Dr. Stephen Fuller of CRA-GMU, talks in great details about Washington DC housing market. He says, that last four years, from 2001-2005 period were not normal years. Those were the days when you could put a FOR SALE sign and expected to start receiving contract in a few days! What we have today in the housing market, that's what he considers "normal" market.
When speaking about mid-year economic review and forecast, Dr. Fuller points out a couple of things:
- The annual job change for Washington DC MSA. Up until July '06, this region added 73,400 new jobs.
- If we compared the 15 largest job market growth from July 05 to July 06, DC ranked number 3. On the other hand, DC is below the nation's average for unemployment rate 3.5% vs. 5% average unemployment rate for the nation.
What is different about the Washington area market, we have a a local economy supported heavily by the Fed and it trickles down to the region's economy. About one-third of our economy or 34.5% economy is coming from Fed, the rest coming from local businesses (42%), and rest divided between Association, hospital and international agencies. Virginia and Maryland received more spending money than DC.
Let's look at how it translates to housing market. The Washington DC housing price index shows that from the period 1990-1997, the housing market only appreciated at an average of 2 percent. It's only after 1997 to 2005, the market were up by 138%! On an annualized basis, the average annual return for the past 28 years was 7.2%. And this is what he calls "normal market," when market grows steadily over the years. So, that's why the last four years were not normal -- because the average appreciation for the region was +20%. This phenomenon explains why so many individual (read: amateur) investors decided to enter the market, hoping that they can cash in a blink.
The average days properties stay on the market from 2004 to 2006 changed a little bit. In January of 2004, properties stayed on the market on an average of 40 days. For a comparison, in August of 2006, the average days on market is at 64 days. What gets interesting is when Dr. Fuller talks about the price trend in Northern Virginia for single home and condos on a two year period looking at it month-by-month. During the last three months (Jun, Jul, August) -- price trend was dropped in June from 6.5% in May to 5.4% in June, then flat in July and dropped 1.3% in August. On condos, average sales price change started going south in June (0.3%), July (-3.2%) and August (7.8%). This data represents the resale market and it doesn't really represent the new homes. New homes numbers come from a different source.
In his forecast, Dr. Stephen Fuller predicts that market will continue to cool and returning more into a "normal market." He sees that price appreciation probably stays in the neighborhood of 3-7%. Sales volume drop back to 2002-2003 levels and average days on market gets to 90.
The take home message is ... Buyers: this is your market. Sellers: you have to price your property well if you want to sell it.. really. A 5-10% setback in prices won't ding your profit much. A property in a sought after neighborhood, in a great condition and price well will sell. Be patient should be your slogan. Just look at the long term trend of supply and demand for housing in Washington DC region.
On the housing finance side, Dr. Michael Frantoni of MBA, speaks about Economic and Mortgage Market update. By this time, everyone was already tired.. really looking forward to zip out.
Here's a couple of things that we need to pay attention to.
- Forecasted in 2006-2007 period, a 15% decline of total new homes from 2005 to 2006 in terms of total sales. Total sales is defined by adding new supply into existing home for sale.
- Annualized second quarter of 2006 home price growth rate, Washington DC metro is estimated between 5-9.99%.
- Total loan past due rates by State for Q1, 2006, shows that for this region the total past due is between 0-4.41%. The national average is 4.41%.
- Foreclosure inventory rates by State for Q1, 2006 - also within the national average of 0.98% or below.
- The forecast for annual mortgage production going into 2007 compares to 2005, declined in 2006 and level off in '07. Loan for purchase also follows the same pattern as well as refi.
Connecting the dots between transportation, redevelopment of Dulles Airport, spec in commercial market, state of housing for this region and real estate finance -- you see that they're tie in together. The jobs created in this region, the possibility of having a major airline to have a daily flight nonstop to Beijing, China -- would impact the region's housing industry. Most business would like to relocate to a place that offer friendly business environment, close to major airport, easy access to transportation, including a train system that connects all employer centers in the area plus pool of talented workers -- of which this region provides. The fundamentals still there. For example, Micron's expansion help boost Manassas and Virginia's economy. So, probably not a hard landing for local housing market after all.
* N.Va Econ Summit: Transportation, Airports and Real Estate (part one)
* N. Va Econ Summit: Fairfax Commercial (part two)
Images: Dr. Fuller CMA-GMU, Dr. Frantoni MBA.
