I hope everyone has had a wonderful summer and is ready to dive into the many fun perks of fall – including positives for buyers and sellers both in this market! Spring 2022, though VERY competitive, was a sweet time for buyers with incredibly low rates. As rates have climbed up throughout the year, we have seen some incremental increases in inventory related to this change. Though more pronounced this year than during the last two years, this is cyclical. We traditionally see a slow down in buyer and seller activity in the summer as people are out of town, and especially this year enjoying normal activities again, and then a small pop post Labor Day weekend when people are back from trips, kids are back in school, and things have settled down. All this said, we have been seeing home sale numbers continue to creep up, so it will be interesting to see how much of the fall inventory is absorbed prior to the year end. This all makes sense, as buyers have become more selective in their search and many more nervous as uncertainty looms over the economy and rates. I however do anticipate we will have a busy Spring 2023, but a more reasonable competitive nature, similar to what we saw back in 2018 and 2019.
**Keep in mind** we are still at historic lows in terms of number of active homes for sale and it continues to be a seller’s market. Supply for a balanced market nationally is considered to be about 5-7 months, though in our area, with higher demand, a more balanced market is considered to be roughly 2-3 months of inventory. Currently, Northern Virginia is at 1.1 month’s inventory, Montgomery County at .96 month’s inventory, and DC at 2.07 month’s inventory.
Let’s first address the elephant in the room – yes, rates have increased dramatically relative to what they were at this time last year. They officially hit around 7% this week, which has been a rough number to stomach for many buyers. Historically speaking though, rates are still sitting at a reasonable level (consider in the 80s they were above 15% – yikes). We were certainly spoiled with rates below 3% as of late. I continue to hear buyers say they are going to “wait until rates come back down to start their search back up,” but these buyers may be waiting a while. Consider this: Last week the Fed implemented an increase of 75 bp and they intend to implement one more by the end of the year. I recently heard a largely-trusted real estate coach, with many economists on hand to help with his prediction, say that rates will rise until unemployment is above 6%. If this prediction is true, we have a long ways to go before interest rates begin to decrease back down. On the flip side, other experts are expecting rates to dip back down some early next year (predicting closer to 5%). The truth is, no one knows for sure. Even with all of this information, we may/probably will never see them as historically low as they were during the COVID-19 era.
A couple of strategies buyers can use to try and get a lower rate. First, if a buyer selects a listing that has been sitting on the market for a couple of weeks and there is some negotiating room, I have had success in negotiating a seller credit to help buy down the rate. This isn’t applicable in every situation, but with the market shifting a little it is more realistic than it has been in recent years. Second, lenders have come up with some really great creative products to help buyers. In particular, I’d encourage buyers to look into 5 and 7 year adjustable rate mortgages, which usually will get you a lower rate to begin. It’s important to review this type of loan with a lender to ensure you understand how this works, but it’s a really great option in a lot of circumstances.
Onward to what buyer and sellers have to look forward to in the fall market – which in my opinion goes until early November. Things REALLY slow down once the holidays are around the corner.
Positives for buyers: The fall almost always brings more negotiating power than one would experience during the spring. We usually see a small pop of inventory as sellers list their home prior to the holidays and year end, giving buyers a decent selection. But with a smaller competing buyer pool, buyers should have the opportunity to include more contingencies to protect themselves. Keep in mind, this is always situational to the listing. You may even encounter an opportunity to snag a home below the list price.
Positives for sellers: Less competition over all against other listings! The cyclical nature of the real estate market makes it almost certain that most sellers will target putting their home on the market during the spring if they can. Fall listings typically have less competitors on the market, and thus a great opportunity to sell if in good shape. Keep in mind with the market shift, sellers need to make sure their homes are priced correctly and buyer ready! Homes that are outdated and overpriced are currently the bulk of what is sitting on the market for an extended period of time.
As always, I’m here to answer any questions you may have or assist in any way that would be helpful! Don’t hesitate to reach out today.