After the tumultuous last few years in real estate, one lesson stands out – expect the unexpected. The world of real estate has been a wild ride lately for sure, but as always at the start of the year, I love predicting what we see in the next 365 days of real estate. And to do that, it’s always best to start with a review of the past year. As Steve Jobs once wisely said, “You can’t connect the dots looking forward, you can only connect them looking backwards.”
Reflecting on my 2023 predictions from last year, they were very close to the market, except for the extent to which rates rose by the year’s end (experts we talked to anticipated rates in the 6’s for much of the year). For a detailed look at my predictions, you can click here. Here are the highlights:
2023 PREDICTION: We believed that the market had achieved a much-needed balance, resembling a “return to normal” with a robust spring, a slower summer, and an active fall for home sales.
2023 REALITY: This prediction largely held true. The spring was the busiest period, but the fall market was less robust than usual, primarily due to rates peaking at nearly 8% in October.
2023 PREDICTION: Well-priced and well-presented homes would remain competitive, but escalations would be more moderate. Sellers would need to strategize and price carefully with their Realtors. Buyers would have more opportunities to negotiate on price and include contingencies, potentially leading to lower payments despite higher interest rates.
2023 REALITY: This prediction was accurate. Multiple offer situations were fewer than in previous years, occurring mainly for well-located, well-priced, and well-prepared homes. These properties were swiftly sold over-list price with no contingencies. Homes that didn’t sell quickly spent more time on the market, allowing for negotiations and contingencies.
2023 PREDICTION: Anticipating a disproportionately high number of multiple-offer situations in the spring compared to the rest of the year, as is typically the case.
2023 REALITY: As expected, the spring market saw increased competition with more inventory, providing opportunities for buyers, but also resulting in more multiple offers.
2023 PREDICTION: We foresaw home values holding steady with a slight increase in 2023 and a larger increase in 2024, considering the aforementioned factors.
2023 REALITY: This prediction held true, and we expect it to continue into 2024.
Looking ahead to 2024, many of the same factors are in play, but there are additional considerations this year. Here are the most important things to watch in 2024.
Interest Rates, Inventory, and The Economy: The economic outlook at the beginning of the year is positive, with the stock market on the rise, and favorable trends in inflation and unemployment rates. The Federal Reserve has indicated that there will be no further rate hikes and has suggested the possibility of up to 6 rate reductions throughout 2024. It’s anticipated that interest rates will begin to decline more rapidly around March. Decreasing interest rates are likely to intensify competition for several reasons. Buyers who have been waiting for lower rates may re-enter the market, while sellers who have been holding off on buying or timing the market for a more competitive environment may also become active. More inventory will provide buyers with more options but will also lead to heightened competition.
The Election: The 2024 election is a significant factor to monitor. Traditionally, the DC area experiences a market slowdown during August when Congress is out of session, and this slowdown often extends into the early part of the traditional fall market (September through November) during election years. The distraction caused by the election and the generally pessimistic news cycle can impact consumer sentiment. However, after the election, regardless of the election outcome, consumer sentiment typically improves, leading to increased activity in the real estate market continuing past November into December and January.
Monumental Sports Move: The potential move by Monumental Sports, particularly in Alexandria and Chinatown, may have some impact on the real estate market. However, the move is still pending local approval, and any significant effects are likely to be seen closer to the proposed 2028 relocation. Nevertheless, we have already heard from several clients about the move. One client in Chinatown is looking to sell their investment property and another investor is seeking opportunities near the new proposed stadium in Del Ray and Potomac Yards. Check out our article here for more about why the Alexandria market is a good investment.
Post-Covid Housing Preferences: The changes in housing preferences driven by the Covid years of 2020 and 2021 continue to influence the market. Features such as home offices, outdoor living areas, flexible floor plans, and workout spaces, which became crucial during the pandemic, remain important to today’s buyers. Interestingly, homeowners who relocated away from urban areas during the pandemic are now reconsidering their housing needs, with some seeking to return to more urban living for proximity to work, restaurants, and culture. Conversely, others who initially embraced remote work are now exploring opportunities for relocation outside the area as they are no longer tied to their work locations and are seeking different lifestyles or climates.
Continued Demand for Urban Living and Affordability Issues: Despite shifts in remote work trends, urban living remains extremely popular in the DC area due to its vibrant culture, job opportunities, and amenities. However, the region has long grappled with affordability issues, particularly within the Beltway, and this challenge is expected to persist in 2024. Limited housing inventory and strong demand may contribute to rising prices, potentially creating barriers for first-time buyers and low- to moderate-income households.
Overall, we anticipate 2024 to mirror 2023 in terms of major market influences. Interest rates, low inventory, and global events will continue to shape the market trajectory, with home values expected to rise at a slower pace compared to the peak years during the Covid era. However, a significant drop in rates could potentially lead to a further increase in home values.
In summary, prices are projected to continue their upward trend in our area. The persistently low inventory, combined with the impact of Covid and fluctuations in interest rates, has exacerbated the issue. The direction of rates will influence the extent of price escalation and market competitiveness. This could potentially delay the traditional spring market if rates adjust downward in the summer and fall, offsetting some of the typical slowdown factors during election years.
Every real estate situation is unique. Please reach out to us so that we can tailor the best course of action to help you achieve your individual real estate goals. We are here to support you and set you up for success!