DC Metro Inventory - What a long strange trip it's been

Inventory remains tight...but the roller coaster ride might be over

Flashback. It is March 2006. New listings are up for the 13th consecutive month and contract activity is down for the 11th month in a row. Inventory has nearly quadrupled in the course of one year (from 4,152 listings in March 2005 to 15,640 in March 2006).

Prices are still 4.5 percent higher than last year, but this spring will mark the first time prices drop year-over-year since the bubble began. There will be one more spring of increased listing activity, but frustrated home sellers will then begin a long retreat. New listings will plummet 16 percent in September.

For the next few years, local inventory will swell as listings and sales decline in tandem. Price depreciation will accelerate as the housing market freezes up. Active inventory will peak in September 2007 at 25,904 listings.

The recovery begins. Finally in August 2008, the local market showed signs of life and new pendings increased from the previous year. With the exception of a few anomalous months here or there (e.g. in early 2010 due to looming expiration of the homebuyer tax credit artificially moving purchase/listing activity forward), new pendings have steadily increased on an annual basis ever since. Because new listings didn't show similar increases, the mountain of inventory has been eroding ever since. 

The new normal. Which brings us to 2013. With low mortgage rates, an improving job market and steady price appreciation since 2009, there have been seven straight months of double-digit gains in new listing activity since April.  These listing upticks have outpaced the single-digit gains in contract activity...the inventory freefall appears to be over.  As we predicted on UrbanTurf a few months back and reported yesterday, active inventory is now 5.6 percent above last October's level.  The government shutdown likely moved this milestone up a few months - new pendings were down in October in five of the eight DC Metro jurisdications - but the leveling out of supply levels was inevitable given the market conditions this year. Keeping in mind that the October level is 33 percent higher than the October-low of 6,975 in 2004, we might have finally landed in the "new normal" for the DC Metro market.