DC Home Buyers Priced Out Of Market Created By The Fed

The Fed giveth and the Fed taketh away. Data tells us that the 2023 Washington DC real estate market offered a rare easing of conditions for home buyers due to rising interest rates, but few benefitted because of them.

Disappointed Buyer

Washington DC has long been a hotspot for dynamic real estate markets and shifting trends. Like the city itself, the DC real estate market can be complex, aggressive, and profitable. It’s not for the timid. First-time homebuyers, in particular, often find the District’s market formidable… and expensive.

So when the rare market shift towards buyers occurs, a property feeding frenzy follows. But not this year.

A Mixed Bag: By The Numbers

Total sold dollar volume for 2023 shows a significant contraction, declining by 22.19% to $5.33 billion from 2022’s $6,847,085,812. The number of units sold saw a substantial drop of 21.97%. The median sold price, a key indicator of market health, experienced a more pronounced decrease, falling by 3.96% to $630,000.

Data spanning from January 2023 to November 2023 creates a narrative of a buyer’s market, however, the reality was that many buyers reluctantly sat it out. Those who would normally have leapt at the rare chance to purchase a home in the nation’s capital with a 1.32% dip in average sold price, sans bidding wars and associated price escalations, shrank from the opportunity due to the cause of the market recalibration; high mortgage interest rates that translate into tighter lending conditions and hefty monthly payments for those who do qualify. With the Fed repeatedly dismissing the possibility of early 2024 rate reductions, It was a ‘buyer’s market’ that few except those flush with cash, or willing to take on faith the ability to refinance the following year, could benefit from.

Between The Lines

The real opportunities in the DC market this year were not those typically reflected in data; they were the market conditions in which buyers found comfort and sanity. Buyers experienced a greater number of choices with increased inventory (supply rose +53.2% in Q1 over 2022), fewer bidding wars, the opportunity to include important contract terms such as inspection and financing contingencies and 30 day closing cycles (as opposed to the more typical 2-3 week cycles), and the longer Days On Market (average DOM increased by 16.67% to 35 days) allowed enough time to think over a significant purchase rather than being forced into a quick decision by offer deadlines.

Property Types and Financing Trends

Breaking down the data by property types, attached homes fared slightly better than their detached counterparts, experiencing a 0.56% decrease in average sold prices compared to a more significant 5.54% decline for detached homes. In DC, we know that this is at least partially attributable to three factors;

  • Attached homes being more common in the District,
  • Detached homes often being located outside the nucleus of DC’s most popular micro-neighborhoods in each quadrant,
  • The price point of detached homes in the District, coupled with rising interest rates.

In terms of financing, conventional loans dominated, representing 4,087 of financed properties.

How It Ends

Data for the December2023 DC real estate market will not release until mid-January, but it is expected to depict the usual seasonal slowdown, perhaps with a slight bump for December mortgage interest rate easing. It was a year of transitions and adaptations, one of many in the DC real estate market over the decades. Let’s take a look back:

Decades of Shifts: The Washington DC Real Estate Market

The ’90s: A Transition Phase

In the early ’90s, Washington, DC navigated a changing economic landscape. Housing supply increased, influenced by urban development initiatives. This led to a buyer’s market within the District, thanks to new construction and renovated properties marketed in neighborhoods undergoing revitalization. The duration of this buyer’s market was notable, spanning a significant part of the decade.

Early 2000s: Seller’s Market Dominance

As the nation experienced economic prosperity in the early 2000s, Washington, DC mirrored the trend. A surge in government and private-sector employment elevated demand, creating a seller’s market. The scarcity of available housing within the District contributed to rising property values and the seller’s market phase held sway in DC, creating challenges for aspiring homebuyers.

Washington DC experienced a transformative phase driven not only by the national economy, but also by a boom in new construction housing. The cityscape underwent a visible transformation as developers capitalized on the surging demand for both residential and commercial spaces. Neighborhoods like the 14th Street Corridor in northwest, Columbia Heights, Shaw, NoMa, and the Southwest Waterfront became hotspots for high-rise condominiums and modern commercial structures. The influx of new construction significantly altered the real estate dynamic, adding a layer of complexity to the seller’s market dominance. The abundance of newly developed properties catered to a growing urban population, but it also introduced challenges such as increased competition and a shift in the architectural identity of certain districts. This era marked a pivotal moment in DC’s architectural and real estate evolution, shaping the city’s skyline and influencing buyer preferences for the years to come.

The 2008 Financial Crisis: A Paradigm Shift

The 2008 financial crisis profoundly impacted Washington, DC proper. Foreclosures increased, and housing inventory expanded, marking a transition to a buyer’s market. The District faced a unique set of challenges, with both residential and commercial real estate feeling the effects of the economic downturn. This buyer’s market persisted for a notable duration, offering opportunities for those looking to invest or secure more affordable housing within DC. After the prolonged, and often brutal, sellers market of the early 2000s, buyers flooded the market to take advantage.

Post-2010: A Dynamic Era

In the post-2010 period, Washington, DC proper exhibited resilience amid economic shifts, leading the nation in recovery from the 2008 crisis. The city’s diverse economy and status as the nation’s capital contributed to a dynamic real estate landscape. A more modest version of the 2000’s building boom eventually resumed, with completion of delayed large-scale construction projects, and new projects initiating. Home renovation and flipping also resumed, with homebuyers who snapped properties at the bottom of the market seeing large returns on their investments.

The ten year trajectory of DC real estate market values, from December of 2013 to December of 2023, shows a bumpy incline, beginning with a Median Sales Price of $479,900. in Dec. 2013, and ending with a high of $725,000. in June of 2022. The numbers dip in July 2022 as interest rates began to significantly increase, bottom out in January 2023 at a MSP of $545,500., and climbing modestly since, to November’s MSP of $635,000..

The duration and intensity of down-phases fluctuated, with 2022 and 2023 heavily impacted by the Fed’s rate increases, but overall reflecting the city’s ability to adapt well to evolving economic climates.

Looking toward 2024

Looking Forward:  Navigating The 2024 DC Real Estate Market

For those navigating the 2024 Washington, DC real estate market, understanding the history of 2023 is essential. The data paints a picture of a market in transition, from quasi-buyer’s market to an incremental return of the norm. To maximize your real estate decisions in the capital, consider these key takeaways:

  1. Timing Matters: With an increased average DOM, seasonally lower prices and some remaining 2023 inventory of note, January buyers may find excellent opportunities by moving quickly;
  2. Diverse Financing Options: Explore short-term ‘alternative’ financing options such as adjustable rate loans considering both the Fed’s stated intention to lower rates several times in the new year, and new jumbo loan terms. These can make an advantageous winter purchase possible;
  3. Segment-Specific Insights: The variations in 2023 price ranges related to property types highlight the importance of tailoring a purchase approach based on the specific segment of the market you’re interested in. If a buyer is looking to find good value in the detached single family home category (which ended Q3 in 2023 down 3% from Q3 2022), for instance, why not take advantage of winter market conditions to boot? Conditions are ideal now.

Navigating the DC real estate market requires a nuanced understanding of the data and a strategic approach to capitalize on emerging opportunities. As we move forward, staying informed and acting quickly on opportunities will be key to making the most of what the market has to offer. Let us help you step into the 2024 market confidently and profitably.