“How much have home values changed over the last year?” This is a question often asked by home buyers and seekers.
Here’s a direct answer: The average sale price in the Washington region is up 1.2 percent from this time a year ago.
And how does that relate to the value of your home? It doesn’t. Market conditions vary from area to area and recent market activity in three communities illustrates this perfectly.
Chevy Chase in D.C. is a close-in community that straddles both Maryland and Washington. Great Falls, Va., is a suburban oasis between McLean and bustling Loudoun County. Potomac, Md., is home to large estates just 15 miles from downtown D.C.
All three communities have average sale prices just above $1 million, and over the last decade all have had roughly comparable market metrics, with one exception. Those key indicators are days on market, ratio of sale price to list price, the percentage of homes selling above list price and the percentage of homes selling in a week or less. Taken together, think of these as pricing dynamics. The exception is Chevy Chase, which has always had shorter average days on the market than Potomac and Great Falls.
So far this year, the pricing dynamics in these three communities have shifted significantly.
There has been a clear change in consumer demand, as more than a third of the buyers in Chevy Chase have been willing to pay above list and almost half the homes have gone under contract in a week or less. It’s no wonder that there is upward pressure on prices.
We’re seeing the opposite effect in Great Falls and Potomac. Roughly 1 in 20 homes sell above list price and 1 in 4 sell in the first week on the market. The pricing dynamics in these communities have changed in ways that mirror what we’re seeing elsewhere in the market. Demand has shifted more toward walkable communities convenient to employment centers and public transit.
I would also like to make a note about “average” prices. The table above indicates that the average sale price in Chevy Chase is up 13.3 percent over the last year, and that’s absolutely true. Keep in mind that this is an arithmetic computation that gives a general, very positive indication of the direction of the market, not the market value of an individual home.
As we look down the road for the balance of 2016, I do not expect anything — including the upcoming elections — to substantially change the current pricing dynamics. A major part of my rationale is the interest rate environment. Since the expectation is for mortgage rates to remain low, buyers feel no sense of urgency to act before rates climb and making a home purchase less affordable.
David Howell, executive vice president and chief information officer at McEnearney Associates, writes an occasional column on the Washington area real estate market.