Happy February! Things are hoppin’ in the DC Metro Area Real Estate world as we move into the spring market. Inventory is low and competition is hot – so let us show you what’s going on and what that means if you are thinking of buying, selling, or investing in real estate! As always, thank you for the opportunity to be your trusted advisors in the real estate space. We want to serve you and the people you care about.

Let’s start out by taking a look at interest rates, which steadied a bit since their initial drop at the end of 2023. Stronger-than-expected employment and inflation reports seem to have halted the further drop in interest rates recently.

While rates have steadied for the moment, Freddie Mac predicts that Rates will drop into the low 6’s by the end of this year. This is good news for buyers as lower rates provide lower mortgage payments and opportunities to refinance for those who bought over the past year at higher rates.

There is an interesting phenomenon happening right now that I want to take a look at. When interest rates shot up too quickly last year, almost everyone predicted home prices would go down or at least stabilize. But they didn’t. Take a look.

Average sales prices stayed high and continued on their trend upward even with the higher rates. In fact, even considering the little dip we saw last month, home prices are up about 5% compared to this time last year, which is actually higher than the 4.86% appreciation the real estate market has averaged since 1980, showing the relentless demand for housing has fought off the challenges of higher rates.

The rising prices are largely due to the severe lack of options for buyers—there’s just not enough homes to meet demand. While we saw a slight uptick last month, the number of active listings for single family and townhomes are still 7% lower than this time last year. The condo market is the exception with inventory up 5% over last year, but this number is still low compared to historical standards.

The good news for buyers is that we are seeing some more homes on the market! Across all home types, we saw a whopping increase of 1,669 homes added to the Greater DC area market this month. However, even with this increase, the number of new listings posted was still approximately 15% lower than this time last year, so we still have a ways to go.

So where will prices go? Well, experts are all over the map from predictions of 5% gains to 1.7% losses. With high demand and low supply though, we are seeing all but one source predict continued home price appreciation this year with the average consensus being a 2.7% increase.

Interestingly, most of these sources were predicting much lower numbers last year. But you can see that almost all of them adjusted their numbers higher due to the strength of the market, including Goldman Sachs changing from a prediction of 1.9% to 5% this year.

This is where this strange phenomenon comes in. We have a chicken and egg problem. What comes first?

  1. If home supply is low, prices will continue to rise.
  2. If prices rise, Inflation will continue to appear high because home prices are a big component of the inflation calculation
  3. If inflation stays high, interest rates will stay high because high interest rates are supposed to combat inflation
  4. If interest rates stay high, housing supply will stay low because sellers aren’t going to sell if they can’t afford a new mortgage on a new home.

So we are in a little bit of a pickle. Something is going to have to break to change this compounding effect and it’s going to be interesting to say the least.

Here’s the bottom line though…

If you are a buyer….

  • Real estate remains a good long term investment. There is no other asset that everyone needs and the only other alternative, renting, also continues to rise in cost.
  • With an annual appreciation of 4.8%, the average home bought 30 years ago is now up 297%. Now, the market is challenging, but this is a great time for first-time buyers to get something affordable and start to build equity. There are also some really interesting incentives for first time buyers right now, some with up to $15,000 in cash for your down payment. Call us for details on that!

If you are a seller….

  • Even with a slight downtrend in average sales prices for homes this month, prices are still high and you are in a good spot. But with more competition and inventory in the market, it’s important to position your house well for a high-value sale. If you aren’t sure if you should move or upgrade your current home, we have our new Renovate and Relocate program, which can help you determine whether it’s in your best interest to update your current home or relocate elsewhere to meet the needs of you and your family. Give us a call for details.

As the spring market rolls around, please know we’re always here for you and are happy to schedule a free consultation to help you upgrade, downsize, or relocate to the home that best fits your needs.