All real estate is local and while there will be parts of the country that see prices fall significantly, we do not foresee that being the case in the greater DC Region. Lisa Sturtevant, the chief economist for our regional multiple listing service predicts a 1% rise in prices in 2023- a far cry from the 26% appreciation in the Case-Shiller Washington DC Area Home Price Index since April of 2020 but hardly the doomsday scenario like the 32% fall in the index from peak to trough during The Great Recession. There are several reasons for this but the simplest explanation is that demand and supply destruction have happened in equal measure in our market as interest rates have risen this past year. The overall market is also underpinned by considerably more solid fundamentals (i.e. higher lending standards, significantly higher home equity among owners, a strong labor market, better demographic trends) than during the Great Recession. Lastly, while we have certainly seen unsustainable rates of appreciation over the past two years, it was not driven by investors, i-Buyers and PE firms as it was elsewhere in the country (particularly in the West and Southeast). At around 8% investor participation, DC is far below the national average of 18% and leaps and bounds below the frothiest investor markets which saw as high as 30% of all sales in the last few years being transacted by investors and speculators. Less investor activity in our market means a far lower likelihood of the huge drops in demand combined with large increases in supply that lead to significant price declines in more volatile housing markets.
What is the bottom line for real estate in the DMV in 2023
2023 should start off as a far quieter and more balanced market than we have seen over the last few years. Transaction volume will likely fall back to at or below pre-pandemic levels but don't expect prices to fall significantly given the ongoing lack of supply out there. Overall, Buyers should expect to have more leverage in negotiations but homes that are priced right and show well will continue to sell fairly quickly and likely still with multiple offers (just not double digit offer counts). Listings should continue their trend of being priced closer to market value which will be a welcome sight for most market participants who grew to dread the grossly underpriced listings designed to drive bidding wars (and stress levels) for desperate Buyers the past two years. Most industry analysts do expect interest rates to moderate from current levels as inflation continues to abate and the larger economy is hit with recessionary headwinds. If interest rates do fall by a significant amount due to a national economic slowdown, we could very well see droves of local Buyers who have been sitting out the market coming off the sidelines as well as an uptick of out of town Buyers fleeing to the relative safety and security of the DC Area real estate market and economy. The winner in that type of scenario would be the Buyers who buy now even when rates are still high but prices are flat and refinance later when rates are lower and prices and competition starts to climb again.