August 4, 2020

With each month’s data release the picture becomes clear that higher wage households are less affected by the economic volatility than lower wage households. Having been cooped up in their home for months, many of these households are taking advantage of historically low interest rates and are buying their next home.

Lower wage households, many of whom are renters, are feeling the brunt of the downturn. Those households will manage through this uncertainty through the end of the year as economic stimulus ends and the pandemic continues. Existing multifamily projects will see pressure on rents, greater use of incentives, and higher vacancy rates as turnover increases and new projects come to market and add to the supply of units. Equity providers will find it difficult to underwrite new projects due to the changing fundamentals.

Looking forward, we are watching for economic volatility that may affect the homebuyers’ positive attitudes. Until that happens, we believe sellers will have the upper hand as inventory remains low and demand remains high.

Job Growth

Weak: DC’s job decline has stabilized and eased in June as the economy struggles to open. From May to June approximately 45K jobs were added bringing the YOY loss to 271K jobs, or 8.0% off of June 2019 levels. Please see related chart showing job growth by sector.

Permit Growth

Weak-to-Moderate: Multifamily permits are down 13% YOY to reach 12.1K permit issued over the last 12 months. Single-family permits are down only 3% YOY. The SF permit decline follows a two-year decline from a peak of 14K SF permits issued in 2017. MF permits will likely continue to decline in the coming year as demand wanes and supply remains high.

Employment-to-Permit Ratio

Weak: A negative E/P ratio reflects an oversupply of housing and leads to price and rent pressure. The fundamentals were strong leading into 2020, but economic shutdown destroyed the job market and sent the ratio plummeting from strong numbers through February to historically negative numbers in April and May. We expect June’s ratio to stabilize as jobs were added and permit levels dropped.

Housing Inventory

Weak, but helpful for price stability: Despite the bad economy and weakening sales, we saw a dip in the months-supply to reach 1.7 months due to declining number of new listings on the market. Having low supply will help support home values and lead home shoppers to the new home market.

Existing Home Sales and Prices

Moderate to strong: Projected resales closings declined 4.2% YOY to reach 69K closings for the last 12 months ending June 2020. While sales have dropped, median sales prices have increased 5.1% YOY to reach $422K. Low interest rates and more confidence among higher income households may be the reason for the increase.

Affordability

Strong: In recent months, home value appreciation in metro DC outperformed the composite of the 20 largest metros in the country. On an annual basis, homes in the DC Metro appreciated at 3.5% compared to the national 4.5% rate and the Top-20 markets’ 3.7% rate.
Metro DC entered the recession from a strong position and continues to enjoy low inventory levels which help support home values.