This past spring brought us back to the days of the strong seller’s market, due mostly to high buyer activity, spurred by continued low interest rates, combined with across-the-board sustained appreciation. Those factors lead to a feeling that the real estate market had finally hit bottom in 2010-2011 and that 2013 had brought revitalization. Indeed, a comparison of real estate data as of March 2013, compared to March 2012 would bear that feeling out: March 2013 saw a national median home price of $185,000 as compared to $171,250 a year prior; Annual sales of existing single family homes and condos had increased from 4.28 million to 4.75 million; Home Inventory, or the length of time it would take to sell existing homes on the market at the current pace of sales, had dropped from 8.1 months’ supply to 5.9 months’ supply; the number of homes in the foreclosure process had dropped from 1 in 213 to 1 in 248; the number of homeowners whose mortgage balance exceeded the market value of their home dropped from 11.6 million, or 24.4% to 10.9 million borrowers, or 22.6%; finally the average 30-year fixed rate as of March, 2013 was 3.4%, as compared to 4.1% a year prior.
Locally, we saw those national trends borne out, where we saw solid appreciation (3 – 10% depending on the area) and a return to the days of buyers writing contracts with escalation clauses, waiving appraisal contingencies, etc. leading to negotiations having that ‘feeding-frenzy’ feel as they did at the height of the real-estate market prior to the crash. Fast-forwarding to this summer, locally we are seeing that strong buyer activity and attendant appreciation cool off, and now find ourselves in a balanced market with an increase in supply and still strong, but less so as compared to the spring, buyer demand. I believe that this cooling off is due primarily to two factors: first, an increased inventory, with many homes that were over-priced on the market in the spring continuing to sit, combined with new listings coming during the summer months. Secondly, increasing interest rates (4.75-5% as compared to 3.4% in March) have made homes less affordable causing buyers to have to search for lower price points. Having said that, the current market is still a great one for sellers who can capture the spring’s appreciation and get a home sold in 30 days if priced right. And buyers can get some good deals on properties that have been on the market over 60 days, or on some of the distressed-sale short sales and foreclosures that are still prevalent in our market. We are also watching the default rate trends because, as they continue to rise, they could be predictive of another increase in foreclosures as many people with adjustable-rate mortgages may not be able to make payments.
Another factor that I think will be interesting to watch vis-a-vis its affect on the long term health of our real-estate market going forward is the unprecedented increase of institutional investors piling into housing. The question is whether these investors, both international and from Wall Street, have helped to boost the recovery, or whether they are going to create an artificial bubble, which will inevitably have to pop. For more information on that subject, you can email me and I can email you a PDF to a compilation of articles on that subject or we can talk on the phone. Enjoy the rest of your summer! If you’d like to talk more about the real estate market or your home specifically, call me at 703-400-6757 or email me at firstname.lastname@example.org.