That remains to be seen as the market continues to recover from a harsh winter.
CNBC described the impact of our unusually cold and snowy winter as “frozenomics,” and there are plenty of industries and cities that were crippled by the nasty stuff we had this year.
We all heard about 36-hour traffic jams in the South, and every school system in our region exhausted its supply of built-in snow days so kids will be in school well into summer. Planes were grounded, power outages were rampant, and we all added “polar vortex” to our vocabulary.
And while there is no doubt that the region’s real estate market felt the chill, the District’s market held up far better than any other in the region.
D.C. was the only market in the entire metro area that had an increase in new contract activity in every quarter of 2013 compared to the same quarter of 2012. But the market started to slow ever-so-slightly in December with a decrease in contract activity of a little more than 1 percent. That was followed by a 3 percent drop in January.
However, as a testament to the strength of D.C.’s market, contract activity actually increased by 2.7 percent in February, the month with the worst weather this winter. In March, new contract activity was down 2.1 percent in D.C. Although April data is not quite complete, it looks like the number of newly ratified contracts in the District will be just about equal to April 2013.
The market is a little slower in D.C. for reasons beyond the weather. Rising mortgage interest rates have robbed purchasers of roughly 10 percent of their buying power compared to a year ago, and that has priced some first-time home buyers out of the market and lowered the price point for others. Home prices are rising faster than household income, and that puts a bit of a chill on demand as well.
The brief government shutdown in October and budget sequestration created some uncertainty in major employment sectors. And even though the number of available homes on the market is up a bit, supply is still tight. And here’s the irony about tight supply — at least in the short term, it helps keep some inventory off the market.
There are homeowners who would like to be move-up buyers but they are still sitting on the sidelines because they aren’t confident they can find their next home. If they aren’t sure they can purchase, they aren’t putting their homes on the market. Another factor keeping supply tight is the number of homeowners who refinanced last year and locked in below-4 percent interest rates, and they aren’t going to be in a hurry to move.
This isn’t all bad news by any means. Home prices are still going up, just not as rapidly as they did in mid-2013. Homes are still selling in an average of about 50 days, and there is still less than a two-month supply of homes on the market.
But those other factors are creating just what we expected: gradual moderation that is heading us in the direction of a more balanced market.