MRIS (our local multiple listing service) and Delta Associates have just released their “Trends in Housing” report for Mid-Year 2009. Here are some highlights as related to our local market:
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The Washington area housing market has moved into the correction phase – the first step in recovery:
• Prices are showing renewed signs of strength: 2nd quarter prices in most jurisdictions were up from the 1st quarter, though still lower than one year ago. Prices may experience slight declines through the end of the year, but increased demand and a lower supply of listings are helping facilitate price traction.
• Days on market are down sharply compared to both last quarter and a year ago. Properties continue to sell quickest in the Core jurisdictions, but across the region, time on market is moving toward the region’s longterm average.
• The ratio of inventory to sales (months of sales) continues to decline in all jurisdictions from one year ago. The metro-wide ratio of 5.1 months’ worth of listings is below the normal, healthy standard of 6 months, signaling that demand is beginning to outpace supply.
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Further details from the report are listed below. (We normally try to keep things short & sweet here on our blog, but we also try to keep you fully informed about “our market” and this is an excellent compilation of information to digest!)
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WASHINGTON HOUSING OUTLOOK
The Washington housing market has entered the correction phase of the cycle, with signs of recovery (from the previous quarter). We expect that a combination of continued Federal spending and a steadying labor market will continue to bring traction to the Washington housing market, particularly in the Core. The pace of the recovery may be uneven, but by late 2009/early 2010, we expect that healthy demand will yield yearly price gains, particularly in the Core, where inventory is more limited and demand is strongest, but extending to the Outer suburbs by late 2010/early 2011.
WASHINGTON HOUSING MARKET FOR SALE REPORT
The Washington housing market in the 2nd quarter of 2009 began to show early signs of recovery, as prices rose from the previous quarter and homes sold more quickly. Spurred by low interest rates and Federal incentives, buyer activity picked up, propelling stronger sales volume compared with a year ago. Although sale prices remain lower than a year ago, buyers are beginning to leave the sidelines, as the economy no longer seems in a freefall.
A combination of relatively low prices, low interest rates and Federal incentives have sparked buyer interest, and unit sales volume is up 51.2% from the previous quarter and 7.0% from one year ago. Sales volume in the 2nd quarter of the year is often strong, as the spring homebuying season gets underway. That appears to be the case this year, even as the national recession continues to affect economic growth. The Washington
region continues to add high-paying jobs, which is fostering housing demand, even as it loses lowerpaying jobs. As the national economy gains traction, Washington will see continued strength in the region’s housing market.
The average price of a Washington-area home is $382,515 in the 2nd quarter of 2009. The metro-wide price of homes sold in the 2nd quarter of 2009 was up 12.1% from the 1st quarter of 2009, but it was 13.2% lower than in the 2nd quarter of 2008. The Federal plan to offer a tax credit worth $8,000 to firsttime homebuyers has helped to lure renters into the housing market. Nationally, first-time buyers made up 40% of all home purchases in the 1st quarter of 2009. Although statistics on how many buyers use the credit will not be available for many months, first-time buyers are credited with helping to work through the excess inventory that marked the region’s housing market a year ago.
Prices remain highest in the Core jurisdictions of the District, Arlington and Alexandria. The average sales price of a Core home in the 2nd quarter of 2009 is $497,216, up 6.4% from the 1st quarter but down 8.7% from one year ago. In the District, the average price in June 2009 was down 6.2% from one year earlier. In Alexandria, the average sales price in June 2009 was down 5.6% compared with June 2008; Arlington posted price declines of 1.9% for the same 12-month period.
The area’s Inner ring of Fairfax, Montgomery and Prince George’s counties (and Falls Church and Fairfax cities) experienced price increases of 9.9% from the 1st quarter; the average price in the 2nd quarter of 2009 was $397,320, which is down 14.8% from one year ago. Fairfax County home prices fell 8.5% from June 2008 to June 2009. In Montgomery, prices fell 15.9% over the same period; Prince George’s home prices fell 17%.
