broke ground in June on the first building of a massive twin tower project in Ballston that will include more than 440,000 square feet of commercial and retail space, but it has not begun construction on the 28 luxury town houses comprising the development’s residential component.
Regionwide, the number of residential building permits actually fell by 13 percent in the 12 months ending in November compared to the already depressed level in 2008, according to the National Association of Home Builders. Nationwide, housing starts were up 2.8 percent in January, but builders remain caught between weak prices and weaker credit markets, the group said.
“A continuing shortfall in available credit for building projects is still producing a drag on new construction and slowing the progress of recovery in housing and the overall economy,” said David Crowe, the NAHB’s chief economist.
