The challenges plaguing buyers — rising home prices, low inventory, and growing affordability challenges — continue in our local market.
Home Prices
Unlike some U.S. regions, where home values are declining and contract cancellations are high, prices have been steadily increasing in our region. The median sales price was up 5.4% in August due to increased buyer activity. Much of this activity was attributed to first-time buyers, tired of renting and motivated by the promise of homeownership. Signs show that these buyers are turning to more affordable options and we are seeing steeper year-over-year price increases in condos and townhomes.
Inventory
Following July’s report, the number of new listings coming onto the DC Metro market hit a two-decade low as sellers with low interest rates opt for maintaining ownership. Additionally, Bright MLS conducted a survey of buyers’ agents in August and nearly half indicated that their biggest hurdles were finding the right home and submitting a successful offer. Though low inventory drives prices up, it’s important to put into perspective that many of the prospective buyers are first time buyers. Seller expectations should align with the reality of the market; while you’ll still likely see competing offers at or above list price, buyers aren’t always able to offer anything and everything to win the bidding war. Of those sellers who do choose to list, 21% ended up offering some sort of closing cost assistance to the buyers in order for the deal to go through.
Affordability
Leading research firms are predicting that mortgage interest rates will fall between 5.9% and 6.4% in Q4 of 2023, though this likely won’t be quite enough for prospective buyers. According to NAR, 71% say they won’t accept a rate on a 30-year mortgage above 5.5%. When those buyers do re-enter the market, it will only compound the current challenges, unless inventory increases.
What to Watch
With the way interest rates have been impacting first time buyers, we’ll want to keep an eye on the rental market as pricing and inventory trends continue presenting challenges. Nationally, we’re beginning to see some markets where rents are decreasing due to a wave of new rental inventory being built. Locally, one of two things could happen:
Scenario A: If sellers opt to rent their home, rather than sell it, we could see:
More rental inventory available, causing the steep price increases to subside
Changing buyer motivation, if the cost of ownership suprasses the cost of renting
Scenario B: The National Association of REALTORS® is calling for a federal incentive in the form of capital gains relief that could prompt investors to sell. If this happens, we could see:
Additional inventory available for sale, helping to stabilize prices
Fewer rental options, causing those prices to continue rising and prompting more prospective buyers to pursue homeownership
Rising home prices, low inventory, and affordability issues, persist and require careful monitoring. In this current real estate landscape, adaptability and proactive measures by both buyers and sellers will be essential to navigate the evolving market conditions successfully.
Questions about this data, or want hyper-local data for your neighborhood? Give me a call or shoot me an email.