The dominant story line for 2013 was the shortage of inventory for buyers in the middle and lower price ranges. The combination of homeowner reluctance to list their property due to low equity plus lower interest rates led to strong buyer demand for much of the year.
Accordingly, this led to an increase in prices as the year went on and many Zip codes within the MRIS geographic footprint saw home prices the highest they had been in the past five years. We fully expect home prices to continue increasing but the rapid rise that we saw in recent months is not sustainable. Thus, the pace of growth for both list prices and final sales prices will slow considerably in 2014.
As prices increased, homeowners began to regain equity in their houses and consequently more of them decided it was a profitable (or at least an affordable) time to list. This trend should continue into the new year so the inventory shortage will not be as much of a burden to the market in 2014.
However, there remains such pent up buyer demand in the Washington region it is unlikely enough homes will enter the market to meet all of the willing buyers. As a result, conditions will continue to favor sellers for most of 2014.
Along with strong buyer demand in 2013 came a drastically decreased length of days on market (DOM). Houses moved off the MRIS system in record numbers, with some of the more popular neighborhoods — such as Zip code 20005 in D.C.’s Logan Circle; Zip code 20851 in Rockville; and Zip code 22032 in Fairfax — seeing a median DOM of less than two weeks during the peak buying periods of spring and summer.
Days on market will likely lengthen in 2014 due to the expected increase in asking prices for homes in middle and lower price ranges, while high-end priced properties won’t see much change.
Besides inventory, the biggest driving factor of the market will be the rise in mortgage interest rates. They have shown an upward climb over the past year starting off around 3 percent and are nudging up toward 5 percent as we begin the new year.
We fully expect the interest rates to continue a slow climb through 2014, with several periods of time when they remain unchanged to prevent any volatility in the market. The increase could result in a stronger turnout of buyers earlier in the year than usual so they can take advantage of interest rates when they are at their lowest for the foreseeable future.
The Washington metropolitan area weathered the housing crash of a few years ago relatively well compared to the rest of the country. However, it was not without a few setbacks such as government shutdowns.
With the signing of the two-year budget deal, buyer confidence should be higher and bring back stabilization for the D.C. metro area. As the economy and employment rates continue to improve, this will, hopefully, allow millennial workers (many of whom are living with their parents or renting) to purchase their first home and boost first-time homeownership levels which actually fell last year.
The positive growth that took place during 2013 was healthy, stable and free from any major swings in market forces. All signs point to 2014 being a solid year for real estate.