After a solid 2016, the spring real estate market for 2017 should see a slightly brisker pace both for closed sales and new listings coming on the Washington market. Issues of inventory, rising prices and interest rates will dominate the story lines as the coming real estate season unfolds.

Inventory
We have lived through several years of not having enough homes for sale to meet the demand of buyers in our area, and it is still one of the most common topics of real estate conversations. While that dilemma isn’t going to completely reverse course in 2017, we are going to see a slight easing on the constraints of low inventory. Sellers have regained enough equity in their homes and have increased confidence that there are buyers who will qualify for a mortgage.  Additionally, sellers are confident about listing their homes for sale. January saw a 12.8 percent increase in the number of new listings, adding more than 4,500 homes to the market. And February continued the increased level, adding more than 5,500 homes — a 7.8 percent gain over last year. This increase in supply is a positive sign of more listings to come.

Price
There are some early signs that prices will increase at a slightly faster pace in 2017. Both December and January had median sales prices that were almost 4 percent higher than the same months the previous year. This is in contrast to all the preceding months in 2016. The month in 2016 with the highest year-over-year price increase of all was August, with prices only 2.4 percent higher than in August 2015. All other months that did see an increase rarely went over 1 percent. Moreover, four months out of 2016 even saw a decrease compared with their 2015 counterpart. The fact that the two slowest months for real estate — December and January — saw prices rise at a noticeably higher rate suggests we may be in for a faster climb up the price ladder.

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These numbers are still much lower than those from a few years before — from roughly 2012 to 2014 — when prices were increasing by at least 5 percent, including some months when increases were in the double digits.

Interest rates
Price increases as steep as that are unlikely to happen this year, in large part because the rising interest rates and increasing inventory will apply downward pressure on how much buyers are willing to pay. It is likely that interest rates will rise one or more times this year, and it is still challenging for buyers to come up with large-enough down payments to meet the already high prices Washington is known for. Therefore, we don’t have to worry about any dramatic price surges coming our way for our region as a whole.

Increased interest rates may make prices tick downward during the second half of the year. Whenever there is the possibility of a rate increase, buyers are usually more motivated to buy a home earlier in the season so they can lock in the lowest rate possible. Consequently, we can expect more homes to sell quickly earlier in the year. And as a result of more competition, remaining sellers may find themselves forced to lower their prices to attract buyers.

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The spring 2017 real estate market is going to be an active one. We’ll have a strong start to buying activity, and as long as the pattern for a greater number of new listings coming on the market holds, we will have enough momentum to carry us through the first half of the year. Prices may rise faster than usual early in the season, but the rate of increase will likely taper off in the latter months.

David Charron, chief strategy officer of Rockville-based multiple-listing service Bright MLS (formerly MRIS), writes an occasional column about the Washington-area real estate market.

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