Looking Ahead to 2023

December 29, 2022 | Market Pulse | By: Allison

The last few years in real estate have been exciting to say the least! So what’s in store for the Alexandria real estate market in 2023? Let’s first take a look back at some of the key factors driving the local market over the last few years.

Fall 2018 – Amazon announces National Landing as site for HQ2 in late 2018.

Spring 2019 – The market across Alexandria and Arlington became hotter than it had been (to that point) as many people renting decided to get into the real estate market; while many homeowners rented out their homes instead of selling in hopes of catching the rising home values they anticipated would be coming as Amazon employees moved into the area. What actually happened was a “perceived effect”. Prices did start to rise as inventory decreased and demand increased.

Late Winter 2020 – We all know what happened in March 2020! The result was an unusually slow early Spring market across the DMV. 

The Rest of 2020 – Then… the market caught FIRE as remote working, distance learning and quarantine led many across our region to demand more space. Move-up buyers (buying a bigger house and selling the old house) and first time buyers (leaving their small apartments with no outdoor space) were responsible for most of the moves. The lack of homes for sale largely resulted from many people already in the larger homes not wanting to move – either because they wanted the space or had concerns about showing their homes during Covid. Price escalations, waiving contingencies and multiple offers became the norm.

Spring 2021 – The craziness continued into 2021. But in 2021, slightly more inventory opened up as many people moved out of the area due to extension of their work from home policies or new flexible teleworking options became available. We also saw more people moving to their second homes or buying homes out of the area. Escalations, waiving contingencies and multiple offers continued. Home values rose dramatically.

The Rest of 2021 – The market slowed slightly due to vaccinations and increased travel opportunities as the world opened up a bit and we all got used to the new normal. Escalations, waiving contingencies and multiple offers continued, but at a slightly less frantic pace than the spring. Home values continued to rise.

Late Winter / Spring 2022 – This year started with a bang with the busiest first half of the year in real estate I’ve seen in my 15 year career. Escalations went higher than we’ve ever seen, often into six figures above asking prices. There were almost no contracts going through with contingencies. Home values rose even further. It was a great time to be a seller and an emotionally trying time to be a buyer.

The Rest of 2022 – Interest rates rose wildly (from 3.2% early in the year to – at one point – over 7%) as the FED tried to get inflation under control, causing a steep decline in demand across the country. Home values held fairly stable but days on market increased. Certain properties were still selling in multiple offer situations with no contingencies and price escalations, but the norm shifted to homes receiving only one offer and usually after a few weeks on market. It became possible for buyers to negotiate prices and even include contingencies for the first time in years! At the end of the year, interest rates began to lower slightly.

 

So what’s in store for the real estate market in 2023? 

 

There are three main factors we will be watching:

  • INTEREST RATES: According to most reports I’ve read from national economists – inside and outside of the real estate industry – as well as many of the lenders we work with frequently, interest rates are expected to moderate. According to one of the lenders we work with, Craig Miller, “as the Federal Reserve continues to raise short-term rates, the market is looking six months ahead…once they feel inflation is under control, you will see rates decrease”. Rates will follow inflation. We have already seen inflation numbers move from the 8% range to the 7% range and long-term rates have come down from the 7% range to the mid 6% range. We are hoping for a low 5% range on 30yr fixed.” Most economists are predicting rates to start to decline in Q2 or Q3 of 2023. Because of this, many lenders are offering free refinancing on certain fees if buyers purchased after the rate rise and before rates decline later this year. We will also be keeping an eye on move-up buyers who want a bigger home, but don’t want to lose the rate on their current home, which may further impact the inventory issue described below.
  • INVENTORY:  Over the last several years we have been at historically low levels of homes available for sale, both nationally and regionally. In our region and in Alexandria even more specifically, there is such a limited amount of land available to build new homes. In addition, there has been a major decrease in the application for permits for new construction, which is expected to impact inventory going forward. Combined with the number of jobs coming to the area from Amazon, Boeing, and Raytheon among others, our area is not only expected to hold steady on home values, but is primed for increases in all close-by locations. You can read more about why we think Alexandria is a great investment here.
  • WORK FROM HOME POLICIES: As the world has returned to normal, many employers have put off making permanent policies as the pandemic had resurgences. It is believed that in 2023, many employers will formalize their policies one way or the other, freeing up many “would be” buyers and sellers to make a move.

 

It’s also important to keep the following in mind when considering the market for 2023:

  • THIS MARKET IS NOT LIKE 2008!: Earlier this year we wrote an article about why the current real estate market is not like 2008. One major item of note is that Inventory is currently 25% of what it was in 2008. You can read more about the many reasons here
  • NATIONAL PROJECTIONS:  Nationally, home sales are expected to decline by 7% nationally in 2023, according to the National Association of Realtors. However, in 2024, they are predicting a strong rebound with a 10% increase in sales and a 5% increase in home prices. Please keep in mind when reading headlines that the market in our area consistently outperforms the national market – seeing higher increases and lower decreases across the board. 
  • ELECTIONS: It is not an election year! In our market, election years almost always cause a slowdown in the fall, for a variety of reasons. 2023 is not an election year so this will not be a factor in the fall market.
  • NORMAL TURNOVER: Regardless of the market conditions, there is always the normal turnover of people moving due to combining households, having children or more children, death, divorce, or new jobs. In our area, we also have the benefit of military moves in and out of the area (in addition to the new companies coming to the area mentioned above). This keeps our housing market stable and pretty well insulated from negative market adjustments.

 

So what is the bottom line?  

  1. We believe that we are now in a much more balanced market than we have been in previous years. It is almost a “return to normal” with a healthy spring market, slower summer, and active fall for home sales.
  2. Homes that are priced and presented well will still be competitive, but escalations will be much more moderate. Sellers will need to price strategically and carefully with their Realtors.
  3. Buyers will have more opportunities to negotiate on price and include contingencies. Even with higher interest rates, some buyers may actually end up with a lower payment, given the delta between where they can negotiate the price and where it would have escalated in a multiple-offer situation. 
  4. That said, buyers who are hoping to move might want to get their foot in the door soon, as we anticipate spring to disproportionately have many more multiple-offer situations compared to the rest of the year, which is almost always the case.
  5. We anticipate home values to hold steady with a slight increase in 2023 and a larger increase in 2024, due to all of the factors noted above.

 

If you have any questions about the real estate market or want to chat about your goals for 2023, please reach out! We would love to help you.