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Scarcity, Low Interest Rates Fuel 63% Jump In D.C. Condo Sales

The D.C. condo market has experienced a stronger-than-normal summer as buyers have sought to take advantage of low interest rates, bringing sales volume and pricing back from the pandemic-induced slowdown.

A condo in the Peninsula 88 building on Buzzard Point.

Sales in the D.C. condo market fell significantly in the spring, with April's volume down more than 50% year-over-year, according to condo marketing firm Urban Pace. But the market then began to rebound, and the summer months have outperformed last year.

June condo sales volume in D.C. was up 12% year-over-year, July sales volume was up 26%, and volume through the first 25 days of August was 63% higher than the same period last year, according to new Urban Pace data shared with Bisnow

"August has been incredibly strong," Urban Pace President Clint Mann said. "To me, that speaks very highly of the resilience of the D.C. market and the fundamentals that are supporting it ... it has been a pretty remarkable recovery in a short period of time."

This summer's condo sales volume in D.C. is outperforming last year, according to Urban Pace.

While sales volume during the worst weeks of the coronavirus pandemic was down significantly from last year, Mann said it gave him confidence that it never fully bottomed out even when D.C. had mandated stay-at-home orders.

"There are consumers out there and the reasons they had to move were still there despite a pandemic," Mann said. "The pandemic wasn't changing these fundamentals. And you layer on top of that the historic low interest rates, I think people saw this as an opportunity to get into the market."

The market has made up for lost time during the summer, which is typically a slower period for condo sales than the spring, Mann said.

"Since Memorial Day, most buildings with immediate inventory available are selling at double the sales pace they had projected," Mann said. "In a normal market, June, July and August are very slow."

Capital City Real Estate founding principal Scott Zimmerman said sales at the developer's Peninsula 88 project on Buzzard Point have been surprisingly strong throughout the summer. He said 70 of the project's 110 units have now sold, and it has been averaging one sale per week during the summer.

"We've been pleasantly surprised with the consistency through everything that's going on," Zimmerman said. "August is a typically slow month anyway, and we've seen it continue to be steady through August."

While the pandemic has not stopped D.C. condo sales activity, it has changed the habits of many buyers. Mann says buyers are leaning more toward immediate move-ins than pre-sales for under-construction projects, and they are favoring units with more space. 

"The majority of the activity in the market in the last 90 days has been focused on immediate inventory," Mann said. "A lot of people are entering the market because they need to move and want to take advantage of the low interest rates."

Urban Pace is selling the condos at eNvy, the 127-unit project near Nationals Park from Jair Lynch Real Estate Partners. The building began moving in residents last week, and Mann said the ability for buyers to move in quickly has helped its sales outpace projections this summer. 

Zimmerman has seen this dynamic in his portfolio. While Capital City's move-in-ready Buzzard Point project has been selling, he hasn't seen the same level of activity at its 74-unit Rialto project on Rhode Island Avenue NE, which is still under construction and began sales this year. 

"With the uncertainty of what's going on, people are moving slower to make decisions further out," Zimmerman said. "We're seeing that play out with Rhode Island Avenue, where sales are definitely slower ... I think being move-in ready and people being able to see it is benefiting the Buzzard Point project."

A rendering of The Brooks and The Vale, the first two new-construction buildings planned at The Parks at Walter Reed

The health crisis has also led people to prefer larger units in communities with more outdoor space, Mann said. He has seen this at The Brooks, an 89-unit condo project Urban Pace is selling as part of The Parks at Walter Reed, a 66-acre development featuring parks and public plazas. He said he has seen new buyers looking at the project that had previously been searching in more downtown areas. 

"We're getting a lot of buyers who had otherwise been looking at Logan Circle, Shaw or NoMa, but they're looking for more space, and we're able to provide that," Mann said. "For the same amount of money you can buy a one-bedroom [downtown], you can buy a one-bedroom with a den at the Parks at Walter Reed."

He added that the Shaw, Logan Circle and NoMa condo markets remain strong and buyers are still interested in those areas, but they are now broadening their scope to other parts of the city.

Zimmerman said the unit sizes and outdoor space at his waterfront project in Buzzard Point have benefited its sales this summer.

"Having larger units and having outdoor space are things our projects typically have, and in the current environment are appealing to people in the city," Zimmerman said. "Things we felt were benefits before this are more benefits now."

Sale prices in the D.C. condo market have recovered from their April lows, but they are still not as high as they were in January and February. 

D.C. condo pricing has increased since April and is higher than last summer but has yet to return to its February peak, according to Urban Pace.

The average condo sale price in August has been about $564K, up 6% from last year, according to Urban Pace. As demand has picked up this summer, competition has increased for a market with a relative scarcity of available inventory, pushing up condo prices. 

"Pricing was very strong at the beginning of the year, was negatively impacted for a few weeks at the peak of the pandemic, but has had a very strong recovery," Mann said. "We see pricing increasing substantially, and that is a product of the lack of inventory in the market."

The D.C.-area condo market had 11 months of available inventory as of June 30, down 6.8 months from the same time last year, according to Delta Associates' Q2 condo report. The report projected 712 new condo units would break ground this year, down significantly from last year's 1,729 construction starts. 

"There is no doubt that the pandemic has compounded the inventory issues and housing shortage that our region already had," Mann said.

The strength of sales volume and pricing for D.C. condos mirrors what the overall for-sale housing market is experiencing. The sale volume for existing homes in the D.C. area in July was 7.2% higher than the same month last year, according to Redfin, and the median sale price was up 11.7%. 

A lack of inventory has also contributed to these sales volume and pricing trends in the overall housing market. Inventory of new homes in the D.C. area as of July 31 was 23.5% lower than the same time last year, while inventory of existing homes was down 24.7%, according to Redfin. 

The inventory scarcity has been exacerbated by some condo projects pivoting to apartments. Monument Realty last month sold a 69-unit Shaw building that it had designed as condos to a buyer that plans to rent it out as apartments. 

Monument's Michael Darby told Bisnow earlier this month the decision to switch the building to apartments was a result of the sale price he was offered and not a reflection of his view on the condo market. His company is currently selling its 171-unit Avidian condo project near the ballpark, and Darby said it has seen strong activity. 

"That is going phenomenally, we’re selling quite a lot during this time,” Darby told Bisnow Aug. 3. “The reason is it’s a great building that’s competitive with large rental buildings as far as amenities, and with interest rates where they are today, people are looking and saying it’s time to buy.”

September and October are typically busier months for condo sales than August, and Mann said that could make it difficult for the market to continue to outperform last year's sales volume, but he expects demand to remain steady. 

"I think there will continue to be demand," Mann said. "This idea of people leaving cities is just not playing out if you look at activity in the District."