If you have been in the market for a new home, the recent increases in mortgage rates could be a blessing in disguise. “Location, location, location” used to be the driving force in real estate, but in the past 24 months “inventory” has become king. We hit a 40-year low of housing inventory in 2021. This year, it appears that interest rates will reign.
The Fed’s recent policy changes are clearly intended to slow the housing market. This is not necessarily a “bad” thing – the last few years of demand and lack of supply has caused prices to skyrocket.
In fact, on June 15, Jerome Powell, Chair of the Federal Reserve, told reporters that homebuyers “need a bit of a reset…. To get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again”.
So far, the Fed’s plan has achieved its goal. Nationally, there were 21% fewer mortgage applications in the first week of June this year than last year. In Washington DC, contract activity was down 23.1% in June 2022 compared to June 2021 and homes sat on the market 5 days longer. As a result, inventory was 6.7% higher at the end of the month this year, than last.
The big question, then, is how will housing prices be affected? Even Powell says “Not really sure.” While bidding wars have decreased, and some sellers have adjusted prices, most experts are predicting a decrease in home price growth, rather than a fall in prices, at least in some areas of the country. Cities closely tied to changes in the economy, or those that saw drastic increases in prices due to the pandemic, may see a price adjustment. The DC metro area, however, is largely seen as recession proof. The largest employment sector here is the Federal Government – stable and growing. We continue to see confidence and growth in the area, as demonstrated by Amazon and Boeing choosing VA for its headquarters.
With the economic strength of the DC metro area, we believe demand for housing will remain strong in our area, and the market will remain competitive. Sellers, however, need to recognize that buying power has decreased.
Given the lack of inventory, we don’t see this becoming a buyers’ market, but it may feel that way if you are a seller. Pricing a home correctly and preparing it for market will be crucial steps in the home selling process. Buyers will likely be a little less willing to bend over backwards to get a house and feel more entitled to push for more favorable terms.
If you are a buyer, these changes in the market can work in your favor. Some homes are taking a few extra days to sell, providing an opportunity to actually think, at least overnight, before writing an offer. In this less competitive market, offers are being made that include some buyer protections, such as financing or inspection contingencies. This is good news for buyers, despite rates being a little higher than they were a few months ago.
Navigating this market can be challenging. If you are thinking about jumping in but are intimidated, reach out to learn how we help our sellers stand out using our unique Home Focus marketing and sales system.