3Q 2018 Real Estate Update
You can smell the change in the air, just like that musty aroma of wet leaves that comes in the fall. Every 2 weeks we have a team meeting at my office. There are usually between 30 and 40 agents who come. It’s a great way to get a sense of what’s going on out in the market. There are a variety of levels of experience, and many of us work in broadly scattered areas of the DMV. The conversation is usually quite lively (realtors can be a chatty bunch 🙂
The sentiment at last week’s meeting was “the market shift is here”. Gary Keller, the head of Keller Williams International, has been talking about a shift since I came to the company 2 years ago. The hot seller’s market is cooling off. Inventory is up a bit, and buyers have more choices. Average days on the market are trending up in many neighborhoods as well, although both are still on the low side by historic standards. Everyone seems to feel that it’s not just a seasonal blip.
The fall market is historically a short sprint of activity before things slow down for the holidays. It usually starts right after Labor Day, and by early November things have cooled off, so there is not a lot of time to try and figure it out.
What’s driving the change? There are a few pieces to the puzzle:
Interest rates – They’re up… since the recent low of 3.43 in Aug 2016 they’ve moved up to the 4.5-5% range. For someone who is getting a $400,000 mortgage that translates to an extra $250-300/month in principal and interest payments on a 30-year mortgage. That’s a considerable chunk of change.
Prices have hit high levels – Large swaths of the DMV have recovered all of the losses from the great recession and moved into the realm of new historic highs. Not all areas can say that, but many can. When people see that, they tend to take a step back and wonder if this is the top of the market. The fundamentals of the market are stronger than they were back in 2006, no “liar loans” these days, so the consensus is that the adjustment when it comes, will be more gradual and less severe than it was in 2006-2011. Let us hope!!
Real Estate trends have historically moved from west to east – There is a lot of press about how the market on the west coast has already shifted. We’ll see how long it takes to migrate east, the west coast is like the canary in the coal mine for those of us back east.
All markets shift – nothing goes steadily up forever. Values ebb and flow, they’ve been flowing for a while, so it’s time for some ebb. Prices have generally trended up since 2011 in the DC area. Some neighborhoods have seen huge gains, some much more modest, but the trend has been almost universal. Historically “up” real estate markets have a 6-8 year life cycle, so we are due for an adjustment.
Below are a couple of charts: The first one shows the price trend in the Mid-Atlantic since 2011 and the second shows inventory levels in the same area during that same time period. I’ve got more thoughts, data and other perspectives, hop on over to my blog to read more.