Weird winter weather and the anticipation of rising mortgage rates jump-started the spring real estate market back in January, and the forecast for the District remains hot for the rest of this spring and summer. That forecast could change, however, if the Trump administration follows through with plans to reduce the size of the federal government workforce.
“It’s all about the execution of the plan,” said Nela Richardson, chief economist of the Redfin brokerage in Washington. “What we’ve seen historically is that reductions in the number of full-time federal hires are accompanied by an increase in federal contractors, so it did not make a large difference in total employment in the area.”
“However, if cuts to the federal workforce lead to across-the-board layoffs, it could dampen housing demand, particularly outside the Beltway,” she added. “Absent more details, the key impediment would be the uncertainty of how the cuts shake out and what roles contractors have. The more the unknowns, the less likely people are to invest in a home in the area.”
In the meantime, the regional housing market got off to a robust start this year.
“The market got a one-two punch early this year with the lack of winter and concern about rising mortgage rates,” said David Howell, executive vice president and chief information officer for McEnearney Associates in McLean. “In the entire region, the number of contracts signed for home purchases was up 12 percent from the beginning of December 2016 through the end of February 2017 compared to that same stretch of time last year.”
In the District in particular, listings remain limited and demand is still strong, which is good news for sellers, but not buyers, said Jonathan Hill, vice president of marketing and communications for multiple-listing service Bright MLS (formerly MRIS) in Rockville.
“The main story is that there’s just not a lot to buy in the city,” Richardson said.
Properties that came on the market in Washington recently got snapped up more quickly than last year. The average number of days that a property stayed on the market dropped 6.3 percent in January and February 2017 compared with January and February 2016, down to 45 days. The number of units sold rose by 19 percent, and the median price rose 1.9 percent, to $525,000, according to Bright MLS.
“Buyers are getting a consistent message that interest rate increases will be slow and deliberate, so there’s no panic, but people who were on the fence are definitely a little more motivated, and that’s on top of the natural demand that’s already out there,” said Richardson.
Howell said he studies absorption rates, a percentage found by dividing the total number of available homes by the average number of sales per month, which show how quickly homes are selling.
“Anything above 25 to 30 percent is considered a seller’s market, but in D.C. the absorption rate was 40 percent in February, hotter even than the past three or four years,” said Howell.
A potential signal of hope for buyers is that listings in the District were up in January and February 2017 compared with January and February 2016, although there are still not enough to meet buyer demand.
“Definitely the warmer weather and the desire to move before mortgage rates increase more pushed more sellers to put their homes on the market than usual at that time of year,” said Hill.
Listings were up 50 percent in January 2017 compared with January 2016 and up 12 percent in February 2017 compared with February 2016, but those listings went under contract quickly. Whether more listings will come on the market this spring remains to be seen.
“The low point for listings was back in November and December, and usually once you start seeing listings go up, they don’t go back down for a while,” said Hill. “We’ll have to see what happens in March and April, but hopefully this trend will continue, which would be good news for buyers.”
Among single-family houses, the price range with the most listings as of early March was $1 million to $2.5 million. For both attached townhouses and condos, the price range with the most listings was $600,000 to $800,000.
Richardson said that prices are jumping fastest in more affordable neighborhoods, such as in Anacostia and in Deanwood.
“Bidding wars are heating up even this early in the year in the city, unless the property is in the $1.5 million and up price range,” Richardson said.
The thicket of construction cranes, particularly along the waterfront in Southeast and Southwest Washington, gives rise to hope that more housing units will be available for sale. While many new buildings are apartments, a wave of new condos is also under construction, said Timur Loynab, vice president of McWilliams|Ballard in Washington, which markets new condo projects.
However, much of the new construction in the city is expensive.
“We’re seeing some new construction in Shaw and Logan Circle and Dupont, all places where the price per square foot is inching toward $800 to $1,000,” said Loynab. “There are neighborhoods like Hill East and Truxton Circle where the prices are lower, neighborhoods that are undergoing transitions that in two to five years will be the next Logan Circle.”
Loynab said developers have become more aware of the need to cultivate commercial and retail clients as part of their plan when constructing residential buildings.
“Developers like JBG started approaching Shaw block by block courting retailers and the Landmark Theater because they understood the importance of restaurants and shops to make a neighborhood successful,” said Loynab. “The ballpark neighborhood just has a mind-boggling amount of development, with the trend there toward larger 100- to 300-unit buildings. The Wharf took a page out of the National Harbor playbook and exemplifies this same transformative story of an entire community, not just one building.”
Loynab said buyers in these neighborhoods need to understand the plans and how and when they will come together before buying.
“On some level, it’s a leap of faith to buy in new areas, but in some cases it’s more affordable,” he said.
Richardson said that on a macro level, the expectation that the local economy will remain strong will keep demand high this year.
“We’re seeing a little wiggle room for buyers because with the stronger economy and mortgage rates ticking up a little, lenders are offering more low-down-payment loans and providing slightly more access to credit,” said Richardson. “When rates were super low, a lot of buyers couldn’t take advantage of the low rates because of tight credit.”
While there’s no question it’s a competitive world for home buyers in the District, there are some glimmers of hope in the form of more access to credit and some more listings coming on the market.