After the sequence of increases in mortgage rates that commenced in March 2022, the intensity of the D.C.-area housing market subsided as potential buyers held off in anticipation of lower rates, reduced prices, and a rise in inventory. However, with interest rates experiencing another upturn in 2023, many buyers and sellers are recalibrating their expectations to adapt to a new normal in which inventory remains scarce, prices stay elevated, and any respite appears unlikely in the near future.
On a national scale, housing inventory, determined by dividing the number of listings by the number of sales in the most recent month, has rebounded from its record low in January 2022. Nevertheless, it still lags behind historical norms for this time of the year, standing at 3.1 months of supply on the market, as reported by the National Association of Realtors (NAR). Furthermore, Jessica Lautz, NAR deputy chief economist, notes that one in three sellers are fetching prices exceeding their asking price on listings.
In the Washington region, encompassing Northern Virginia and Maryland suburbs, monthly listings witnessed a nearly 30 percent decrease compared to the previous year, as per data disclosed by the multiple-listing service Bright MLS by the end of July. The D.C. market was reported to have a housing supply of 1.33 months. The inventory situation in the Mid-Atlantic region was slightly more favorable, standing at 1.52 months. Notably, Maryland’s Frederick and Montgomery counties, along with Virginia’s Fairfax County, all registered less than a month of available inventory.
Meanwhile, prices are on the ascent. As of July, the median sales price for all housing types in the D.C. region reached $590,000, marking a 4.8 percent increase from the same month last year, with particularly significant surges in certain suburbs. Fairfax City, Va., stood out with a noteworthy year-over-year gain of 9.1 percent, reaching $730,000 in median price as of July 2022, according to Bright MLS. Fairfax County experienced an 8 percent median price surge, reaching $702,000, while in Frederick County, Md., situated on the northern outskirts of the D.C. area, there was a 7.8 percent increase, bringing the median price to $485,000.
Avi Adler, president of the Greater Capital Area Association of Realtors, remarked in an August press release, “We are currently witnessing a somewhat dysfunctional housing market. There are fewer buyers due to higher interest rates and even fewer sellers, who feel constrained by their existing homes and the low mortgage rate.”
In Washington D.C., the median price for all types of housing in July was $625,000, indicating a 3.3 percent decrease from the previous year, as reported by Bright MLS.
Across the region, the growth in median prices for condominiums remained modest, as per NAR, showing a mere 1.1 percent increase year-over-year, reaching $365,000 as of June 2023.
Lisa Sturtevant, chief economist for Bright MLS, pointed out that declining prices in other parts of the United States, particularly in areas like California and other Western states, may have given rise to unfounded expectations of a more buyer-friendly local market emerging.
“Some buyers might have, back in the spring, been thinking, ‘Oh, I’m going to wait… It’s just a matter of time before [house prices] come down in Washington,'” she said. “And the fact is, we simply haven’t seen that.”
Analysts suggest that prospective buyers in the D.C. area may need to revise their expectations and intensify their efforts to secure available housing, potentially opting to spend more, purchase smaller properties, or extend their commuting distances.
Across the region, residential properties are generally spending less time on the market compared to a year ago. For instance, in Loudoun County, Va., located northwest of D.C., residential properties averaged five days on the market in July, down from eight the previous year. In other parts of Virginia, such as Fairfax County and Alexandria, listings sold in an average of six days, representing a two-day decrease year-over-year. Arlington County, Va., and Prince George’s County, Md., both bordering D.C., maintained a steady nine days on the market.
D.C. stands out as an exception, with residential properties spending an average of 17 days on the market in July, an increase of two days compared to the previous year, as reported by Bright MLS. The relative stability of D.C.’s condominium market may contribute to this divergence.
Having the capacity to make cash payments, often advantageous, becomes particularly valuable in a real estate market characterized by escalating prices, limited inventory, and the likelihood of further increases in mortgage interest rates. In April 2023, nearly one in four residential properties, accounting for 24.7 percent, sold in the D.C. area were entirely purchased with cash, as reported by the Redfin real estate brokerage. This marked a 5.5 percentage point increase from the preceding year. Gunnar Blix, the Director of Data Strategy for Black Knight, a mortgage and real estate technology and data provider, emphasized that first-time home buyers lacking the ability to make cash payments face formidable challenges.
“They have no equity to enter this market,” Blix noted. “They are contending with a 7 percent interest rate, tight inventories, and limited options.”
In addition to the economic uncertainties, there’s the unpredictability of future work arrangements as companies reevaluate remote-work policies inspired by the pandemic, coupled with the White House’s encouragement for federal employees to return to the office. This combination is convincing some potential buyers to opt for renting, at least temporarily.
As of August, rents in D.C. experienced a mere 0.3 percent year-over-year increase, while the surrounding suburbs saw a 1 percent uptick, according to Chris Salviati, a housing economist at the rental research and data aggregator ApartmentList. Zillow’s real estate website reported that in August, the median rent for a one-bedroom apartment in Washington was $1,849, reflecting a $98 increase from the previous year. In Manassas, Va., the median rent for a one-bedroom unit rose by $43 to $1,752, and in Laurel, Md., it increased by $96 to $1,617.
Given the anticipated stability of the local rental market at least until the end of the year, Salviati remarked, “I think the scales have definitely started to at least tip more in the direction of renting being a more favorable financial decision.”
If a potential homebuyer’s budget allows for the challenging mortgage rates, it’s advisable not to delay action, according to David Mount, a real estate agent and Chief Operating Officer of the Redux Group of eXp Realty, operating in the D.C. area.
Mount recommends that his clients proceed with a purchase if they have the means to do so. He emphasizes that there is no indication that home prices will decrease in the next five to ten years. Many of the buyers he works with, he noted, are not finding homes that meet their preferences among the limited available options, leading them to compromise on factors like a longer commute or a smaller property than originally anticipated. Nonetheless, they have taken a step towards homeownership.
“Over time, as homes appreciate, the potential for upgrading arises. By selling the current property, rolling the equity into a new one, you position yourself better. The crucial step is getting your foot in the door,” Mount explained.
For those currently unable to afford entry into the market or facing challenges with winning bids, Mount recommends practicing patience and adopting a strategic approach. He suggests considering market trends, such as the predictable slowdown around holidays followed by increased activity in January. Mount advises that a savvy homebuyer might secure a competitive bid by pursuing a property in the latter half of December.
“You want to make strategic moves when others are less active,” he said. “Ideally, you aim to make your purchase before others join the market.”
