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 over the past 19+ 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 updates to individual market status indicators (current mortgage interest rates, market absorption rates, etc.) that you also may find of interest at the bottom of this blog.
MARKET SUMMARY & FORECAST: While we had a somewhat robust market during the first half of 2017, the DMC market cooled off quite significantly and depreciated throughout the second half of 2017. The year ended with data showing that property values depreciated -0.5% per month for the last 3 months of the year and that property values overall appreciated less than +2% during 2017 in the DMC. Thus far in 2018, the resale property inventory remained at only 20-25% of normal but recently increased to 30-40% of normal levels for this time of year compared to the same time periods during past years. If inventory levels continue to stay low as is expected and after considering the other data indicators, we should have a very robust 2018 spring market. Our latest analysis shows that with the low inventories levels and increased buyer activity, home prices have appreciated at 1.1% over the past 3 months and the rate of appreciation is expected to increase further as we enter the heart of the spring market, especially for homes priced below $1M. While not yet clear, one could argue that the recently passed tax law may have some negative impacts for sales of homes priced above $1M. This could possibly be due to reduced mortgage interest and property tax write-offs. However, it is still too early to fully assess the impact of the revised tax law on the sale of $1M+ homes in Northern Virginia since this is one of the wealthiest areas with the highest per capital income levels in the United States, i.e., property taxes and mortgage interest write-offs may be of little concern locally to buyers who can afford homes in the $1M+ price range.
Our most recent analyzes of market absorption rates further solidify the fact that we have a sellers market in the DMC. The market absorption rate for single family detached (SFD) homes indicates that we currently have only 1.0 months of available inventory, while the townhouse market absorption rate indicates 0.5 months of available inventory and condo data indicate 1.0 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.
Besides low real estate inventory levels, the other major factor that may have significant impacts on the real estate market are the increasing mortgage interest rates. Based on the upswing in U.S. economy performance indicators, the Federal Reserve Board at its December meeting increased the prime interest rate by another quarter point to 1.50% and indicated that the Fed anticipates three more similar rate hikes during 2018. These increases are to offset inflationary pressures in the improving U.S. economy. Thus far in 2018, we saw the 30-year fixed mortgage interest rate increase each of the first nine weeks and only declined slightly this past week (Freddie Mac survey as of 15 Mar showed it is currently averaging 4.44%) and most pundits believe there will be further prime interest rate increases by the Fed that could eventually lead to 30-year fixed mortgage interest rates to range at high as 4.8-5.0% during 2018. While these rate increases seem very likely, however, mortgage lenders have reported that they have not seen any reduction in applications for mortgage loans thus far in 2018. For those of us who lived through interest rates in the 1980s, a 4.8% rate is a far cry from the 18.5% rate being levied on 30-year fixed rate mortgages in the 1980s. Of significant concern, though, is that the increasing interest rates will serve as a knock-out punch for some homebuyers, particularly first-timers.
Our market prospectus for 2018 is that we expect to see continued job growth in the Capital Region, relatively low residential real estate inventory levels, increased buyer activity and higher but still attractive mortgage interest rates. With this prospectus, the DMC real estate market should be quite robust in 2018.
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 19 years.)
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