As we motored through January and February, things were looking like business as usual for Washington DC. The number of contracts were up nearly 10 percent year over year (YOY). Prices seemed to be slightly up and inventories were tight as usual. Then March roared in like a lion and went out like a lamb!
Like every other business in the country, we were trying to plan for what was ahead. Things looked pretty bleak. Staff furloughs, salary cuts and expenses slashed to the bone. It was “plan for the worst and hope for the best.”
As you can graphically see below, April was the worst for residential sales in Washington DC. At least through November, 2020 (and things are looking pretty good as we move forward). The graphs below represent properties that actually went under contract per month as compared to the same month the year before. The graphic below clearly shows a pattern. Steep dive in April and then clawing our way out through May and June. Every real estate crisis is different, but this is a pattern similar to 9/11 in 2001. The biggest factors at work for us today are as follows: 1. The reality and promise of continued low mortgage rates. 2. The continued huge demand for homes and condos in the DC area. 3. Continued stability of the area as an employment center. 4. The probability of a vaccine within next 6 to 9 months. 5. Finally, while our demand has remained high, our inventories have remained very tight. Consider that in September 2001, there were approximately 1,400 single family homes on the market in Washington DC. Today, there are 645.
Commercial Real Estate and Rentals
The real estate market has many pieces. We have been discussing the residential sales market. Before March 2020, with a few small exceptions, the residential market had been on a 20 year tear. However, before COVID, there were a number of negatives that had already been at work in other parts of our business. Consider the following. First, as to the commercial office market, before COVID, the downtown commercial vacancy rate was at its highest level since 1993. Many properties that were being developed with a commercial office component had pivoted to residential use. Retail has been under increasing pressure as the on-line shopping market has exploded. Second, multiunit apartment buildings with loads of amenities have been sprouting up like tulips in spring. Many of our local property owners with a unit or two are having trouble getting the rents that they are used to. Part of the problem is this competition with newer properties with lots of amenities and some free rent up front. Another piece is the additional units placed on the market that were heretofore used as short term rentals. Finally, some of the stress in the rental market has without a doubt been COVID related. We hear every day about a tenant who has left the area and is working virtually from home in Wyoming or went to Asia to visit family and can’t get back into the US. Then there was the new spring crop of college graduates that would normally be coming into our market and looking for rentals. Jobs are scarce and many of those fortunate enough to get a job are working virtually from home. Like any other aspect of the real estate market, supply and demand rules and that can be a fragile balance. Right now we have a lot of supply and more on the way.
What I have written here is only meant to shed a little light on one aspect of our economy and our lives. Nothing has been intended to make light of COVID and its impact on our business and personal lives. It has been and continues to be staggering. My heart goes out for all. I see wonderful restaurants with an owner’s life savings on the line, many hanging on by a thread. We all pray for an effective vaccine and the return to some sense of normalcy. Whatever that will be, will be and we will adapt and thrive as we have done after every crisis before this one.
Don Denton is Branch Vice President, Coldwell Banker Realty (350 Sevent St. SE, 202-256-1353).