For the past several years, we’ve heard a lot about low inventory in the Washington real estate market. Limited properties for sale in and around our nation’s capital is met with ever-increasing buyer demand, thus making finding a new home an arduous — and expensive — process. In May, median home prices in the Washington region hit an all-time high of $460,000.
In a low-inventory market such as Washington, you might expect to see properties sell within 24 to 48 hours of listing. While we’re certainly seeing some of that, there are also a lot of great properties that are just sitting on the market. This tells us that although the lack of inventory remains a challenge, it doesn’t show the full picture of what’s happening in the Washington real estate market.
In addition to inventory, there are several other dynamics and trends at play. If you’re looking to buy or sell, here are a few factors to consider.
The price is wrong
Homeowners have heard so much about low inventory and conditions being ripe for a “sellers’ market” in recent years that when it comes to pricing their home for sale, many tend to get carried away. They price the home way too high, and then it sits for 30 to 60 days before they drop the price. By then, buyers are looking at the house and wondering what’s wrong with it — or even worse, not looking at all.
At the same time, the constant talk of low inventory has convinced buyers that all of the good properties sell quickly. When a home sits on the market for an extended period of time and the price starts to drop, it’s at risk of being viewed as either an overpriced or possibly a distressed property. This is why it’s so important to price a home in line with market values from the start.
Uptick in income properties
At face value, the current lack of inventory might suggest that homeowners are simply not selling and staying in their homes longer. But that’s not necessarily the case.
On the contrary, we’re still seeing homeowners “move up” as they always have, from apartment to starter home to their “forever” home. Instead of selling, though, and assuming they have the requisite cash, homeowners are increasingly holding on to their previous places as rental income properties.
Once these owners turn a property or two into rental income, they often start to look for another and begin building a portfolio. This trend contributes to further crowding the market for entry-level homes and tightening inventory even more, thus making it difficult for new homeowners to enter the market.
The point here is individual buyers should be aware that they may also be competing with these investors for properties and prepare accordingly by lining up financing in advance and being ready to commit when they find the right home.
Another big problem we’re seeing with the “sellers’ market” is deferred home maintenance. With so few homes available for sale, many sellers assume that they’ll have buyers knocking down their door as soon as their house hits the market, so they don’t make the necessary updates before listing.
Although we think there are exceptions, we believe this approach is wrong. The majority of buyers in today’s market, especially those sought-after millennials, are primarily looking for move-in-ready homes. When buyers come through a property and all they see is the work that needs to be done, it’s a turnoff.
Homeowners looking to sell quickly and for top dollar generally can’t put their home up for sale as is. Neglected upkeep or missing upgrades will result in the property sitting on the market. To take full advantage of the current sellers’ market, make sure your home is move-in ready before you list it.
In Washington, low inventory may continue to be a challenge, but it’s not the only factor to consider. Whether buying or selling, it’s important to have a full understanding of what’s happening in your local real estate market before you make a move. Consult with your local real estate professional and make sure you look beyond the headlines to find out how you can put current market trends to work in your favor.
David Charron, chief strategy officer of Rockville-based multiple-listing service Bright MLS, writes an occasional column about the Washington-area real estate market.