July 2022 Market Update
Washington DC Metro Region
As the latest data is released, it’s getting safer to say that we’re officially seeing the market begin to rebalance after the heyday that low interest rates brought in 2020 - 2021. Though we’re still seeing some pockets of increased competition across certain areas, a shift towards a correction is more evident.
We’re tracking data from the following key indicators:
New home sales are down. A reliably accurate forecast for the resale market 6 months in the future, new construction sales fell 19% to their lowest level since April 2020, after 7 straight months of slowing sales expectations. In a report released just this month, new home builder confidence was cited to be at an all time low as price increases, higher construction costs, and supply chain issues continue to take a toll on housing affordability,
Inventory is still driving this market. April 2022 was the first time since 2019 that we saw an uptick in inventory. Based on June's data the DC Metro Region would run out of homes in just over 30 days if no new listings were added. We’ll need to monitor supply and demand ratios to track where price appreciation is headed.
Still, this slow down is nothing like the last recession in 2007/2008. In 2007, there were 116 million households and 3.8 million resales on the market nationwide. Today there’s 128 million households and only 800,000 resales. Not to mention 2022 has seen 1.23MM new home starts nationwide, compared to 2.3MM in 2007. Demand is up, inventory is down.
Elevated interest rates will cool demand. With inflation reaching a 40-year high of 9.1% in June, mortgage interest rate decreases are not likely and the monthly mortgage cost has risen substantially (43.4% increase) since last year.
As a result, forecasts from a variety of sources have home sales declining around 13.5% YoY in 2022. This is up from the 11.1% predicted in May/June. We are seeing the beginning of middle class consumers hesitating with purchases and buyers who are moving based on location or other convenience factors will likely reconsider. Affordability concerns will also cause prospective sellers who want to sell and buy to pause; they’re not going to trade up for a more expensive mortgage.
There is good news for price appreciation. The buyers we may lose due to affordability issues will be balanced out by the reduction of new homes coming on the market, keeping supply and demand consistent. While in 2021, price appreciation hit double digits, partly due to an influx of cash-heavy transactions, it will likely cool down to average around 8% for the whole year. Appreciation is predicted to fall around 3% next year, which is in line with the average over the last 25 years. Despite what feels like a drastic drop, it’s good to keep the long-term in mind. Home values went up 33.7% from 2009 - 2019.
