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The State of The Market: August 2022

This time last month I sent out a video (and wrote an article) squarely addressing the state of our “new” real estate market in the DMV. Thanks to the data, it is clear we’ve reached the end of a booming housing market in large part due to unprecedented increases in mortgage interest rates and persistent economic headwinds. We can all finally acknowledge that your home is no longer going up 10%-20% in value this year. Yet that alone hardly equates to a crash. What we are stuck trying to collectively figure out is what to expect moving forward in the face of so much uncertainty?

(if you want to watch last month’s video, click here)

How we got here:

For the better part of a year pundits, experts, and everyday people alike have grown weary of the rapid rise in real estate prices coupled with inflated stock prices reaching weekly record levels. We all could see the economy was set on fire by government pandemic stimulus ($6 trillion dollars can have that effect), supply chain shortages, dirt-cheap interest rates thanks to the Federal Reserve, and a feverish demand from millennial buyers for larger spaces. No joke for the better part of 2 years, assuming you had decent credit and a job, you could buy a car with no money down at zero percent interest, no problem. Similarly, you could easily buy a $850,000 house with 3% down and at a sub 3% interest rate. Insane. Meanwhile you were able to throw your spare cash in Bitcoin and enjoy returns upwards of 20% a month (from August 2021 BTC was $38,000. By November 2021 BTC traded for $64,000). But then as if the real estate markets were putting on a performance, they came out in Q1 of 2022 for their curtain call and performed in ways we’ve not seen since in over 2 decades, where bidding wars and record contract prices were routine. All of that is now in the rearview and forces us to contemplate where the real estate markets collectively stand. This has compelled even more pundits, experts, and everyday people to call for, and brace for the inevitable crash. Are we finally at the doorstep?

Hardly.

We are going through a season whereby the real estate markets are colling off and prices have stopped going up. However, like always, the next season is right around the corner so this will pass. Make no mistake about it – this cooling off period will not last forever. In fact, the government could light the whole market back on fire at any moment with a few swift actions ( for the record, I really hope they don’t. I’m merely saying it’s possible).

Here are the facts.

Real estate prices in and around the DMV are very stable compared to markets around the country. Markets that exploded (thanks to covid relocations) like Austin TX, Charlestown SC, Tampa Florida, and others have a much different course to chart than Northern VA or DC proper, yet we all get thrown in one bucket in national headlines. Unlike our region, those cities saw prices nearly triple in a few years, and in some cases they did even better. Something that gets that hot is subject to get “very cold” at the backend. In the DMV we have a very stable affluent population anchored by one of the strongest job markets in the world. Huge employers like Amazon and Lockheed Martin are growing their DC area presence like crazy, and we’re out of undeveloped land within 30 miles of the District. Unless you believe those white collar jobs cranking out $150k + salaries only wish to rent, we are going to have long-term demand to purchasegood homes.

Interest rates have relaxed. There was an overreaction to the Federal Reserve increasing the short-term “Federal Funds Rate “so quickly. It shocked the hell out of all of us and sent 30 year mortgages north of 6% in under 3 months, which hurt. However, the actual 30-year fixed rate you are getting is far more dependent on the 10-year Treasury rate, which as of early August has come down a decent amount. Bond markets are performing better (given investors are leaving stocks to seek more stable returns), which is impacting the “10-year T rate”, ultimately helping to bring down your 30-year mortgage rate. When the mortgage rates go down enough, the real estate markets have always responded with increased buying activity. 1+1=2 every time. We’ll see what happens to rates, but should the government get a handle on inflation sooner than later we could also see the rates come down accordingly. Remember, politicians want a good economy. History has taught us this.

We live in a stable region, anchored by good paying jobs, and don’t have enough solid housing to meet the growing demand of 30+ year old people coming to age and wanting more space. I would not bet against that long-term. Don’t only look at where we are today, look at where we’re going.

Buyers:This is a window of time where homes are selling for less than they were 6 months ago. Not by a lot, but some. And in times like this you can find even better deals from discouraged sellers. Don’t let the headlines exclusively drive your decision. Timing the markets is a fool’s game so long as the decision is based on your needs, capabilities today, and overall situation. This buying season will end and the markets will invariably tilt back to the seller’s favor at some point in the future. It’s not if, it’s when.

Sellers:Home prices are still performing near record levels. That said you don’t want to look at “what could have been” because those days are in the rearview. If you prepare the home, market it aggressively, and price the property in line with today’s comps you will still get a fantastic offer. The past 2 years of appreciation have not been erased in 3-6 months. The homes that struggle most are those which have passive marketing strategies, lots of visible issues / defects, and most importantly are overpriced to begin with. Those homes will trade for discounts but that’s not you.

If you have any questions please feel free to reach out.

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