Out on a Limb

This time of year is usually fairly easy to forecast but we could be in for some surprises this year. I can say with certainty that the last quarter of any year, 2003 include, is always slower and homes always sell for less than they did in the spring. This is because buyers tend not to compromise at the time because they think more and better inventory will come on in the spring. They will sit on the sidelines in the holiday time and wait until spring UNLESS there is some mitigating factor that creates urgency such as rising interest rates. Sellers who "have to sell" can typically only compete on price so they get out in front of the market, which is why we see the decline in pricing in the last quarter. This year could be different though in that we have stellar interest rates, the lowest I have seen in my career, and despite what you hear on TV and read in the paper our fundamentals are strong here in Northern Virginia. Consumer confidence is the issue but once people realize that what they read about in the paper is happening in Florida, Nevada, Ohio and other states but NOT Northern Virginia they will feel better and realize that this market is slipping away. It might take the stock market bouncing up, administration changes in the mid terms, announcements that the job cuts announced for Virginia are not in our area but down in the tidewater area or some other bit of positive news but at some point the pent up demand will be unleashed. That is where it gets iffy in predicting the next 90 days or so because I feel there is pent up demand to buy and once buyers feel confident or more importantly once they fear the market is slipping away and that the bottom is gone they will all pounce on the market. Rates staying low and there being no indication of change in the near future will probably mean that there will not be a mass rush and in fact we may not see a change until spring but I do believe that those deals that are out there now will disappear and next spring pricing will build off of these numbers. I can't begin to stress enough that real estate is local and that the negative news you are getting pounded with is national, our local market is alive and well, going strong. We are the highest group in the nation as far as job creation and the lowest as far as unemployment numbers. The builders are back to buying land and everyone is gearing up for a steadily improving market. I look to see steady activity at worst and solid improvement at best. We will watch the numbers for you and as usual, keep you informed.

Front Lines

We saw some appreciation in the single family sector for the first time in years this spring. The townhome sector continued it's steady 19 month trend of increased sales and diminished inventory levels. The spring was very good for both sectors but that changed in May for the townhomes as we saw the number of sales com in at 53, a drop of 57% from April's high of 123. I attribute this to the fact that any buyer in the market pushed to get a contract in place by the end of April so that they could cash in on the Feds stimulus plan. April took May and June's buyer's. It is a bit disturbing in that August's number only increased to 66 sales compared to August '09's 78 sales. The more disturbing trend is that the townhome inventory levels have increased slowly but steadily for the last 3 months. Prior to that they have steadily decreased for the previous 23 months! In August '09 we had only 49 available compared to 213 in August of '08 but that has increased to 86 in August of 2010, an increase of 44%! Our absorption rate is now over 30 days for townhomes and approaching the 60 day mark. Not a good trend. This is bound to influence the single family home sales, as it will once again be a challenge for a move up buyer. With increased inventory and fewer buyers the "have to sells" (foreclosures being a big one) will compete solely on price and squeeze out the move ups who need the equity. We finally saw the positive impact of move up buyers this spring in the single family home sector. Once the townhome inventory level got down to where an owner occupied seller could compete in the marketplace. There was enough demand that the pricing increased and vacant foreclosures were gobbled up leaving the owner occupied homes as virtually the only choice. These people sold and moved up to a larger home in the same school district increasing the single family home sale numbers. We also saw a little bump in single family home pricing!! Inventory levels declined and we saw more sales in every month than in the same month last year. Since May though we have seen inventory levels increase and that does not bode well for the future. As of August we have 68 single family homes on the market, a 32% increase over the 46 available in August of '09. The good news is that single family sales this August were up by 20%over August of '09, with 30 compared to 25. the number of foreclosures has increased correspondingly in virtually every category but our inventory is not increasing due to a higher number of foreclosures so do not worry about that. Our inventory has increased because the slight bump in pricing has allowed some sellers to finally be able to enter the market. The problem is that as we hit the historically slower "post school starting" market of the fall increased inventory means that those seller that absolutely "have to sell" will only be able to compete on price and we will more than likely give back some of the gains we saw this spring. All told though it has not been a bad year for real estate so far although filled with challenges. As the year continues to unfold we will, as usual keep you informed.