I remember January 2021 where everybody was sure that the market was out of control, prices were too high, and buyers were going to be under water on their homes. Fast forward to February 1st 2022 and we're coming off of the most competitive month in the history of the US real estate market. Median sale prices in January were up nationwide almost 20% from a year ago and homes were listed over 14% higher than they were this time last year. Active listings hit an all time low and nationwide, homes sold for 100.3% of the list price. The inventory shortage hasn't changed and the demand for homes is as high as ever.
All of this happened while interest rates jumped over a full point from January 2021 to January 2022. Just in the last 3 weeks conventional mortgage rates are up over a half point. While that means that buyers are losing their buying power which should hypothetically stop prices from increasing so rapidly, it is further fueling short term demand as buyers are trying to get themselves into house before rates go up even more. It feels like there is a time crunch - between those who missed out on houses last year and those who see the writing on the wall that rates are heading over 4% this year. For perspective they were 2.6% a year ago. If you were pre approved last November for 3%, and are now looking at 3.75%, your budget has likely decreased by about $20,000 if you were browsing in the $600,000 price range. That is a HUGE difference in listings available to you. Many people are feeling the pressure to buy NOW.
When is the demand going to quiet down? When rates inch over 4% it will price some buyers out of the market - especially the expensive markets like the DMV. However millennial are the largest segment of our population and almost all millennial are in the age range to look into transitioning from renting into buying. Demand may not cool down even if rates hit 4%, and most experts believe we are likely to see prices rise again throughout 2022. Furthermore, rates are unlikely to stop rising at 4%. The fed has made it clear that it is finally committing to combating inflation and rate hikes are expected throughout the next 18 months. First time buyers can see their rents rising rapidly and locking in even a 4% rate for the next 5+ years of mortgage payments seems pretty appealing. Don't expect buyer demand, especially in the DC area, to cool down this year.
Where is it most competitive? The single family home market, especially in Northern Virginia, was unlike anything I've ever seen over the past month. There is so few homes for sale, and we are seeing double digit offers on every single one. I toured a home right on the edge of Arlington and Falls Church, where the seller had only owned the home for 4 months. He paid $75,000 over asking when he purchased it. He's been relocated for work, and listed it $50,000 above where he purchased it 4 months ago. There was over 100 people at their Sunday open house, and over 40 offers. It's under contract for 1 million dollars or so - $125,000 higher than it sold for 4 months ago. There are no contingencies in the offers and things are selling far over asking - with the exception of a few fixer-upper projects. If it's a move-in ready detached home in Arlington, be prepared to get into the trenches.
Condos are the least competitive part of the market with the most inventory. However even these have seen an uptick in demand over the last month. Late last year we were negotiating under asking price, asking for closing credit, and keeping all contingencies. In January we are seeing condos sell with multiple offers across Northern Virginia especially and contingencies are being waived. In my experience, the area with the most inventory is the condo market in North Central DC - Columbia Heights and Petworth in particular. If you like new construction condos and that's where you'd like to be, you can just about take your pick!
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