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Housing inventory better but not good

July 24, 2008 3:43 am

BY BILL FREEHLING

There are still many more houses available in the Fredericksburg area than people buying them, but the imbalance has improved every month this year.

There was a 10-month supply of houses actively listed on the market in the Fredericksburg area at the end of June, according to data from Metropolitan Regional Information Systems Inc.

That's still nearly double what officials from state and national Realtors associations consider to be a good balance between supply and demand. But it's a far cry from the 20-month inventory that existed in the local market this past January.

Those figures are calculated by dividing the number of houses listed at the end of the month by the number of sales. At the end of June, for example, 3,673 homes were listed in the Fredericksburg area, and 350 sold that month. At that pace of sales, it would take 10 months to clear the inventory.

Lisa Noon, a spokeswoman for the Virginia Association of Realtors, points out that the definition of a "healthy" ratio differs across the country. Walter Molony of the National Association of Realtors notes that sales rates should be adjusted seasonally, because sales fluctuate depending on the time of year.

Both agree that a six-month supply of houses is roughly normal. John McClain, deputy director of the Center for Regional Analysis at George Mason University, says a housing supply of between five and seven months was about normal before the market took off this decade.

The Fredericksburg area--which includes the city and the counties of Spotsylvania, Caroline, Stafford and King George--hasn't been at that "normal" level since the beginning of 2006, according to a review of MRIS data.

The inventory-to-sales ratio was at about 6 at the beginning of the decade before steadily decreasing as the market, fueled by low interest rates and easy credit, took off. The ratio stayed below 2 between March 2004 and June 2005.

Total dollar sales volume in the Fredericksburg area was $341 million in June 2005, a whopping 24.2 percent higher than any other month this decade. Although median prices peaked a year later at nearly $350,000, in terms of sales and inventory levels June 2005 can be considered the peak of the local housing boom.

Inventory levels rose steadily after June 2005. The ratio hit double figures in September 2006 and has stayed there since, as foreclosures have pushed up supply and tighter credit has reduced demand.

The ratio this past June was the highest it has been in any June this decade. Last year the ratio was 10.1. June has typically been the strongest month for sales, so the inflated inventory levels show that the area market has not returned to normal.

That's the bad news. The good news is that inventory-to-sales levels have dropped every month this year.

After peaking at 20.6 in January, the ratio has fallen in successive months as follows: 17.1, 12.9, 12.0, 11.7, 10.5. Sales have steadily risen, despite remaining well below tallies from the past few years. Median prices in the area have hovered in a range between $256,125 and $276,500 this year.

Another finding from the MRIS data is that June ratios were lower in the area's most populated counties--Spotsylvania and Stafford--than elsewhere in the region. They were even lower in Loudoun and Prince William counties, where foreclosure rates have been high.

This all suggests that buyers are emerging as prices drop, thereby reducing inventory levels and restoring some of the balance between supply and demand.

Bill Freehling: 540/374-5405
Email: bfreehling@freelancestar.com