Charting the market: Demand up, supply runs low

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In college, I didn’t do well in my one economics class. I was an English major.

Yet the economic principles I’m going to discuss in today’s column are so simple that even an English major should be able to explain them clearly. They are: supply, demand and prices.

You will find three kinds of data in today’s charts: listings, settlements and prices. Listings, the number of homes area Realtors list for sale, equate to the supply of homes on the market.

Settlements, the number of properties that are recorded as sold after a buyer and seller sign a big stack of papers, is one measurement of demand.

Prices, of course, are what you care about the most. But you should know that home prices rise and fall based upon what happens to supply and demand.

So, let’s dive in. If you look at the listings charts, you immediately will see that the number of homes coming onto the market has plummeted since 2008. Property owners learned during the terrible years of 2007 and 2008 that homes weren’t selling, so many stopped trying.

Now look at the settlements charts, and you will find something different. The federal tax credits of 2009 and 2010 temporarily boosted home sales. While sales dipped back down in 2011, they have been stronger this year even without a federal money giveaway.

Finally, look at the price charts at the bottom. These charts are annual figures for 2008 through 2011. Annual figures are best when you look at prices because monthly data tend to jump up and down.

You can see that by the end of 2011, home prices in the District were back to 2008 levels. Fairfax County even beat 2008, although prices were still $79,000 below the 2005 peak.

Montgomery and Prince George’s counties are representative of most of Maryland, which has not yet seen prices bounce back completely. Why?

Because of the relationship between supply and demand. You can see that in 2008, Virginia had more listings than Maryland, but sales were higher by 10,000 in Virginia. The supply-demand ratio in Virginia was 51 percent, while Maryland’s was 38 percent.

Both states have seen their ratios improve since then, but Virginia’s improved much more quickly. Virginia’s ratio is 67 percent this year, compared to 63 percent in Maryland.

Send email to csicks@gmail.com.

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