What Does a Softening Market Really Mean? And Are We In One?

October 6, 2022 | Market Pulse | By: Allison

There’s been a lot of talk in the news lately about real estate, specifically, the “softening” real estate market.

So what exactly does a softening market mean? And are we in one in the Washington, DC metro area? 

A softening market generally means that it’s not as strong of a market as it was previously. It doesn’t necessarily mean that the market is actually soft or that there is a major market decline looming. 

In the DMV, we have had a whirlwind real estate market over the last several years. In late 2018, Amazon announced that its second headquarters (HQ2) would be in Arlington, VA, setting off a market frenzy. While Amazon employees were only trickling into the area, the announcement squeezed an already tight real estate market. Some homeowners opted to keep their homes and rent them (in anticipation of increasing values due to HQ2) when they moved out of the area or into a larger (or smaller) home. Renters opted to buy before the Amazon “rush” arrived.  This put upward pressure on prices as there just weren’t enough homes to go around.  That is what is known as a low inventory market. The spring of 2019 was the epitome of a low inventory market and was very good for sellers. 

In 2020, the pandemic caused an even larger inventory problem in our area as many people rushed to buy larger homes or gain more outdoor space to accommodate the new “stay at home” lifestyle. This continued through 2021 and into the spring of 2022 where we saw home values continue to rise while not enough homes came on the market to meet demand.   We saw wild price escalations, often six figures, with zero contingencies as a result of multiple offers. It was a market that was fabulous for sellers and difficult for buyers. 

Fast forward to the Fall of 2022. 

Are we in a softening market?  The answer is yes, but it’s not necessarily bad news. 

We are finally seeing a market that is more balanced between buyers and sellers than we have seen in a long time.  Some homes are still selling with multiple offers.  Other homes are sitting on the market a little longer and buyers have the opportunity to include contingencies and yes, even negotiate on price. 

What we are not seeing is a struggling real estate market like we saw in the 2008 market crash.

I started my real estate career back in 2008 and the market we were in then was entirely different.  You can read more about why we aren’t in a 2008 like crash by clicking here

And if you’re worried about rates, don’t be.  In 2008, 30-year mortgage rates ranged from 5.7% to 6.5%. Rising interest rates — in part a result of the Fed’s aggressive push to tamp down inflation — have merely cooled off a housing market that has been hot for years. Rates adjust up and down continuously and they are still historically low.  People who bought in the down market with rates in this very same range took advantage of a market where not many buyers were buying. They were rewarded with a huge jump in home equity when the market bounced back.  In fact, I purchased my first home in 2010 and utilized an adjustable rate mortgage (ARM) in order to get the rate lower as I knew I would not be in my small one bedroom condo for very long! I used it as leverage to get my foot in the door of home ownership and couldn’t be happier that I did. Many years later, I have been able to turn each of my subsequent home purchases into profitable ways to “move up” in the market and build wealth.

Side note – you can read more about why your first home shouldn’t necessarily be your dream home by clicking here or how to get (or give) assistance to help get your foot in the door to homeownership here.

The moral here; higher rates do not mean the collapse of the real estate market. 

Homeownership is still the best way to accumulate wealth.  Low inventory and population growth mean that homes will continue to be a good investment and in the long run will provide solid returns.

If you would like to chat more about the market and what might be the best time for you to buy or sell – or hold – please let me know. We would love to help you reach your goals at a pace and time that works best for your individual needs.

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