It’s no mystery to Washingtonians (and the millions of transplants around town) that the local real estate market is hot. Just how hot has often been the question.
But recent predictions for an “over-heated market” and expectations of a turn-around may give waffling homebuyers the extra nudge to join the market at an opportune moment.
The Washington DC metro area has been a basket-case of housing prices in recent years. While the rest of the nation flopped in 2009 because of the sub-prime mortgage crisis, the area outpaced most of the rest of the nation. Housing prices dipped by an average of less than $50,000—a drop in the bucket compared to Nevada, Arizona, and Florida housing markets losing half their value.
During the crisis, DC maintained one of the areas with the lowest default rates. Makes sense, as the low chance of default by some of the area’s biggest employers certainly transmit to the local mortgage market. The federal government doesn’t downsize without an act of Congress or presidential decree—much less the dozens of international bodies housed in town.
Since the recovery of the real estate market got going in 2012, DC prices have been going up at a seemingly ever-increasing clip. According house-hocking Zillow.com, year-over-year closing prices for the residential market are up 40% since 2012. Yes, that’s right—forty percent.
Woohoo housing investors and REIT-holders!! Boohoo the rest of us that didn’t get in on the party in time…
But Zillow’s equally shocking predictions for the upcoming year gives those of us (including myself) who didn’t buy in early a chance to catch up. Their one-year prediction for the Washington DC Metro area is a negative 3.2%—which would be the first meaningful decrease in 6 years, if it comes to pass.
This prediction could be a “correction” back down to “true market values”—as economists are wont to say.
According to the Wall Street Journal, property analytic group CoreLogic estimates that the Washington DC metropolitan area is overvalued by 19%. Their baseline is what the firm considers “affordable,” based on the per capita income of the area. This may be overstating the issue because of the influx of non-market/non-wage pseudo-wages is known for. (Think a foreign government’s payments to the foreign nation’s diplomats in the the foreign nation’s bank account, but withdrawn here in the US to pay for rent). But the direction is still the same, if these two groups of analysts are correct.
Part of any “excessive prices” we may have seen in the last year or two could have been driven up by the expectations that the Fed will move their benchmark interest rate up somewhere into the black. With the prospect of your 30-year mortgage payments looking more expensive than they have since the crash, it probably got many people on board in preparation for the shift. And while it still hasn’t happened because the broader economy slowed down earlier this year, everyone knows rates can’t stay this low forever.
The prediction is likely due to supply, as well. During the era of historically low interest rates that could go on forever, homebuyers weren’t the only ones engorging for the coming winter of pseudo-high interest rates. There were tons of investors and real estate companies that splurged on new properties, as well. Some of those marginal property-owners may be left holding the bag.
Speculation as to why forecasts expect a price dip aside, I’ve started to think about taking advantage of the potential circumstances. My wages weren’t catching up quickly enough to home price advances in the last couple of years—so I was left paying higher and higher rent without putting anything towards my own equity.
I’ll hold off on griping—but point is, is that any potential increase in salary for me next year would have helped me buy in on a home in a stagnant market. In one that’s in decline, I’m starving man at a feast!
The thing is that interest rates, though slightly higher than last year, are still at very low rates. If you have great credit, you can still get in under 4%, which—compared to the interest rates of our parents’ generation—is a joke.
So it poses a slightly rougher year for sellers, but a great chance for young/new buyers to get into the market. Enjoy the catch up year and get to buying!