- The Washington Times - Friday, December 25, 2009

The Washington-area housing market wasn’t quite as competitive for buyers in November, when sales dropped by 2,000 homes.

Of course, October is always the last decent sales month in a year, so we shouldn’t be alarmed by a decrease in sales activity in November. In fact, this was a good November.

Notice that last month’s sales were 16 percent higher than in November 2008.

The sales drop this November was still steep enough to lower sales chances to 19 percent.

Charting the market: November snapshots

Fortunately, the inventory also fell from October to November. That’s a good sign because we don’t want to see falling demand and rising supply. Instead of rising supply, we actually are enjoying the smallest supply of unsold homes that we’ve seen since 2005.

That low inventory will help spur competition among buyers next year. And that should push sales chances back into the 20s early in 2010.

Sales chances are calculated by dividing a month’s sales figures by the inventory on the last day of the month, resulting in a percentage. A figure below 20 percent indicates a buyer’s market. Higher figures mean we’re in a balanced market or a seller’s market.

Why do we want higher sales chances? Doesn’t that just make it harder on buyers?

It is a little harder for buyers to get the home of their choice when chances are more than 20 percent. However, when chances were down around 10 percent to 14 percent in 2007 and 2008, buyer competition was so woefully absent that homes sat on the market for months, prices dropped, and the entire industry suffered. In those years, buyers had a lot of leverage over sellers, but because the entire market was so unhealthy, they couldn’t buy with any confidence. They would always wonder if prices might fall further, eroding their investment.

A healthy real estate market (with sales chances between 20 and 30 percent) is one in which neither a buyer nor a seller has a huge advantage over the other. It’s also a market that sees modest increases in home values each year instead of wild jumps in prices or values that decline.

- Chris Sicks

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