- - Thursday, June 30, 2011

While it is encouraging to see home sales were up 11 percent over last year during the first five months of this year, something else has dropped by 8 percent — and it is just as encouraging.

You see, the 11 percent increase in sales tells us demand is up among homebuyers. That’s one of the things necessary for any real estate market to turn around.

Besides an increase in demand, you also need a decrease in supply — and it is our supply of homes that has fallen 8 percent this year.

About 49,700 homes were listed for sale with Washington-area Realtors from January through May. That’s a significant drop from last year’s 54,300.

It is important because when sales (demand) are increasing and listings (supply) are decreasing, it means buyers have to compete with one another, and that pushes home prices up.

An oversupply of unsold homes has been plaguing the market since 2006. That year, nearly 86,000 homes were listed from January to May — an increase of 40 percent over 2005.

Adding insult to injury, home sales fell 20 percent in 2006, and the market failed to absorb that flood of property listings. Supply was pouring in much faster than demand could deal with it.

Today’s market is very different. Look at how listings have fallen in Fairfax and Prince William counties. Listings in Fairfax County are down 32 percent compared to 2008, while sales are up 16 percent.

Taken together, those two statistics explain why Fairfax County is one of the most competitive jurisdictions in the entire Washington-Baltimore region.

It is much easier to sell a home in Fairfax than in Maryland’s Charles County, for example. Home sales in Charles are up 70 percent compared to 2008, which is very good. So why is it harder to sell a home there than in Fairfax?

Because Charles has a much larger backlog of unsold homes. Just 0.9 percent of all the homes in Fairfax County were up for sale in May, compared to 1.8 percent of the homes in Charles County.

Things are looking up in Charles, however, because sales are on the rise. Perhaps next year the inventory will be low enough that buyers will begin to compete with one another in a more significant way.

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