Comparing the 2014 and 2015 Housing Market Trends

 This time last year, the housing market in the NVAR and Washington regions hit a bump in the road ("Has the Northern Virginia Housing Market Hit the Wall?" Re+View Sep-Oct 2014, p. 20).

An unusually harsh 2013-2014 winter, the October ‘13 federal shutdown and sluggish job growth set the stage for the 2014 housing market, causing potential buyers and sellers to hit pause. But the underlying economic and population trends that played a role in that market have improved, giving the existing home sales market a needed boost.

ECONOMIC TRENDS
The federal sequester and the draw-down of both the economic stimulus and the wars in Iraq and Afghanistan translated into weak 2014 job growth in the Washington region. Two of the largest and highest-earning sectors, the Federal Government and Professional & Business Services, had declines for much of the year. But gains have been made in recent months. 

Between June 2014 and June 2015, the Washington region added 68,500 jobs, including 31,800 jobs in Northern Virginia. Locally, this is the highest 12-month gain in more than four years. For the Washington region, the largest increases were in the Professional & Business Services sector (+24,900), Education & Health Services sector (+18,800) and State & Local Government (+8,600). 

"The stronger job growth, its implied wage growth, and the continued low unemployment all bode well for the home sales market."

This job growth indicates that the average wage in the Washington area is on the rise. Between 2010 and 2013, the average wage in the region had a sharper and more prolonged decrease than during the Great Recession, and fell a total of 3.2 percent. The average wage increased modestly (+0.5 percent) in 2014, and that growth is likely to continue in 2015.

The NVAR region also continues to have low unemployment. In May 2015, the unemployment rate was just 4 percent, and 0.2 percentage points lower than the same time last year. The unemployment rate continues to be lower than in the Washington region as a whole, where it was 4.7 percent in May 2015. Additionally, the NVAR region gained 4,500 employed residents between May 2014 and May 2015. The stronger job growth, its implied wage growth, and the continued low unemployment all bode well for the home sales market.

POPULATION GROWTH
Population estimates for 2015 won't be available until next year, but the 2014 estimates reinforce some of the trends that we saw in the housing market. Between 2013 and 2014, the NVAR region added 5,695 residents – the smallest gain in several years. The natural increase, births minus deaths, has been steady for the area since 2010.

Net international migration, has also been stable during this time. However, net domestic migration, which is typically driven by job growth, has been increasingly negative in the past several years, as more people move elsewhere in the US. The job increases seen to date in 2015 suggest that net domestic migration will be less negative in 2015, and therefore less of a drag on the housing market.

HOUSING TRENDS
Closed Sales
Housing market indicators during the first six months of 2015 showed improvement from the same period in 2014. In the first half of 2015, there were 10,115 closed sales in the NVAR region, or an increase of 9.1 percent from the first half of 2014. Overall, 2015 is on pace to exceed 2014 sales. Despite the solid growth, the region has not fully recovered from last year's disruption. Closed sales in the first half of 2015 were 2.4 percent lower than in the same period of 2013. This is largely a result of lower single-family detached home sales, which were 5.1 percent lower than their 2013-level. Sales of townhomes and condo properties were essentially unchanged from their 2013-levels.

Every jurisdiction in the NVAR region had more closed sales in the first half of 2015 than the first half of 2014. Fairfax County had the largest gains during this time (+ 9.9 percent) and was closely followed by Alexandria (+ 9.6 percent). 

Average Prices
Sales prices have climbed in the NVAR region since 2009, and this year has been no exception. In the first half of 2015, the average sales price in the region was $558,797, which is 2 percent higher than during the same period of 2014. This is the highest average sales price recorded in the region since 1997, but it was partially driven by the mix of sales. While the overall average sales price reached a record-level high, the average sales price for single-family detached homes, townhomes and condo properties did not surpass their peak prices.

The average sales price of a single-family detached home in the first half of 2015 was 1.1 percent below its 2006 peak. Townhomes remain 1.2 percent below their 2006 peak. Townhomes remain 1.2 percent below their 2006 peak and condo properties remain 2.2 percent lower than their 2007 peak. All property types show signs that sales price growth is slowing modestly, and have been growing at 0-3 percent instead of the 5-10 percent seen during the 2009-2013 period.

Inventory
Inventory continues to rise, and at the end of June there were 5,735 active listings in the NVAR region. Although all property types had double-digit increases compared to last June, inventory remains low relative to sales. There may be an undersupply of townhomes, in particular, which made up only 17.7 percent of the June inventory yet accounted for 27.4 percent of the June sales.

The NVAR region had 3.3 months of supply at the end of June with the jurisdictions in the region ranging from 2.8 months (Fairfax City) to 3.3 months (Fairfax County). There were 3.6 months of supply on the market for condo properties, while single-family detached homes had 3.5 months. Townhomes had 2.5 months of supply at the end of June. With the tight inventory, the average days-on-market remains low despite some recent increases. 

"Bolstered by job and wage growth and lingering pent-up demand, the NVAR region should continue to see growth in closed sales, pricing and inventory."

OUTLOOK
Bolstered by job and wage growth and lingering pent-up demand, the NVAR region should continue to see growth in closed sales, pricing and inventory. As we enter the fall and winter months, typical seasonal patterns should emerge, resulting in less activity compared to the summer months. Provided there are no surprises from either the winter weather or the federal government, the housing market is on track to close out 2015 on a high note.