The DC real estate market has always been a hot commodity, with buyers and sellers vying for the best properties in prime locations. However, in recent months there has been a slowdown in the market, primarily due to inflation and rising mortgage rates. As a result, many potential buyers are holding off on making a purchase, while those already invested in the market are taking a wait-and-see approach.
Despite the current challenges, the D.C. real estate market is still one of the most desirable in the country. With its strong economy and broad job market, the Nation's Capital continues to attract new residents worldwide. And as interest rates begin to stabilize, it is expected that the market will soon rebound. Keep reading to find out how inflation and rising mortgage rates are impacting Washington, D.C.'s real estate market.
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There are indications that the housing market in the United States is starting to cool down amidst a rush of fresh inventory and increased interest rates. This comes after a dramatic rise in property prices enriched sellers and riled up buyers into frenzied bidding wars.
In cities once considered real estate hotbeds, such as San Jose, Chicago, and Phoenix, the number of "For Sale" signs has increased. According to estimates provided by Zillow and the National Association of Realtors, the volume of monthly house sales in the United States has experienced double-digit reductions over the past year. The number of homes sold in May fell by 19 percent compared to the same month the previous year. Early data suggests that the decline was even more dramatic in June.
To this point, the slowdown has not brought much of a reprieve to buyers. Instead, economists argue that a growing affordability problem is causing many potential buyers to turn away from the market. This crisis is being driven by the collision of inflation and rising interest rates.
This is the case as a result of the fact that some sellers, aware of the meteoric rises that occurred in 2020 and 2021, which drove the average price of a home up by more than 40 percent, are hesitant to drop their ambitions. And property values continue to rise.
The slowdown in the housing market is reflective of broader developments occurring in the economy at a time when officials are working to bring inflation down from its high level not seen in decades. Since the beginning of the coronavirus epidemic, home prices have been steadily rising. One factor that contributed to this rise was the historically low-interest rates that were prevalent in 2020 and 2021.
This year, however, the Federal Reserve changed its policy in response to rising inflation, which shifted the focus of economic attention to the cost of vital goods and services such as food, fuel, housing, and other commodities. The benchmark interest rate has been increased by the central bank three times in 2022, and the bank has indicated that four additional rises are forthcoming. The most recent increase, which occurred in June and amounted to three-quarters of a percentage point, was the most since 1994.
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Despite the anticipation that higher interest rates will have a cooling effect on the housing market across the U.S., the D.C. market is one of the few places that may be immune to this effect, as policymakers are increasing rates.
The housing market in the U.S. capital has rebounded from prior economic downturns, and it is continuing to stay hot despite rising interest rates and record prices dampening demand across much of the country.
According to the Greater Capital Area Association of Realtors, there was an 11.3 percent increase in sales volume from March to April in both the District of Columbia and Montgomery County, Maryland. According to the data provided by the Northern Virginia Association of Realtors, house sales in Northern Virginia increased by 5.8 percent month over month.
These figures go against the national trend, which shows that rising prices and mortgage rates prompted a decline in sales. Real estate agents believe that the metropolitan area surrounding Washington, DC is resistant to the rising mortgage rates that are further pushing up prices because of the region's high incomes and education levels, as well as the restricted property availability.
They highlight, however, that the majority of the recent activity has been concentrated on more expensive homes, with purchasers with higher incomes paying more than the list price in order to lock in mortgage rates out of worry that they would continue to rise. As a result of recent price increases, becoming a homeowner is becoming increasingly difficult for first-time buyers
Even if home prices begin to fall in other parts of the country, factors like a meager housing inventory and an influx of high-paying jobs combined with the fact that the metropolitan area surrounding Washington, D.C. has quickly recovered from previous downturns, including the housing crisis of 2008, raise the question of whether D.C. home prices will begin to fall anytime soon. Rising interest rates are also deterring low- and middle-income families from participating in the market altogether.
Increasing mortgage rates and limited supply may have cooled the market, but in comparison to pre-covid real estate, D.C. housing sales are still experiencing impressive growth.
Choose the McKenna Group for luxury DC real estate
As previously indicated, when it comes to high-income buyers, luxury real estate shows no sign of slowing down – despite a cooling market. If you’re looking for luxury homes for sale in Washington, D.C., Desmond McKenna
and Amanda Adams
are the real estate professionals you’ve been waiting for. The McKenna Group’s strategic approach to buying real estate in the DC area will give you a leg up against the competition throughout the duration of your search and purchasing process. Contact The McKenna Group
to get started with finding your dream home today!*Header photo courtesy of Unsplash