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The 2021 market was a whirlwind year in the Alexandria and DC Metro area. 2021 started with a bang and continued the 2020 market trend. The Spring market saw a level of competition we have not seen in Alexandria – with buyers regularly writing upwards of 10 offers before securing a home and prices frequently escalating six figures with no contingencies. The S & P Case Shiller Index noted that the home price appreciation from August 2020 to August 2021 was 19.9% – a 12-month record! Since 1980, Fortune Magazine calculates the average home price appreciation has been 4.6% per year. 2021 was more than four times the historical average!
After a wild spring, the real estate market in our area returned to a much more normal summer market, meaning significantly slower than in the spring months. This was markedly different from 2020, where we saw a very hot summer and fall market after a pent-up demand from the spring quarantine. For context, one study showed that nationwide, in October of 2021, 60.3% of sales involved a bidding war, compared to a record high of 74.5% in April! The market is still hot, but there was a noticeable difference in a frenzy as the market returned to its normal seasonality. By the end of 2021, we returned to a reasonably stable market that much more closely resembled years prior in our area. Still a seller’s market, but not quite as extreme as in the spring. So, what’s ahead for the coming year?
The two things that we believe will impact the market most are the continued inventory shortage in our area (combined with a Millennial Influx into the market) and rising interest rates and real estate taxes.
Continued Inventory Shortage & Millennial Influx to the Market
The first and most impactful is the continued inventory shortage, which continues to be the case throughout the country. According to the National Association of Realtors: “The U.S. has underbuilt housing by at least 5.5 million units; it would take a dramatic, sustained surge in home-building to meet demand.” In our area, land and space are extremely scarce, especially inside the Beltway and in Alexandria. Millennials especially are drawn to the region. We have seen an even larger influx in Millennials moving to Alexandria since Covid – moving from DC and other urban areas like NYC. As most Millennials are now in their 30’s, we are seeing many more enter the real estate market. Freddie Mac notes that 71.2 million Millennials will reach prime home-buying age by the end of this decade. In Alexandria, we are finding many of our Millennial clients purchased real estate early and are now moving up to the second or third home they have owned. Lower inventory always points towards a seller’s market and continued price appreciation. ♥ Click here to learn more about Millennial buyers.Rising Interest Rates & Real Estate Taxes
The Federal Reserve announced in late December that rates will rise three times in 2021. While this does not directly correlate with mortgage interest rates, it does point to increasing mortgage rates. The interest rate the Fed is referring to is the interest rate that banks pay when they borrow money. The idea is that when this rate is low, the banks pass that along to their consumers. When the bank’s rate rises, consumers see increases in personal loans like mortgage loans or credit card interest rates. The Mortgage Bankers Association projects rates to be at 4% by the end of 2022, more than a point higher than we have been seeing but still lower than pre-pandemic levels. We anticipate the rise in interest rates to light a fire under buyers. They will want to enter the market before they get much higher to keep their buying power strong. If you are thinking about buying in 2022, we recommend buying early in the year!Extension of Remote Work Policies
To a lesser degree, we also see the extension of work from home policies to play a role in the 2022 market. With Covid cases spiking again and more companies holding off on return to work plans, we are seeing some hesitancy for some in the market. Some of our clients have decided to move permanently out of the area (and possibly keep a pied e terre in Alexandria) as they do not anticipate having to return on a full-time basis. Others are holding off on making a decision about a move until there is more clarity around work policies – which in turn causes more inventory shortages. Many others who have decided to move further out from their jobs said a return to work would only be one or two days a week, making commuting times and living close to public transportation a much less important factor in the home search.The Bottom Line
We anticipate the 2022 market to be more stable than 2021 and follow the standard curve of the market with a busy and competitive spring and a more balanced summer and fall market. Low inventory will continue to be the main challenge in our area. However, bidding wars may not be as prevalent as in 2021, given rising interest rates and increasing home prices causing some affordability issues for buyers in the market. Fortune Magazine reviewed seven industry forecast models, which ranged widely in their predictions for home price appreciation this year. On the low end was the Mortgage Brokers Association which was the only model to predict price depreciation (of 2.5%) over last year due to rising interest rates. All other models predicted appreciation. CoreLogic forecasts a 1.9% rise, Redfin 3%, Freddie Mac 7%, Fannie Mae 7.9%, Zillow 13.6%, and Goldman Sachs a whopping 16%. Outside of that study, the National Association of Realtors anticipates a rise of 5.7% in 2022.Of course, no one has a crystal ball. But based on the industry projections, the inventory shortage in the DMV, combined with an increase in millennials both to the area and the real estate market, we anticipate further price appreciation despite a likely rise in interest rates.If you have any questions about the market or want to chat about buying or selling, please don’t hesitate to reach out. We would love to chat!
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