What buyers and sellers need to know about the end-of-year housing market

November 11, 2013

(Jonathan Ernst/REUTERS)

David Charron, president and CEO of Rockville-based multiple-listing service MRIS, writes an occasional column about the Washington-area real estate market.

It’s a stubborn truth about the real estate market that nobody has a crystal ball.

If only we could see exactly what was coming down the road, and adjust accordingly, our jobs would be much easier. Similarly, everything looks remarkably clear when viewed through the rear-view mirror.

Broadly speaking, this spring was a tough one for D.C.-area homebuyers, with not a lot of homes to choose from and lots of competition to buy.

It seems in retrospect that the combination of enormous pent-up demand and record low interest rates led to homes receiving multiple offers and being snapped up quickly. In the next year, the situation should normalize and come more into balance, with things easing up for buyers while being slightly less favorable to sellers. And while it’s never as simple as saying we anticipate a “good” or “bad” market in any given season, demand is still very high, which should make for a pretty brisk fall sales season.

Here are some of the developing trends we at MRIS are tracking this fall, and how we think they will impact the market:

• Demand will diminish. It’s no secret that the fourth quarter of the year is, comparatively speaking, a slower time of year for home sales —  typically a good 15 percent lower than the third quarter. While there is often a small end-of-summer, back-from-vacation uptick in new contracts in the fall, November and December traditionally show very modest contract activity.

You can’t compare the “apples” of modest November sales to the “oranges” of brisk May sales. That said, if you are a serious buyer, opportunities will present themselves.

Interest rates will rise. The fall/winter 2013 housing market in our area could definitely be impacted by interest rates, which are almost certain to continue to creep up.

But even if they rise another full point, which could happen by the end of next year, they are still going to be at historic lows. Rising interest rates will require committed buyers to reset their expectations. If buyers are stretching every penny they have to get a house, they’re going to have to dial back their notion of how much home they can afford.

If buyers have a little more flexibility, they’re going to have to be willing to pay a little more each month to land the home they want. This small increase in monthly payment, however, may knock a small segment of the buying population out of the market completely.

• Inventory, though improving, will remain tight. Over the past five years, the D.C. metro area has had an average of 12,000 homes for sale at any given time.

Inventory levels have declined in this area for years, but are finally creeping back up. After dropping by an average of 8.6 percent per month between April 2011 and March 2013, new listing activity showed double-digit percent increases from April through August of this year, which may represent a turning point.

Since fewer homeowners are underwater, they now are able to extract equity when selling, making sales more attractive. Thus, I believe, inventory will continue to stabilize in the coming months. The active listings registered at the end of August were 10 percent lower than August 2012, but represented a much lower year-over-year gap than at the beginning of this year in March, when active supply was a good 40 percent lower than it had been in the same period of 2012.

• Days on the market will rise. There are currently more buyers than sellers in the market, which means that homes tend to sell quickly. We are seeing DOM numbers — indicating the number of days homes stay on the market before being sold — comparable to where they were back in 2005.

Townhouse sales have had the greatest activity, with a median of only nine days on the market, while condos typically sell in 13 days and detached homes in 16. But supply and demand is a simple concept: As more sellers enter the market and the number of available properties goes up, DOM will inevitably rise as a result in the next few months.

The real estate market dynamics are always changing, and no matter where you are in the buying/selling cycle it is important to understand your housing and financial position to make the best decision in any housing market.

Today, we are in unchartered territory with the recent government shutdown. The results from the fourth quarter will be telling in terms of the repercussions of the government budget issues.

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