While the Washington-area market is often mentioned as one of the most resilient in the country, it is not without its own challenges. We are still short on inventory, and rising home prices have made it difficult for first-time buyers to purchase. Interest rates are on an upward trend, which will make mortgages more expensive over the long term, and student loan debt continues to be a significant burden for many buyers. Despite all this, local real estate agents report they are still optimistic for a successful year because a number of other positive forces are in play.
Our annual survey of local real estate professionals asks for their honest opinion about both the positive and negative forces affecting our market, and this year a full 63 percent said they expect this year to be a busier — and more positive — market than last year.
The No. 1 reason for optimism cited by agents was the improved job market. A few years ago, many different industries had a tenuous hold on their profit margins and had to cut back on hiring, as well as raises or cost of living increases. All three of these factors have improved this year, compared with previous ones, which placed many potential buyers in a much safer financial position.
After improved job market, agents cited the increase of first-time buyers and more qualified buyers as the second and third reasons on the list. Both of these groups have finally saved up enough to make a larger down payment, and more of them have had a few extra years in the workforce, so they have higher than entry-level salaries. This not only gives them more cash on hand but also lowers their debt-to-income ratio, making them much more attractive to lenders.
This season, more than any in recent years, agents are also sharing that potential buyers have become more flexible in their housing wish lists. Buyers are more willing to purchase a home that is in need of upgrades or one that isn’t in their first choice for a location. This greater flexibility is a large part of the reason closed sales are up 8 percent, compared with this time last year, even though active listings are down 14 percent year-to-date. Buyers have gotten the message that they need to broaden their criteria when it comes to owning a home.
The return of equity has helped considerably. Fourteen percent of our respondents listed this as the biggest reason they expect this year to be better than last. The rise in median sales prices has made current homeowners much more willing to sell their home, and that willingness is one of the main drivers behind the inventory that does make it on to the market. While it hasn’t been enough to meet demand, it has made the situation much better, compared with even three or four years ago.
Of course, the price increases that are helpful to sellers can also create an obstacle for buyers, particularly the first-time or younger buyers in the region. But as I mentioned, these groups have several more years of saving under their belts that have made a larger percentage of them able to take on the greater costs. There are also many more mortgage products on the market that cater to these groups, either by requiring a lower percentage for the down payment or allowing greater flexibility when it comes to gifts from family members or student loan balances.
The final reason agents are optimistic about this year’s real estate market is the ongoing increase in rent prices around our region. That can often be the final push for buyers who don’t want to continue missing out on the possible equity they could gain from owning a home.
When looking at the market as a whole, we are definitely in a seller’s market. However, this year has many more positive signs for buyers. The more stable job market and the improved financial position for so many people in our area are some of the biggest factors, but the increase in equity and broader array of mortgage options contribute, as well. Buyers have plenty of reasons to be optimistic this year, too.
David Charron, chief strategy officer of Rockville-based multiple-listing service Bright MLS, writes an occasional column about the Washington-area real estate market.