This week’s Q&A column is written by Rebecca McCullough of McEnearney Associates Realtors®, the leading real estate firm in Alexandria. To learn more about this article and relevant Alexandria market news, contact Rebecca at 571-384-0941 or email [email protected]. You may also submit your questions to McEnearney Associates via email for response in future columns.
Question: What does the 2021 real estate market look like so far?
Answer: Real estate fascinates many people. The real estate market over the last year, however, has been particularly captivating to follow. Whether you’re actively in the market or just mildly interested, there’s been a lot to discuss this year (and we’re only halfway through!).
The headlines, the stories from neighbors and our personal experiences have inspired many a recent conversation in this busy, sometimes unpredictable market. Not surprisingly, we hear some useful analysis, but we might also hear the myths, misconceptions, and falsehoods about the state of the market and where it is headed.
What really happened in the real estate market between January and June 2021?
Did every house on the market sell? Did they all get a dozen offers and sell for $100,000 over the asking price?
The answer is no. (Well, one house really did sell for over $1 million over asking price, but that was rather exceptional, to say the least). The extreme demand and its effects were well-advertised events that happened to many but certainly not all. Most homes that received multiple offers and sold quickly (and sometimes over the asking price) had a few things in common: They were in desirable neighborhoods, they showed very well, they had good outside space and they were priced right (or some combination thereof).
Many sellers who invested in their homes in order to put their best foot forward did very well. This included painting their home interior in light neutrals, lightening up dark kitchen cabinets (more paint!), changing outdated countertops, updating bathroom vanities and fixtures, replacing worn carpets, refinishing scratched flooring, removing clutter, and freshening up the landscaping.
The other end of the spectrum also did well. Homes in original (or close to it) condition that had not been updated but were located in desired neighborhoods and — importantly — priced right, attracted contractors and those looking to purchase for renovation.
The homes that struggled were the ones somewhere in between. This is true in almost any kind of market. Homes that have been updated at some point in their history, but 10 to 20 years ago, struggled.
Sellers who thought the hot market meant that they could just put up a sign and get multiple offers were often disappointed. In some cases, these homeowners not only did not get multiple offers, but they may have received no offers at all. The unintended impact in many cases was that buyers saw the home remain unsold in a very active market and thus wondered what was wrong with it.
What do the stats say?
COVID has changed the way a lot of people are choosing to live. Home offices and backyards, for example, weigh more heavily than home theaters and chef’s kitchens this year. The first six months of 2021 continued the trend of increased condos on the market, and high demand for detached and attached homes with outdoor space.
To truly understand the market today, we need to understand two important statistics: The number of homes for sale and under contract, and the demand for those homes. Either in isolation means little.
The real estate housing headline of 2021 is, and will continue to be, “There is an inventory shortage.” Let’s unpack that.
Closed residential sales in NOVA in the first quarter of 2021 were up 19% from the same quarter 2020. March 13, 2020, is the date NOVA started to shut down due to COVID, yet March 2020 sales were still up 12% from 2019. We were on track for a very strong spring market until March 13. The stats from April 2020 went in the direction everyone was expecting, with a decline of 14% over 2019. However, by the end of May, we were back in business. The number of properties sold in May 2020 was 13% over 2019. As the year progressed, sales as compared to the previous year continued to increase over last year into the 30% range.
So when we compare the rest of 2021, let’s remember by May 2020 we were already back into a very strong market. So you learn that sales in April 2021 were up 41% — that may not be too much of a surprise — but May is up 59%, and June will likely be similar (stats not published at the time of the article).
Homes are selling — fast. Demand is high — it must be time for the correction, right?
Statistics are fantastic for analyzing where we’ve been, but how do we use them to figure out where we are going? We must look at the second half of the equation: inventory.
First, let’s understand what today’s inventory in NOVA looks like compared to the last 18 years. The average number of listings on the market in Northern Virginia at the end of June were:
- 2006-2008: 11,100
- 2003-2018: 6,178
- 2021: 2,479
So, there are less than a quarter of homes for sale on the market than before the crash in 2008, after which demand plummeted, people were underwater on their properties, and prices fell. And all of this happened with interest rates above 5%! At the time, predatory lending practices were a big reason why (loans made for more than the value of the home and people “overbuying” homes they couldn’t afford). Today’s regulations prohibit those predatory practices and have regulated the mortgage industry to minimize “overbuying.”
Today, we know inventory is very low compared to the previous 20 years’ inventory. Now, let’s consider the demand. How do we determine demand? Is demand waning? Absorption rates give us the answer. Absorption rates are defined as the number of contracts written in the month divided by the number of contracts written, plus the number of currently available homes for sale.
If 10 contracts were written in June, and there were five homes available for sale as of June 30, the absorption rate would be 10/(10+5)= 67%. Anything above 60% is an extreme “sellers’ market.” The absorption rates for NOVA-area communities at the end of May 2021 were almost all over 50%, with many over 60% for detached homes and townhouses!
Is there a downturn coming? Well, presumably this level of demand is not going to go away overnight. People worry inflation is rising, and therefore interest rates will increase. However, even if they go to 5% that still may be very affordable. (Just ask those who bought homes in the 1980s!)
Locally, here in NOVA, we still have a great deal more incredible development planned with National Landing, as well as the projects planned for North Old Town and Eisenhower. The only correction we see coming in the near future will be if there is some other unplanned and wildly disruptive disaster that trumps COVID. (Not even COVID could dampen the NOVA real estate market for long!)
In summary, buyers and sellers can expect a similar pace, hot demand and a busy market that aligns with the normal seasonal ebb and flow. As July tends to be slightly calmer than the busyness of May and June, vacation here I come!
Rebecca McCullough has built a successful real estate business in Alexandria and Northern Virginia by providing excellent service to her clients. If you would like more information on selling or buying in today’s complex market, contact Rebecca today at 571-384-0941 or visit her website RebeccaMcCullough.com.
If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: [email protected] or call 703-549-9292.
McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. www.McEnearney.com Equal Housing Opportunity. #WeAreAlexandria
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