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: The DMC real estate market thus far in 2018 has been driven by low inventory levels and surging buyer demand. At the beginning of the year, resale property inventory levels were only 20-25% of normal but in the past 3 months have increased to 55% of normal levels for this time of year compared to the same time periods during past years. With inventory levels have stayed low and after considering the other indicators, the data tell us that we have had a very robust 2018 spring market. Our latest analysis shows that the low inventories levels combined with robust buyer activity since January 1 have resulted in home prices appreciating on average at 1.6% per month during the 3 months comprising the spring market (March-May)...however, this 3-month average appreciation has already dropped to +1.1% per month based on incorporation of June market activity. Our analyses indicate that, while still a sellers market, property values will likely stop appreciating and will begin depreciating ever so slightly as we proceed through the summer months...prices likely may then depreciate even more during the remainder of 2018 if buyer activity continues to wane as is normally expected for the DMC market.
Besides low real estate inventory levels and good buyer demand, another major factor that may have significant impacts on the real estate market are increasing mortgage interest rates. Based on the upswing in U.S. economy performance indicators, the Federal Reserve Board at its June meeting increased the prime interest rate for a second time in 2018 to 1.75% and the Fed indicated that they plan to make two more similar rate hikes yet during 2018. These increases are to offset inflationary pressures in the improving U.S. economy. Thus far in 2018, we have generally seen the 30-year fixed mortgage interest rate increase to the highest levels in over 7 years and rates have retreated some recently...the Freddie Mac weekly survey indicated that the average rate was 4.53% this past week. Many pundits believe that added Fed rate hikes may likely result in a 30-year fixed mortgage interest rate of 5.0% by the end of 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. However, of concern, the increasing interest rates may serve as a knock-out punch for some homebuyers, particularly first-timers.
It is yet unclear as to the impact of the recently passed Federal tax cuts on the local real estate market, especially for homes priced above $1M. There are possible negative impacts that could be due to reduced tax write-offs by homeowners for mortgage interest and real estate property taxes. The impact of the new tax law is still unclear because Northern Virginia is one of the wealthiest areas with the highest per capita 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. We will continue to monitor and advise on this issue.
Our most recent analyzes of market absorption rates indicate that 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 1.4 months of available inventory, while the townhouse market absorption rate indicates 0.8 months of available inventory and condo data indicate 1.2 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 is to expect continued job growth in the Capital Region, to have continuing lower than normal residential real estate inventory levels, for reasonable buyer activity, to have higher but still attractive mortgage interest rates and, while still a sellers market, to have depreciating property values during the second half of 2018. Overall, the DMC real estate market should continue to be healthy but will have reduced activity during the remainder of 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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