As owner of The R&R Team and as a graduate economist/research analyst, I take great pleasure in completing monthly analyzes of the *Dulles Market Corridor (DMC) residential real estate market and in providing the results of these analyzes to our clients in this blog. We strive to ensure that the analyzes are consistently accurate by using only highly reliable data. For those of you who have followed these analyzes for the past 20+ years, we believe that you will attest that the analyzes have been quite accurate in providing real-time assessments and forecasts of the local real estate market. Besides the market summary and forecast that follows below, we also provide important recurring updates to individual market status indicators (current mortgage interest rates, etc.) that you also may find of interest at the bottom of this blog.
MARKET SUMMARY & FORECAST: The DMC real estate market in 2018 has been driven by a mix of low inventory levels, good buyer demand and increasing mortgage interest rates. At the beginning of the year, resale property inventory levels were only 20-25% of normal and, while improving since then, are still only 40-45% of normal levels for this time of year compared to the same time periods during past years. While inventory levels have stayed low, the data indicate that we have had very good buyer activity and a robust 2018 spring market resulting in home prices appreciating on average at 1.1% per month during the 3 months that comprise the spring market (March-May). While ebbing since May, buyer contractual activity has remained stronger than was anticipated during the fall market...instead of normally expected property value depreciation, strong buyer contractual activity resulted in property value appreciation of +0.2% per month for the past 3 months. This stronger than anticipated buyer contractual activity is likely attributable to buyers anticipating and trying to get ahead of further increases in mortgage interest rates (30-year mortgage rates are currently holding near the 5.0% range and are at their highest levels in over 7 years).
These increasing interest rates may serve to have significant impacts on the real estate market going forward. Based on the upswing in U.S. economy performance indicators, the Federal Reserve Board has increased the prime interest rate for a third time in 2018 and the Fed indicated that they plan to possibly make at least one more rate hike yet during 2018. These increases are to offset inflationary pressures in the improving U.S. economy. Thus far in 2018, we have seen the 30-year fixed mortgage interest rate increase to its highest level in over 7 years with the Freddie Mac weekly survey indicating an average rate of 4.75% this past week. Many pundits predicted all year that added Fed rate hikes may likely result in a 30-year fixed mortgage interest rate of 5.0% by the end of 2018. These increasing interest rates may serve as a knock-out punch for some homebuyers, particularly first-timers. However, Freddie Mac indicates that while increasing interest rates may have had some negative impacts on entry-level buyers, the real culprit may be lack of actual housing inventory in affordable price ranges for entry-level buyers (and with continued increasing home prices).
Based on our most recent analyzes of market absorption rates, we continue to have a SELLERS MARKET in the DMC. The market absorption rate for single family detached (SFD) homes indicates that we currently have only 1.9 months of available inventory, while the townhouse market absorption rate indicates 0.9 months of available inventory and condo data indicate 1.7 months of available inventory. FYI: Market absorption rate represents the number of months needed to sell off existing inventory for a particular property type based on recent buyer activity. Real estate pundits nationally and regionally indicate that market forces typically need to stabilize home inventory levels at a 3-to-4 month-supply-level to constitute a normal or balanced market (where economists say that supply and demand are in equilibrium). A market absorption rate that falls below this norm indicates a sellers market, while a rate that is above indicates a buyers market.
Our current market prospectus for the post-Holiday period is to expect continued job growth in the Capital Region, to have continuing lower than normal residential real estate inventory levels, to continue to have strong buyer contractual activity, to have higher but yet still attractive mortgage interest rates and to have continued appreciating property values going into the new year. Overall, we should continue to have a healthy DMC real estate market in the foreseeable future.
For sellers and buyers who are already in the market or planning to enter the market in the near term, we highly recommend that you also monitor on a continuing basis the latest detailed data for each of the individual market status indicators that are provided below.
(*NOTE: The Dulles Market Corridor (DMC) encompasses the large market area of Herndon/Oak Hill, Reston, Sterling/Potomac Falls/Dulles, Ashburn/ Broadlands/ Brambleton, Leesburg/Lansdowne, South Riding/ Chantilly (Loudoun County), Stone Ridge, Aldie/ Arcola and Chantilly (Fairfax County). The R&R Team has been tracking market data closely in the *DMC for the past 20 years.)
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