The recent presidential election generated tremendous interest in the Washington DC area real estate market. Figures from the third quarter indicate conditions that favor investment in new and redeveloped property, including:
· Low inventory: Demand for housing outstripped supply in Q3. Strong demand in the first half of 2016 depleted available inventory, dipping to the lowest level since 2013 Q3. There is a slim 2.8-month supply of homes in the DC area, compared to a supply of 6 months when demand and supply are balanced. The lack of inventory cut the number of sales and the rise in prices. Nonetheless, year-over-year third quarter sales volume increased 4.1 percent in 2016. Best price growth occurred in the Urban Core and the Outer Suburbs of the District.
· Faster sales: On average, it took only 47 days for homes in the Washington DC area to sell during Q3 of 2016, down four days from the previous Q3 and well below the 10-year average of 66 days. The Outer Suburbs saw the steepest drop (six days) in days on market, which was most likely due to low fuel prices, low interest rates, and relatively more inventory compared to closer-in neighborhoods.
· Seller reluctance: The demand for new and redeveloped units is extremely high, in part due to the reluctance of homeowners to sell. Many owners are simply unable or unwilling to sell if their home has not appreciated enough for them to profit.
An Optimal Time to Fix and Flip
These factors point to a golden, if probability short-lived, opportunity to invest in housing through the Washington, DC region. Demand far outstrips supply, inventory remains low and houses sell quickly. Renovation of local properties would help increase the housing supply and increase prices. And the resale of those properties for a healthy profit looks promising. The new administration will be looking to stimulate growth through tax cuts, reduced regulation and job creation, conditions that typically favor higher housing prices.
The window of opportunity is also defined by the relatively low costs for labor and materials that currently apply. The fiscal stimulus promised by the new administration, which is targeting up to 4 percent annual growth in GNP, could stoke inflationary pressures, meaning a year from now it may be much more expensive to fix and flip residential property than it is today. In other words, the cost of capital may be going up.