If you’re a prospective home buyer, you probably started feeling warm spring air back in February.
While January’s blizzard slowed the housing market briefly, buyers dug their way out quickly and got back to the business of touring homes and making offers, particularly in the city. While the number of homes listed for sale is up from this time last year, there’s still a lot of competition, and multiple offers are common in the District.
“All indications are that this spring will be a fast-paced market, but possibly not quite as intense as last spring since we do have an increase in inventory that takes a little of the pressure off for buyers,” says Jonathan Hill, vice president of marketing and communications for multiple listing service MRIS in Rockville.
According to MRIS, the District’s inventory rose 11.4 percent from February 2015 to February 2016. Median sales prices were up 4 percent, from $495,000 in February 2015 to $515,000 in February 2016. In spite of the increase in inventory, homes in the District are selling faster than ever, with the average number of days a home stays on the market dropping by 9.4 percent to 48 days in February 2016. Many homes sell in less than a week.
“Low inventory is particularly a problem on the lower end of the market, with very few new listings priced under $490,000,” says Nela Richardson, chief economist for Redfin in Washington.
Unfortunately for first-time buyers, the threshold to purchase a rowhouse or single-family home rather than a condo has now reached $500,000 in nearly every neighborhood, says Morgan Knull, an associate broker with Re/Max Gateway in Washington.
“If you want a typical refurbished rowhouse with three levels, usually with about 500 square feet on each level and maybe a second bathroom in the basement, it’s $500,000 and up in Brentwood, Trinidad, Brightwood, Upper Petworth and on Capitol Hill including Kingman Park and H Street,” says Knull. “I’ve seen smaller two-level rowhouses with about 800 square feet going for $515,000 when they’re a little closer to a Metro station, but there aren’t many of those in the city.”
Competition for all home types under $500,000 in the city is particularly heated, says Richardson, with first-time buyers competing against bigger investors and people who want to invest in one property for rental income.
“Redfin did a report on flipping real estate and found that the Petworth neighborhood is number one in the country for flipping, just as it was two years ago,” says Richardson. “That’s a double-edged sword because buyers who want to fix a home and live in it need a construction loan, and that makes it even harder to compete with an investor who has cash.”
Richardson says properties are often selling well above their listing price, such as a Mount Pleasant property that sold for $150,000 above the asking price in early March after receiving 10 offers.
Knull says move-up buyers don’t have it much easier, with the “new normal” in that market for a three-bedroom home starting at $1 million.
“If you look at [American University] Park in Northwest, which is popular with families because of Janney Elementary School and the location near the Friendship Heights Metro station, there isn’t a single three-bedroom home on the market for less than $1 million,” says Knull. “These aren’t huge homes, either.”
According to Hill, the largest number of listings in the city are condos and co-ops in the $300,000 to $400,000 range, many of which are one-bedroom residences. The second price range with the most listings is homes priced from $600,000 to $800,000, most of which are attached rowhouses.
“D.C. is always pulling in more people for jobs, so the demand for homes here doesn’t slow down,” says Hill. “We’ll probably see a little more inventory as the spring goes on, which should hold prices steady in the city.”
Richardson points out that new construction is not meeting demand in the city, with most of it either rental units or high-end condos.
“The limited supply creates a domino effect, with sellers needing to sell first before they can buy and sellers at the top of the food chain demanding contracts without any contingencies,” says Richardson.
A relatively new trend is for buyers to have a pre-contract home inspection in order to make an offer without a traditional home inspection contingency, says Knull.
“It’s like a nuclear arms race: Once one person does it, everyone else does it, too,” he says. “For buyers, it allows you to get a quick diagnosis of the house before you make an offer, but you’re also spending hundreds of dollars and don’t even know if you’ll go under contract on the home.”
Sellers benefit from a pre-inspection because they know they won’t have to deal with an offer contingent on a full home inspection and won’t need to negotiate on inspection items, he says.
“A pre-contract inspection usually costs about half as much as a full inspection because you’re getting just a walk-and-talk inspection without a written report,” says Knull. “Buyers just learn from the inspector about what could make them increase or decrease their offer, but they don’t get a lot of detail. At one property this morning, there were seven or eight pre-contract inspections going on at the same time. There’s just a shortage of inventory at every price point and in every neighborhood, and that contributes to the frenzy among buyers.”
With competition so heated, particularly for first-time buyers, Dan Fulton, senior vice president of John Burns Real Estate Consulting in Reston, says buyers may want to consider some of the more affordable options under construction in the suburbs.
“Every buyer needs to turn the dial and decide which of these four trade-offs to make: the size of the home, the age, the location and the price,” says Fulton. “Buyers who want to live in a newly designed and built home or who want a little more space may need to trade-off living in the city for a walkable community in the suburbs and a longer commute.”
Coming up in the Spring Home Guide: Maryland market, April 9; Virginia market, April 16.