Six weeks into our stay at home order, it’s safe to say that nothing looks the same as it did a few short weeks ago. That is also true of the real estate market! Each week, the landscape of our market has changed significantly and a “new normal” has emerged.
Uncertainty around the health crisis, economy, financial markets, homes coming on the market and the many government directives and decisions surrounding all of it is generating a lot of questions from our clients, neighbors, and friends — specifically, questions about the state of the real estate market and what we are predicting for the future of home values in our area.
We wish we could pull out a crystal ball and see what the next few months and years will bring us. Since that is not an option we will take on the challenge of sifting through the data. We’ve been actively digging into news articles and market stats, attending webinars with experts, and zoom chats with fellow agents to gather all of the information we can to best position our clients for success in these rapidly changing times.
So, what are we advising our clients right now? The answer is, it depends. Each neighborhood and each price point at the moment tells a very different story, just as every client’s personal and financial situation is unique. Now, more than ever, a tailored approach to real estate is key. For some clients, this means acting quickly, while for others, it may mean waiting several months. There are several things we look at when advising a client about what makes the most sense for them, so we thought it would be helpful to explore those in depth with you below.
The Four Factors Shaping The Real Estate Market in the DMV
The Overall Economy (National v Local)
The mass loss of jobs and the reduction in income for many across the country will undoubtedly make its mark on both the overall economy and the real estate market. How quickly the economy reopens (and how long it, in turn, can stay open in the event of another spike in the fall) will be a major key in how hard this will hit the real estate market.
The good news is that this economic downturn is very different from the Great Recession of 2008-2009. Going into the Covid-19 pandemic, the overall economy was strong, interest rates were low and the real estate industry was healthy. None of this was the case in 2008-2009, when the crashing real estate market and the mortgage industry were a major cause of the recession. Economists now expect a W-shaped recovery of which we are in the downward trajectory now, spiking again in the fall. We will likely see the greatest impact on real estate in the spring, which is typically the busy season.
The Financial Market (and Interest Rates)
There’s good and bad news on this front. The good news is that interest rates generally are still very attractive and the Brookings Institute projects that interest rates will remain at record low rates. The bad news is that getting a Jumbo loan is becoming increasingly difficult. Many banks are no longer lending to the secondary market (think big banks like Wells Fargo who used to sell loans to smaller, local banks and lenders), making it more difficult for smaller banks to lend. Jumbo loans (loans above $765,500 in the DC area) in particular are now more challenging to obtain. This is not good news for our market, where many loans meet this price threshold.
Sheltering in Place / Stay At Home Orders
At the beginning of the stay at home order, there were many questions as to whether or not showings would be allowed and if homes currently under contract could close. Thankfully, real estate was deemed essential and all pieces of the real estate process (lenders, moving companies, title companies, insurance companies) are allowed to keep working, with some modifications, to allow our clients to buy and sell homes safely. You can read more about how we are proceeding safely here.
In late March and early April, we were seeing a lot of virtual showings with most clients preferring to stay home. Starting in mid-April, we noticed an increase in buyer activity, with more buyers wanting to view homes in person (with safety modifications in place). Many of our buyers, especially those living in close quarters, are ready to take advantage of the steeply reduced competition in what has been an incredibly competitive market for the last several months – and really, years.
We’ve also seen an uptick in people contacting us to have initial conversations about preparing to buy or sell at the end of the stay at home order, or even further into the future. With people spending more time at home, it’s been a great time to prepare for a move when the time is right.
We’ve been in a low inventory market for the last few years and Covid-19 has not helped! In the first two weeks of April, 50% fewer new listings hit the market across the DMV as compared to the same time last year. Typically, March, April, and May see the largest surge in inventory, so the timing of the shutdown is not ideal for our inventory shortage. That said, there are always people who need to sell (think life changes, job relocations, etc.), so a steady stream of new listings continue to hit the market. If you’re in the market to buy, it’s still critical to pay attention to your search! The right property still may pop up.
So, what does this all mean?
The local real estate industry continues to be healthy due to a variety of factors, including low interest rates, a constant influx (and outflux) of people moving into and out of the area, the classification of real estate as an essential service, as well as a historically low inventory market which will keep prices from adjusting too drastically during the downturn. Moody’s is forecasting moderate price adjustments during the recovery and expect a low single-digit decline in pricing nationwide. We believe the DC area will fare much better than others during both the downturn and the recovery.
If you have any questions about the market where you are looking to buy or sell, or about your personal situation, please don’t hesitate to reach out. Whether or not you are looking to move in the near future, we are here for you.