The Outer suburbs of Loudoun, Prince William and Frederick counties – where foreclosures led to the region’s steepest price declines – showed the strongest quarterly
price gain. The average sales price of an Outer home in the 2nd quarter is $280,553, up 12.1% from the 1st quarter but down 15.7% from one year ago. In Frederick County, the average sales price in June 2009 declined 10.5% from one year earlier. In Loudoun, home prices fell 8.1% from June 2008 to June 2009; Prince William posted declines of 19.0% year-over-year.
Compared to the 2nd quarter of 2008, sales dollar volume was up sharply in the Core and Inner Suburbs, but down slightly – 1.5% – in the Outer suburbs, which experienced
strong foreclosure-driven volume last year.
Through June, the number of homes sold metrowide in 2009 is up 10% from the first six months of 2008, indicating a return of buyers to the market. Although home prices in the 2nd quarter of 2009 were lower than one year earlier, the rate of decline has eased. In the Core and the Inner suburbs, prices have bounced back to 4th quarter 2008 levels; prices in the Outer suburbs approximate those seen in the 3rd quarter of 2008. It is too early to tell whether this market has passed the bottom or whether this is a temporary bounce, but rising volume portends well for recovery.
As buyer activity has increased, properties are selling more quickly. For the Washington region, homes sold in an average of 93 days, down from 110 days in the 1st quarter and 103 days one year ago. In the Core, time on market fell to 80 days, down from 96 days in the 1st quarter but up from 70 days one year ago. Properties in the Core are selling at a rate nearing the region’s long-term average of 76 days. Time on market in the Outer suburbs now averages 88 days, down 19 days from the previous quarter and down 35 days from one year ago. Homes are taking the longest to sell in the inner suburbs – 97 days – down from 117 days in the revious quarter and 102 days one year ago.
According to Freddie Mac, the average 30-year fixedrate mortgage at the end of June 2009 was 5.42%, down 103 basis points from the same time one year earlier. Rates bottomed at 4.78% in April before rising again, though they still remain low by historic standards. The rate for a 15-year fixed-rate mortgage was 4.87% at the end of June 2009.
A combination of low rates and the Federal $8,000 tax credit for first-time homebuyers is helping lure some buyers from the sidelines. Although some buyers are facing higher lending thresholds – larger down payments, better cash reserves – buyer activity picked up in the 2nd quarter.
Recent market statistics indicate that buyer and seller expectations are moving toward each other, helping to bring the market into balance. The average time on market in the Washington area is 93 days. Although this three-month duration is above the long-term average of 76 days, it is the lowest time on market since the 3rd quarter of 2007.
However, sellers remain disconnected from market conditions on pricing. The average selling price in the 1st quarter of 2009 is 91.8% of list price, up 19 basis points from the 1st quarter but indicating that sellers are still making hefty concessions to facilitate
sales.
In May, the national pending-home sales index, a forward-looking indicator of contracts signed (but not settled) for previously owned homes, rose 0.1% from the April reading – the fourth straight month that the index rose. The May 2009 index, which is published by the National Association of Realtors, was 6.7% higher than the May 2008 reading. Pending home sales signal optimism in the market; however, some contracts are taking longer than normal to settle as appraisals and lenders are grappling with a recalibrating market. The National Association of Realtors’ affordability index rose 42 basis points to a record high in May 2009. The affordability index incorporates median home prices,
median incomes and average mortgage rates to broadly gauge the national homebuying climate.
Lower prices continue to propel sales volume, and the region persists in working through its inventory overhang. The Washington area has an average of 5.1 months of for-sale inventory at June 2009, down from 7.4 months’ worth one year ago. In recent years, Washington area average prices tend to rise when the ratio of inventory to sales is below 6 months’ worth. Lender constraints may hinder a quick rise in prices, but the gap between supply and demand is closing in the Washington area.
