State of Residential Real Estate with Washington Wealth Advisors
Leverage. With market activity cooling a bit, due to rising mortgage rates and the concomitant expansion of housing inventory, buyers have more leverage than they've had in years. Two years ago, my clients and I were strategizing about which contingencies we could include in an offer, if any! Now, I am able to write home inspection contingencies and even sale of home contingencies into a contract - without sellers rejecting my client's offer outright. Overall, the market feels much more balanced.
Complicated. There are still people who can afford the high prices even at the high mortgages, but there are way less of them than there were in the spring. This economy has just made it even harder to break into homeownership for lower income buyers. Some homes are sitting with price reductions and others are still getting multiple bids.
Evolving. The market is coming out of what I consider to have been very unstable conditions. It was total chaos for 2 years - lack of inventory, lowest interest rates anyone has ever seen, incredible demand for a home – and unsustainable. Now, we are seeing buyers having a voice again with a more normal give and take to the contract process. We are heading back to a more stable market.
Coral – Technically, it is still a sellers' market based on low supply in our area in most micro markets. Earlier this year almost anything sold, and that is no longer the case. So, the fundamentals for sellers matter more than ever: price homes competitively, have them spruced up, staged, and thoroughly marketed with a professional.
2023 depends on many factors: Will we go into a recession? Will inflation calm down? Will the interest rates continue to rise? Will there be layoffs? In our area, historically none of these factors drastically affect the housing market, as we have some stability with the federal government and military that the rest of the country does not. That said, we are in "unprecedented times," and it seems the basics of economics are out of whack. If inflation and interest rates come down, I see more of the same that is typical here with a strong sellers' advantage but at the same time making it more affordable for more buyers than it is right now.
Kristy - In many neighborhoods, it is still a sellers’ market. Even with increasing inventory, inventory is still very low for a "good" home. I expect our inventory to continue to increase as we close out this year and head into Spring 2023. Interest rates will continue to rise which will cause buyers to re-evaluate the home they want, and sellers will need to adjust their game to stand out.
Sellers will have to be more conscious about the home they are presenting for sale. Even with some homes still receiving multiple offers, buyers aren't as willing to waive all their contingencies nor to turn a blind eye to a home in need of a lot of clean-up work. It is in the seller's best interest to take the extra steps before listing to optimize their price, terms and conditions.
Laura - We are moving toward a buyer's market, if we are not there already. Looking at most metrics - closed sales, new pending contracts and new listings - we find that nearly all are down about 20%. Inventory has increased as well. Even though average days on market are still relatively short (14 days), the length of time a home stays on the market has been trending upward.
On a personal note, I have seen more price reductions in the last few months than in the last three years combined. These factors all point toward a cooling market, one that feels more balanced where buyers wield a bit more power. Savvy sellers will still be able to sell their homes, but staying on top of the market trends and being open to the new reality will get them the most return on their investment. I think this cooling trend will continue at least through the end of 2023.
Kristy - Home prices will be forced to adjust as interest rates and inventory rises. Days on market are already increasing to a more "normal" weeks instead of hours average. Earlier this year in the Spring market, homes were selling on average 5 to 7% over list price in NoVA in 5 to 7 days. Today, we are seeing sales more in the 98-100.5% “list to close” range in 18-21 days.
I believe over the next few months into 2023, we will continue to see some adjustments down in “list to sold” prices but nothing drastic compared to what other states are seeing already. In my experience, NoVA has always been lucky to be somewhat protected compared to other big cities in how we respond to changing markets.
Laura - I believe we will head into a buyers’ market as we go through the rest of this year and the next. While I'm not an economist, most people who crunch these numbers for a living see a “correction” scenario rather than a “crash” reminiscent of 2008. For a buyer, this is very welcome news - as it means that they will face less competition and have more opportunities. For most people, buying a home is one of the biggest and most important financial decisions they will make. This shifting market means that buyers will have more than just a few minutes to make that important decision whether to write an offer.
Sellers will do well to stay on top of these trends. The market is cooling, and sellers will need to adjust their expectations with regard to price. It is unlikely we will see listings with multiple offers that are stripped of any contingencies and boasting price escalations. Pricing is crucial, but if priced properly, your home will still have some eager buyers.
In areas around the DC-metro, the recent mortgage rate hikes mean that some first-time homebuyers – generally those looking in the $500,000 to $800,000 range – may no longer be able to afford a home. For one, wages have not kept up with inflation, meaning that it is more difficult to save for that down payment. This can be a challenge for those new to the market. The median sales price has risen a whopping 39% since 2019, and the typical monthly payment is higher than last year at this time. However, there are ways to combat this trend - buyers can pay points to lower their interest rate, make a larger down payment and consider an adjustable-rate mortgage with a lower introductory interest rate. There are almost always solutions!
The luxury home market in the Metro DC area is experiencing slightly different trends. Inventory as compared to last year is about the same and the average price has actually ticked up about 1.6%. However, units sold are down about 18% compared to August 2022. Even in the luxury home market, sellers must be laser focused on price trends as we head into the fourth quarter of 2022 and beyond.
Coral - In Arlington there are currently 147 detached homes either for sale or in coming soon status, of those, only 45 of those are under $1M. And only one under $600K. And interest rates for jumbo loans are typically* lower, again making it harder for those with lower incomes to get into home ownership. The single-family starter home really does not exist. Townhouses are an option, and there are currently only 64 on the market at the moment, and most are well under $1M, however, some are condos which come with added fees. *Please note: I am not a lender, and this is not a rate quote.
Laura - When clients ask me for advice on how to interpret today’s market, we do talk about statistics, but I think the real analysis is twofold. First, real estate is highly personal - a good time for your neighbor to buy or sell may not be the right time for you to buy or sell. I advise my clients to think hard about that. And second, home ownership remains one of the most meaningful ways to build wealth and stability. So, if you are tired of paying your landlord’s mortgage or your rent is increasing and you plan on remaining in the area for the foreseeable future, real estate remains a sound investment in your long-term net worth.
Coral - People need a place to live, and renting here is still very expensive. I think people should still try to buy, if the numbers work, but compromise on what they are buying. Currently detached homes in Arlington are very expensive, but townhouses and condos are more reasonable. Don't be in a rush and talk to many agents and lenders to prepare for how to purchase right now.
Kristy - When buyers ask if now a good time to buy or should I wait I always answer - now! Our inventory will remain low. We will stay in a sellers’ market - or a more balanced market - but we aren't expecting a complete flip to a buyers’ market. Homes will continue to appreciate, although it will be more gradual. We will see 3 to 4% per year instead of the double digits as in the last 2 years. So even with the higher interest rate, buying now will cost less in the long run as opposed to waiting a year. The home of your dreams comes up today at $750,000 – next year will potentially cost $768,750. You marry the house, not the rate. Buy now and if the rates drop next year refinance and come out ahead. If you are going to pay a mortgage, it might as well be yours.
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