A Look at DC Supply and Demand

Let’s take a look at the big picture of supply (residential listings on the market at month-end) and demand (closed home sales). Having an idea of what is going on with supply and demand can be an excellent way to measure the general “strength” or “hotness” of a real estate market, and often will provide a hint of the future direction of home price changes.

Here’s a brief market summary, based on the data we have available:

November 2008
Active Listings: down 13.8% YOY
Closed Sales: up 3.3% YOY
Median Price: $335,000 – down 21.2% YOY

Our first chart displays the raw supply and demand data back through 2005:

Listings reached their peak in the summer of 2006, while sales definitely peaked earlier in the summer of 2005. No surprise there, as that was really the biggest year of the housing bubble frenzy.

2008 has seen a sustained high (but not record high) level of listings, which as of October and November are beginning to taper off for the winter. Sales have been sluggish, but have remained at or slightly above 2007 levels throughout the latter half of this year.

Now let’s take a look at the year-over-year (YOY) change in the previous chart. YOY is the best way to interpret the direction of the market, due to the highly cyclical nature of real estate.

Sales levels took some pretty heavy hits from early 2006 through the middle of this year, but it looks like they might be coming around to something of an equillibrium.

The bottom line currently is that the sustained low level of demand (as measured by closed home sales) here in the DC area is resulting in a continued downward pressure on prices. In my untrained opinion, it looks like the sales level is going to have to get back up into the 1,500-2,500 range before we will even think about seeing any kind of price appreciation again.