Can you believe it’s the second half of 2020 already?
On the one hand, it seems like this year will never end and yet can’t end soon enough! From “lockdowns” and quarantines, a global pandemic, to political and economic unrest, 2020 has proven to be unlike any other year. On the other hand, it seems like the year hasn’t even begun, with many planned vacations, concerts, conferences, parties, sporting events and seasons, and major life events like weddings and funerals, postponed, rescheduled, and canceled.
But with the bad of 2020 also came some good, with many people seizing opportunities for positive change and seeing some light through the darkness. But even as we struggled through the last few months of upheaval, we are fortunate that the local real estate market was one bright spot amidst the chaos.
SO FAR THIS YEAR
I’ve always believed that to predict what the future may hold, it’s important to look back. In this instance, I looked at what has happened since my last article — what went according to plan, what changed in the world, and how my own perspective shifted. This year, in particular, I knew it was important to revisit the first half of the year and what I wrote on the state of the market right after the shutdown and then again six weeks later.
While I always enjoy this activity, this time was especially interesting. I feel transported to those early and raw days of the shutdown. We truly had no idea what was ahead and how long we would be living in our new world. The first article I wrote was on Social Distancing in The Real Estate Market. It’s funny how quickly I forgot the low lows of those first few weeks in quarantine. I also quickly forgot about the positive changes in my life I’ve made since quarantine began (more fresh air, an organized home office, and more quality time with my kids). At that point, the real estate market was still moving and was an especially great time for buyers to purchase, with fewer buyers competing. Since the year to date (at that point) had been an extremely busy market with extremely low inventory, pre-Covid buyers were competing in record numbers, with prices escalating wildly with no contingencies in place. Buyers in the market suddenly had less competition, fair prices, and were even able to include some contingencies in their offers.
As Covid wore on, we started to see that dynamic change (read the first 6 weeks of the shutdown). At that point, we were thankful that the real estate industry had officially been declared essential in our region. We saw interest rates fluctuate a bit during this time, with many banks losing the ability to fund jumbo loans. This change meant the mortgage market got a lot more competitive and loans took longer to close. Inventory remained low and more buyers slowly entered the market, bringing it back to about even at the time of that writing.
Since then, the market has returned to a very robust and (somewhat) typical market for our region. Many more buyers have entered the market, looking to escape the confines of their condos, townhomes, and homes with little to no outdoor space. We’ve seen families reevaluate their needs and opt to move out of the area closer to family. We’ve seen people move to acquire homes with offices, pools, or guest rooms for quarantining relatives, and other things that have become priorities in our new world. We continue to have the normal moves due to life changes and the constant transition of jobs in our area. We are, with a few exceptions (condos and luxury homes), back to a market with multiple offers, escalating prices, and few contingencies.
I’m still wishing for that crystal ball I referenced in that article to know what’s in store for the future. But in the meantime, here are my predictions for the next six months in the real estate market.
THE NEXT SIX MONTHS
We will need to keep an eye on several factors that will likely affect the Summer and Fall real estate markets. They are all related and mostly revolve around what happens with Covid, the economy, and the election. While related, each factor has very different market consequences.
THE 2020 PRESIDENTIAL ELECTION
Every four years, the local market slows down in the late summer and fall as we gear up for months of uncertainty, political mudslinging, and, depending on your viewpoint, excitement or anxiety over a potential change in power. In a normal year, I would say that 2020 would be no exception as we face what is likely to be a messy and close election. Tensions will be high, negative ads, debates and news segments will be hard to avoid, and the future will be as uncertain as ever.
However, this year could be a little different. Local residents who may face job uncertainty with a change power will likely pause their home search. But, the rest of our region has already been seized by the wild emotions of the last several months, and there has been little impact on the market. In fact, new home mortgage applications are up 33% nationwide over last year! Ultimately, while there is bound to be a little dip right around the election, we don’t anticipate this year’s dip to be as significant as past election years. Also, we anticipate the same post-election rebound we’ve seen in past election years.
THE IMPORTANCE OF HOME
This is the big one. Being forced to quarantine in your home for months on end has made many people realize the importance of home and loving where you live. People are now very aware of their homes’ imperfections and what they want in their next one. The fear of another shutdown, or potentially permanent telework, has shifted many people’s priorities on what is important to them. For some, they no longer want to pay big money to be close to their jobs, especially as many employers are making permanent shifts to telework. Conversely, others have realized they want to be able to walk to things like running or biking trails, parks, open spaces, and grocery stores. Many have decided they want to be in a tight-knit community where people can socialize from a distance. While we have seen many people move to get more space or more things that are important to them in quarantine, there are still a lot of unknowns. Many people who may be able to telework indefinitely are holding off on their searches until things play out.
SECURITY V. INSECURITY
As always, how secure people feel in their own personal jobs in with the local, national, and global economy always plays a role in real estate. So far, we’ve seen far less insecurity regarding the national economy, with buyers and sellers focusing on their individual situation when determining if — and when — to move. I believe this confidence will continue through the end of the year unless the economy experiences a serious decline or a long second shutdown ensues.
Interest rates have been historically low for some time, with a spike in Spring of 2019 and another brief spike at the beginning of Covid. Since then, we’ve seen rates come down to another historic low making buying very attractive. I was recently on a regional sales call and Compass CEO Robert Reffkin, who spoke about the market. He reminded us all that historically, when the economy has struggled, the interest rates have lowered, which has opened up the housing market and kept it moving. We’ve seen this happen again since Covid and hope the low rates continue through the Fall market. They are below 3% now for the first time in 50 years!
THE BOTTOM LINE
In sum, we’ve seen the real estate market in the DC area remain steady through a quick slowdown in the first few weeks of the shutdown, followed by a quick, sustained, recovery. We anticipate the real estate market to continue to perform well with home values, for the most part, holding steady. In many cases, prices are still on the rise.
A lot of factors are at play and we will continue to monitor the market. It can be tempting to listen to the headlines on the national economy or national real estate market (many areas of the country completely shut down real estate during Covid as it was not considered essential in those areas) as you may see a very different story. But, as always, real estate is local. It’s important to look at how the local market has performed in the past, pay attention to realities of the market, and talk to a real estate agent who can advise you on your specific situation. At this point, the market is not a one size fits all. For the foreseeable future, we will continue to make individual recommendations on what is best for each client as we all navigate these unchartered waters!