"I see that homes are selling pretty well this year," said a friend of ours recently. They're right! The spring real estate selling season is well underway and so far this year 675 properties have been placed under contract in the Bethesda/Chevy Chase area since January 1st. This represents a nearly 15% increase over the same period last year. No doubt the increase in sales is related to record low interest rates.
The National Association of REALTORS (NAR) Housing Affordability Index is near a record high. NAR reports that nationally, based on the median price of an existing single family home at $163,600 and the median family income of $60,999, the monthly payment (principal and interest) as a percent of family income is just 12.2%. If we had the same ratio of income to housing price locally our median household income would need to be around $300,000!
Is the housing market poised to finally come back to life? Certainly low interest rates have made housing more affordable but we feel the real missing ingredient right now is financial confidence. Before you get excited about a low rate on your mortgage you first have to feel confident in your job, or business, and the future stream of income you can generate. People are still very nervous and for good reason. Nationally, unemployment is 8.1%, down from 10% at the height of the crisis but far above "structural normal" unemployment in the 4% range. In Maryland the unemployment rate climbed from 3.25% before the financial crisis to over 6.5% today. It's dropped from 8% but is still historically high. In Virginia the rate is 5.5% and in DC the rate is 8.3%.
The national housing market shows signs of improvement (mainly in the form of lower year of year declines) but over all housing prices across the country are still falling. The latest S&P/Case-Shiller Home Price 10-City Composite and 20-City Composite Indices both declined around 3.5% as of February, with nine cities posting new lows. Our area has been immune to these persistent national declines but perhaps not any longer. Despite the aforementioned 15% increase in sales activity this year, prices locally have declined. Last year the average sales price through mid-May, for a detached home in the Bethesda/Chevy Chase area, was $1,018,024. This year that average sales price has fallen to $993,322 or a decrease in average price of 2.4%. The median price dipped further to just over 4.0%. Part of our drop in average and median prices can be explained by the fact that the market beneath $1,000,000 is stronger. Interestingly, both this year and last year at this point 113 homes were sold over $1,000,000 with the average price in both years hovering around $1,500,000. The result so far this year is that all of the increase in sales (some 46 homes) has occurred on sales below the $1,000,000 price tag.
Our theory on this is that we are seeing an increase demand in the "need" category of housing and static enthusiasm in the "want" category. We're defining "need" housing as basic housing that meets one's desire for keeping their head dry when it rains and the members of their household comfortable. "Want" housing satisfies our "needs" but goes a step beyond and speaks to our ego and reflects our accomplishments and financial status. A swimming pool for example is a "want" not a "need." Then there are new homes. I guess in this category the rules don't apply or perhaps a positive shift is underway. Recent national sales data show a jump in new home sales. New home sales nationally are up 10% over last year with big 25% increases on the West and East coasts. Our builder clients are eagerly seeking out new lots right now and local sales of brand-new in-fill home projects have been brisk.
Here's a puzzling question. Usually as demand at the lower end of the market heats up these homeowners trade-up to the larger homes more expensive homes. When this happens we see a spike in pending sales in the upper bracket. This does not appear to be happening. The number of pending sales above $1,000,000 is about the same as last year so where are all these recent sellers going? Are homeowners downsizing in price range and becoming more fiscally conservative? Are people leaving the area? Are people opting to rent instead of own as some national trends are suggesting is happening? Are they skipping the older home in favor of brand-new? All of this may be true.
Right now the market appears to be "top-heavy" with the majority of the homes for sale listed above $1,000,000. Of the 306 detached homes listed for sale nearly 200, or 65%, are listed for sale above $1,000,000. In fact the average price of all the detached homes listed for sale right now is $1,515,000. With the average sold price hovering just below $1,000,000 the market appears to be over saturated with high-priced homes and under represented below $1,000,000. If you are contemplating the sale of a higher end "want" home you may have to be patient. There is an 8-10 month supply of homes for sale in upper bracket properties. If you are contemplating the sale of a basic "need" or starter home, at the lower end of the pricing spectrum, you may be pleasantly surprised by the response your home receives in this market. Tales of multiple offers, on well-priced property in the $600,000-$800,000 price range, are whispering through the agent community.
In summary low interest rates have made housing more affordable than ever and if you are considering a purchase the recent dip in housing prices locally may make now an opportune time to trade-up. If you are considering a sale, now may also be an excellent time to do so. Again, low rates help your potential buyers afford more home making it easier to sell your property. Will rates always remain this low? Don't bet on it! Many economists are predicting a rise in interest rates in the near future and that will certainly have a dampening effect on both the quantity of homes sold and their prices.
As always, if you are considering the purchase or sale of a home were here to help guide you through the process. Please call us! We also appreciate your referrals to friends and family.
~ Brian & Amy Maury