Whether you are discussing cars, groceries or homes, the relationship between supply and demand is perhaps the dominant economic factor. When there are more cars than buyers, prices fall and automakers struggle.
Since 2005, the Washington-area housing market has seen supply and demand rise and fall. It began in the fall of 2005, when buyers grew weary of record-high home prices. Homeowners and investors sensed the lack of enthusiasm among buyers, so they put thousands of properties up for sale.
Inventory surged in late 2005 and throughout 2006 because more folks were selling and fewer were buying. Saddled with high supply and low demand, prices began to fall. Prices fell especially hard last year, although it now appears that late 2008 was the bottom of the price curve for many area jurisdictions.
Last year was also when supply and demand began to shift in better directions. As today’s charts show, many jurisdictions saw a drop in supply and a rise in demand last year.
That trend has continued this year, to the point that September sales in the District and much of Northern Virginia were even higher than they were in 2005. In Loudoun, Fairfax and Prince William counties, inventory was lower than in 2005.
As a result, we’ve seen modest increases in home prices since the beginning of this year. It’s not much and doesn’t erase the drops from recent years. Since supply and demand have both improved, we can be relatively confident that prices are now stabilized and have the potential to rise further in coming years.
A shorthand way of looking at supply and demand is to divide a month’s sales figures by the inventory on the last day of the month, resulting in a percentage that I call sales chances. A figure below 20 percent indicates a buyer’s market. Higher figures mean we’re in a balanced market or a seller’s market.
Sales chances in September were as high as 33 percent in Prince William, 30 percent in Alexandria and 26 percent in Montgomery. Every jurisdiction inside or near the Beltway saw chances of 20 percent or more in September - compared to 6 to 16 percent just two years ago.
Contact Chris Sicks by e-mail (csicks@gmail.com).
Please read our comment policy before commenting.