Rising rates are expected to cool the housing market, but some markets may not be affected — mostly in Washington, D.C., where policymakers are raising rates.
The property market in the nation’s capital has emerged from a previous recession, and it continues to heat up even as rising interest rates and record prices have cooled demand across much of the country.
Sales in the region and Montgomery County, Maryland, soared 11.3% from March to April, according to the Association of Metropolitan Area Realtors. Home sales in Northern Virginia rose 5.8% month-over-month, according to the Northern Virginia Association of Realtors.
The numbers buck a national trend, with rising prices and mortgage rates causing U.S. home sales to drop 2.4% from March to April, according to data released Thursday by the National Association of Realtors.
Realtors say high incomes and education levels in the Washington metro area, combined with a lack of housing supply, have allowed the area to withstand soaring mortgage rates that further push up home prices.
But they noted that much of the recent activity has been focused on pricier homes, with high-income buyers paying more than the sticker price to lock in mortgage rates on fears of further increases in mortgage rates. Rising prices make it difficult for first-time buyers to gain homeownership.
Harrison Beacher, president of the Greater Capital Region Association, said: “At the lower entry points in our market, you see the biggest impact of interest rates because they cause people to not be able to buy what they want.” Real estate broker.
The median sale price in Washington, D.C., hit $699,000 last month, up 5.9 percent from both March 2022 and April 2021, according to the association.
Price increases in the region were not as high as the national average, which surged an unprecedented 14.8% month-on-month. Experts say this is because prices have risen in the area.
Median home prices in the Washington metro area have risen every year for the past nine years, up 50 percent since April 2013, and have seen the biggest gains during the pandemic, according to real estate firm Bright MLS.
A major factor driving high home prices is the scarcity of homes for sale. Housing inventory in the Washington metro area has halved since the start of the pandemic, falling from 1.78 months of supply in April 2020 to 0.86 months the previous month, according to Bright MLS. The same analysis found that housing supply improved from March to April, rising 26%.
Another is the influx of high-paying jobs into the region, helped by high-profile companies and federal government contractors who want to be closer to Washington policymakers.
Aerospace giant Boeing, which relies heavily on federal contracts, announced earlier this month that it was moving its corporate headquarters to Arlington, Virginia. The announcement comes after Amazon announced plans to build a massive headquarters in Arlington and hire 1,900 new employees in the area, which some advocates warned would only worsen housing affordability.
These factors, combined with the Washington metro area’s rapid rebound from previous downturns, including the 2008 housing crisis, raise the question of whether home prices will fall anytime soon, even as prices in other areas begin to fall. nation.
“In the event of a nationwide correction or adjustment, rather than drastic, employment and incomes will remain strong, helping to protect prices,” Beecher said. “Nationwide, when prices in some markets fell 20% or 25%, DC never actually contracted more than 8.5%.”
Soaring mortgage rates have increased the cost of buying a home. The average 30-year fixed mortgage rate hit 5.3% last week, up from 3.2% at the start of the year, according to Freddie Mac.
Mortgage rates surged shortly after the Federal Reserve raised interest rates in mid-March to combat soaring U.S. inflation. Chairman Jerome Powell has said the Fed could raise interest rates again if inflation persists, a move that would push mortgage rates even higher.
Those rates are forcing some potential buyers, especially low- and middle-income households, to cut their budgets or stay out of the market altogether. According to Zillow, a buyer with a monthly budget of $1,500 could buy a home for $340,000 at last year’s prices. Now, monthly payments only get them a $275,000 home.
“We do expect the market to begin to rebalance this spring as rising costs keep enough potential buyers on the sidelines waiting for inventory to start catching up with demand, but we’re not there yet,” Zillow economist Nicole Bachaud said in a statement. a little.” .
Realtors in the DC area pointed to a drop in sales from last year’s peak, when mortgage rates hit record lows and cash-rich buyers quickly purchased the area’s housing inventory. Sales in the state capital have fallen 11.9% since April 2021, while sales in Northern Virginia have dropped 13%.
“Rising mortgage rates and limited supply have finally cooled the market, but we’re still seeing a significant increase in home sales considering our pre-pandemic world,” said Derrick Swaak, managing broker at TTR Sotheby’s International Realty and Northern Virginia Association. growth,” a member of the Board of Realtors, said in a statement.