As the Fed announced another rate hike and national average housing prices decreased 1.1% between July and August, the biggest decline since 2012, the question on many minds is – are we headed for a major housing correction? The answer, at least for the DC Metro area, is most likely NOT!!!
We looked at housing stats in our area for 2008 (the housing crash), 2018 (pre-COVID), 2021 (COVID boom) and 2022, and what we saw is that home prices remain strong, and homes are selling quickly.
As the Fed intended, higher interest rates are slowing the market. Many buyers have decided to wait to purchase. In some parts of the country, higher mortgage rates are pushing prices down. However, a primary effect on price is supply, and the DC metro area has a housing shortage. In the last few months, fewer homes have been selling. However, less inventory is coming on the market as potential sellers decide not to give up their low mortgage rates and are staying put instead. Developers are also holding back on new builds as their expenses increase, limiting inventory further.
Real estate is hyper-localized, and how the market behaves depends on multiple factors. California cities are experiencing the biggest decline in housing prices, while many Southern cities are seeing price increases. This could be because California has some of the most expensive real estate in the country and therefore reacted strongly to increased rates. Another theory is that California real estate is becoming less in demand, as the technology industry widely adopts remote work policies and workers no longer must live in the state.
Why are prices in some areas of the country dropping so quickly? Unlike in years past, today’s real estate market is filled with both institutional and independent investors. As the market shows signs of slowing, investors are scrambling to sell their inventory quickly. The easiest way to do that is by cutting prices until units sell.
As the Fed continues to make adjustments to combat inflation, we will most likely see changes in the national housing market. However, national averages do not reflect local markets. DC, with its stable flow of government jobs and housing shortage, has proven in the past to be as good a place as there is to withstand a slow market. We may continue to see a decrease in sales volume, but pricing typically remains stable.
In our opinion, the best time to sell or buy is when there’s an underlying need that you’re solving. When that time comes, we can help you understand how to navigate the market for the best result. Contact us today!
