Another Chilly Fall but Prices Still Rise
The real estate market in the second half of 2023 has a very similar feel to the second half of 2022. While the Fall market is typically cooler than the Spring Market, the past two years have seen Summer interest rate increases that have exacerbated this trend.
In 2022, interest rates moved from around 5% in May to over 7% in the Fall which sapped Buyer demand before receding rates led to a pretty robust Spring 2023 Market. This year, rates made their Summer move from the mid-6s to briefly top 8% before making a sharp retreat to the mid-7s in just the past few weeks. This time around, Sellers have pulled back to a greater degree than buyers with new listings down 20% in the DC Metro Area versus October of 2022. This sharp reduction in inventory coupled with more than adequate demand has reduced the median days on market by nearly a full week (from 15 days to 9 days) and led to a 3.3% increase in the median sales price.
Looking Forward to 2024
While inflation is still above the Fed's target of 2%, there is growing optimism that the significant measures taken to date are yielding results. If the data continues to show improvement then we should see an end to this tightening cycle which should translate to receding interest rates at some point in 2024.
If that happens, we expect demand to rebound more quickly than supply as current prospective Buyers who have seen rates above 6% for 18 months (without prices falling!) will welcome any relief as a reason to re-engage the market. Sellers, on the other hand, will likely need to see rates drop even further before they consider selling as 81% of all outstanding mortgages are locked in below 5% (61% are below 4%) and recent studies have found that homeowners that currently have a 5% mortgage rate or higher are twice as likely to sell as those with current rates under 5%. Our recent client engagements mirror the data above. While we are historically pretty evenly split between Selling and Buying clients, we currently have 2.5x the amount of Buyers to Sellers in our workflow.
That is not to say that we will not have inventory in the near term. The 5 D's of real estate- Diamonds (marriage), Diapers (babies), Divorce, Downsizing and Death- will still be the impetus for homes hitting the market. It is just that if Buyers re-enter the market faster than inventory increases- which is a likely scenario when the rate environment discourages discretionary selling- then we will see increasing upward pressure on prices. Accelerating price appreciation will further stoke urgency among Buyers who have learned the lessons of the past two years....that "time in the market is better than trying to time the market".
As always, we will continue to keep you abreast of the most recent trends in the marketplace. Please feel free to reach out anytime with questions about your specific sub-market. The data above is representative of the entire DC Metropolitan Area and there are important differences based on neighborhood and property type.