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 2023 Northern Virginia real estate market hold in store for buyers and sellers?
Answer: Let’s take a quick look back to 2022. In the first half of 2022 we were still riding a very strong seller’s market. Interest rates were in the low threes, inventory was scarce, and buyers were in abundance. We saw lots of multiple offers and very happy sellers.
By mid-June we had seen a rapid increase in mortgage rates, to the point Realtors could feel buyers slamming on the brakes. By mid-summer interest rates peaked at 7.4%. This meant buyers essentially had a 50% increase in their potential payments vs. what they would have seen at the start of the year.
By the end of 2022 interest rates had calmed down, closer to 6.5%. Not surprising, the fall market was significantly quieter than the previous couple of years. Buyers decided it was time for a break and were reconsidering if it was a good time to make a purchase.
Some interesting statistics comparing the real estate market at the end of December 2021 versus the end of December 2022:
- Listings down 20.8%
- 30-year fixed mortgage rates finished the year at 6.4%
- Mortgage applications down 86% — 22 year low!
- Sales down 24.4%
BUT, despite this, home prices were up over the year, and we still only have a 1.6-month supply of properties for sale. This is still very much a seller’s market. A balanced market supply would offer 4 to 6 months of supply.
So, what’s ahead? Industry experts are anticipating a fairly flat increase of less than 1%. Keep in mind real estate markets vary significantly from one neighborhood, city, state to the next. It is really important to know what is happening in a particular neighborhood vs. comparing it to any national statistic you may hear. Historically, NOVA has been somewhat sheltered from the drastic fluctuations seen in other parts of the country. This is where an experienced agent can advise you of current trends in the neighborhood you are considering.
Lack of inventory, and continued population growth in our area support a seller’s market. The shortage of home building and the growth of the population since the financial crisis in 2008 has left buyers with not enough inventory to purchase from. Even though interest rates have gone up, they are still below historical trends.
What are we seeing so far in 2023? Buyers are back. They are looking for options and there aren’t many. We are seeing busy open houses and many more showings on new and existing listings than during the fall. Days on market has increased from spring of 2022. Buyers are taking their time, but this may not last as they realize the inventory is limited and they have competition even at these higher rates.
Where are the buyers coming from? This is a truly fascinating statistic. The number of first-time home buyers expected to make a purchase in the years to come is seen to be the biggest yet. Data shows us that the average age a person moves out of the family home is 26. The average age buyers purchase their first home in 34. According to the Census and Moody’s Analytics in 2021, there are over 50 million Americans between the ages of 26-34 — the largest group ever of this age.
Building starts have been down since the financial crisis of 2008. We need houses! Its simple economics, demand and lack of supply leads to increased pricing. Home ownership is still the key to wealth building in the US. The table below shows the net-worth of those who own homes versus those who rent.
Real estate has proven to be an excellent investment when held over long periods of time. You can still claim interest paid on mortgages against your income. If you sell the property and have capital gains of up to $250,000 individual or $500,000 for a married couple, those gains are tax free. You can make changes to your home as your life situation demands. The longer you hold onto it, the more you will benefit.
In this market it’s important to think long term. Don’t be too overly concerned about interest rates going up or down a percent or two. If they go down, you can refinance. If they go up, you can celebrate. Waiting can be more costly than buying what you can afford when you have the means to do it.
In hindsight, those crazy escalations when interest rates were at 3% weren’t so bad after all. Prices are still hovering around the same as they were then and now rates are over 6%. Buyers are having to lower their price to meet their affordability.
In summary, don’t wait! Now is a really great time to buy.
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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