In every jurisdiction except Falls Church, the ratio of inventory to sales fell sharply in the 2nd quarter of 2009 compared to one year ago. Although Prince George’s County has the highest ratio in the region – 12.2 months’ worth of inventory at June 2009 – that ratio is down from 17.1 months one year ago. Both Arlington and Fairfax County have just 3.5 months’ worth of inventory at June 2009, the lowest in the region.
NAVIGATING THE MARKET
The Washington area housing market appears to be well into the correction phase – the first step in recovery. Although home prices are lower than they were one year ago, they are showing strength from the 1st quarter. The Federal $8,000 tax credit for first-time
homebuyers has lured buyers off the sidelines. That tax credit applies to home purchases settled before December 1, 2009, which should continue to propel buyer interest through the year.
Steady buyer activity – especially in the lower price brackets – has helped the region work through its excess inventory. As a result, the ratio of inventory to sales is now 5.1 months – the lowest since late 2006 – and is approaching a healthy balance between buyers and sellers.
Well-priced properties in desirable neighborhoods are seeing multiple offers, another indication of the slowly shifting market. As demand and supply come into balance, we should see continued price traction in coming quarters.
A tight apartment market is helping to facilitate housing demand, particularly among first-time buyers. The region’s stabilized vacancy rate for investment-grade apartments (Class A and B) is 4.3% in the 2nd quarter of 2009, down from 4.6% in the 1st quarter but up from 3.6% one year ago. With the national vacancy of 6.6%, Washington boasts one of the lowest apartment vacancy rates in the nation. Washington area apartment rents decreased 1.4% from June 2008; Class A rents were down 1.8% over the same period.
Seller expectations remain out of sync with the market, but they are slowly closing the gap with buyer demands. The average sales price in the 2nd quarter of 2009 is 91.8% of list price, the highest share in three quarters. Sellers continue to make concessions to buyers to facilitate sales, but those concessions are shrinking.
Building activity in the region remains muted, as the market is not yet expanding and lending activity is still constrained by the national Credit Crunch. According to the Census, the annualized number of permits for new housing nationally in June 2009 was 563,000, up 8.7% from the May number and up from the record low of 498,000 set in April 2009. The number of permits issued in June 2009 was down 52.0% from the number issued in June 2008.
The number of housing starts fell 46.0% from June 2008 to June 2009, as oversupply remains a concern in many metropolitan areas. In the near term, new-home buyers will help to work through the excess inventory of existing newly built homes. In the Washington area, a recent report from Zelman & Associates observed that demand for buildable lots in top-tier locations was increasing, which may portend rising building activity in coming quarters. Mild building activity correlates with still-low builder confidence.
The National Association of Home Builders/Wells Fargo Housing Market Index of builder confidence was 15 in June 2009, down one point from May but up considerably from the record low of 8 set in January 2009. An index below 50 indicates that more builders view sales conditions as poor than good. The index is based on three components. Two of them – measuring current sales conditions and the traffic of prospective buyers– held steady from May; the measure of expectations in the next six months declined.
Home refinancings surged in the 1st quarter as interest rates fell below 5%. According to Freddie Mac’s Quarterly Refinance Review, homeowners cashed out $14.5 billion in home equity in the 1st quarter of 2009. For the past two quarters, the total cash-out volume of $32 billion is the lowest six-month volume in eight years. The 1st quarter 2009 volume was down from $17.5 billion in the 4th quarter 2008. Half of those refinancing in the 1st quarter of 2009 lowered their annual mortgage interest rate by at least 20%, corresponding to an interest rate about 1.25 percentage points below the previous rate. Among those who refinanced, more than 99% of those with adjustable-rate mortgages refinanced into a fixed-rate mortgage. The median age of the refinanced loans was 1.6 years, and the median appreciation of the refinanced properties was 12% since the refinanced loan was taken out.
