Keith Waters and Terry Clower
George Mason University Center for Regional Analysis
In conjunction with the Northern Virginia Association of Realtors® (NVAR), the George Mason University Center for Regional Analysis (CRA) is developing a Realtor® sentiment index by surveying members of NVAR’s Top Producer’s Club. Among the most consistent early findings is that extremely limited inventory remains the biggest issue for Realtors® in the NVAR region. This is great for sellers but it is a difficult time for buyers, especially first-time home buyers, who are typically competing for more moderately priced homes. As the impacts of the COVID-19 pandemic diminish, how might we expect inventory to trend in the NVAR marketplace?
Inventory – Active Listings vs All Pending Sales
Total inventory can be defined as all active listings plus all pending sales (contingent or under contract) at the end of the stated time period (Figure 1). Pending sales are included in the total as a sale can fall through. Looking back to 2012, all pending sales have stayed relatively constant, seasonally fluctuating between roughly 1,500 and 3,000 units at the end of each month, depending on time of year. In contrast, active inventory roughly doubled from 2013 to 2015 before steadily declining over the last several years. As with many aspects of the economy, the onset of the pandemic in 2020 disrupted the seasonality of active listings. Active listings remained below all pending sales for the majority of 2020, a market condition we have not seen locally in at least a decade. This development begs the question of when, or if, low inventory finally starts to impact the number of closed sales.
Figure 1. Inventory in the NVAR Region
Active Listings by Housing Type
Examining active inventory by housing type back to 2012, it is clear that declines in total active inventory in the NVAR region are resulting from a decreased inventory of detached homes (Figure 2). The number of active listings of townhomes has remained reasonably stable over the past decade. The number of active listings of condos also trended downward for several years until a surge of listings in September and October of 2020. Even with imprecise timing, we are attributing this increase in condo inventory to be directly related to the pandemic.
The number of active detached homes on the market in the NVAR region declined slightly from 2012 to 2013 before increasing notably through 2015, which roughly coincides with economic disruptions caused by federal spending declines mandated by the federal Budget Control Act. The number of active listings of detached homes peaked in June 2015 at 3,110 homes for sale, slightly higher than May and July that same year. Since this peak, the number of new active listings of detached homes has declined dramatically. Active listings of detached homes were on average 38% lower in 2019 than the same month in 2015. In 2020, the usual seasonal uptick of inventory in the spring didn’t occur as a result of the pandemic, which led to active inventory of detached homes being on average 57% lower than the same month in 2015. The beginning of 2021 has seen further declines in the number of active listings of detached homes. An average of 625 detached homes were actively listed at the end of the month from January 2021 through April 2021. In 2015, an average of 2,000 detached homes were actively listed in the NVAR region at the end of the month for the same period.
Figure 2. Active Listings in the NVAR Region by Home Type
Detached Housing – Active Listings, All Pending Sales, and Closed Sales
The decline in the number of active listings of detached homes has not yet impacted pending sales or closed sales (Figure 3). As described, the number of active listings of detached homes has fallen dramatically since 2015. In stark contrast, there were more closed sales of detached homes in 2020 than in 2015. There were 10,102 closed sales of detached homes in the NVAR region, an increase of 10.3 percent over the 9,158 closed sales of detached homes in 2015. In the first four months of 2021 there were 3,020 closed sales of detached homes, a 27.4 increase over the 2,371 closed sales in the same period of 2015. In short, while there are far fewer options for prospective buyers in the region, Realtors® are still closing sales. The apparent impact of the pandemic has been in the timing of closed sales, which deviated from usual seasonal patterns and remained strong for much of this past winter.
Figure 3. Detached Homes in the NVAR Region
Over the past six years, the number of housing options for prospective buyers has shrunk dramatically. Despite significant declines in the number of active listings, however, Realtors® are closing more sales now than when inventory was at ten-year highs. While buyers may have a more difficult time finding their dream home, properties are still selling in the NVAR region. Given the continued availability of historically low mortgage rates, the number of closed sales would likely be much higher if there were more properties to sell. Notwithstanding the overall influx of new condo listings this past April, which more than recouped the decline in detached homes precipitated by the pandemic, at some point closed sales may fall below long-range trends if inventory continues to trend downward. Still, the biggest immediate challenge for Realtors® may simply be managing expectations of buyers and working with them to be as competitive as they can be in such a tight market.