The Mortgage Bankers Association reported in early July refinancing activity was driving mortgage lending. Refinancings increased 17.7% from the previous week and accounted for 54.9% of all applications. Unadjusted, the MBA Market Composite Index – which measures loan application volume – was up 15.3% compared with the week earlier, though it was down 2.7% compared with the same week last year.
CONSUMER SPENDING LUKEWARM; SAVINGS RATE RISES
The Federal government stimulus plan began to boost incomes in May, and consumers responded. Consumer spending edged up in May for the first time since February, according to the Commerce Department. Spending rose 0.3% from April, after rising less than 0.1% the previous month. However, the Commerce report also showed that the national savings rate surged to 6.9%, the highest since December 1993. Unsure about the job security and the future of the economy, consumers are opting to save their paychecks instead of spending them. Retail sales continue to be a barometer of consumer sentiment;
modest gains will not help bring about the end of the recession.
The consumer price index rose 0.7% in June 2009 after rising 0.1% in May, seasonally adjusted. The index is down 1.2% from June 2008, the steepest 12-month decline since February 1950. The National Retail Federation reported that June 2009 retail industry sales (excluding gas stations, autos and restaurants) declined 0.2% from May 2009; they were down 3.8% from June 2008. Retailers are counting on a strong back-to-school
selling season to offset sluggish sales earlier in the year.
THE APPRAISAL QUESTION
Appraisals are a key component of any home sales involving a mortgage. The appraisal – ordered by the lender – sets the market value of the house. During the housing boom, appraisers came under fire for lax standards, leading to overvalued mortgages. As the national housing market declined, parties on all sides of transactions raised concerns that it was difficult to accurately assess the market value of homes.
In an effort to increase transparency and accountability among lenders, buyers and appraisers, the Home Valuation Code of Conduct (HVCC) was established between Freddie Mac, the Federal Housing Finance Agency and the New York State Attorney General. It took effect onMay 1; Freddie Mac and Fannie Mae will no longer purchase mortgages that do not comply with the HVCC. The code applies to 1- to 4-unit single-family loans sold to Fannie Mae or Freddie Mac. The HVCC aims to establish independence of appraisers from lenders or other third parties who might influence the development, result or review of an appraisal.
In practice, field reports indicate that the HVCC is stifling loan activity. The appraiser must be completely separate from the lender, and does not necessarily need to have experience in the local market. Furthermore, the HVCC prohibits the order of an appraisal by a mortgage broker – it must come from the lender directly. Some REALTORS ® and builders have expressed concern that appraisals are being conducted by individuals disconnected from nuances within a local market – for example, applying the Washington metropolitan area price change to a home in a desirable neighborhood in Bethesda, where price declines are more moderate. The HVCC calls for the founding of an Independent Valuation Protection Institute to set standards for and govern appraisal practices. As yet, that institute has not yet been established. Until that is in place, some members of Congress are urging a moratorium on the HVCC’s role in the home-buying process; such a moratorium is still being considered.
WASHINGTON VS. THE NATION
In the Washington metro area, the Federal Housing Finance Agency (formerly OFHEO) reported a 10.0% annual decline in home prices for the 12 months ending
March 2009, compared to a decrease of 12.2% for all of 2008. FHFA reported a national average home price decline of 7.1% for the 12 months ending March 2009.
In contrast, the National Association of Realtors reported a national average home decline of 13.8%, and a Washington area decline of 25.0% for the 12 months ending in the 1st quarter of 2009. (FHFA and NAR use different methodologies to calculate price changes.)
From March 2008 to March 2009, Washington home prices fell 18.4%, according to the Case-Shiller index, placing it in the middle of major metro areas for 12-month performance. However, Washington was 5th out of 20 cities for monthly price gains, with a 1.2% price decline from February to March. Phoenix, Las Vegas and the San Francisco Bay Area saw annual price declines in excess of 30%. Washington continues to rank second nationally (after New York) in the Case-Shiller index on the ratio of home prices to earnings, after New York.
