Washington DC Real Estate
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Fall Market | DC Real Estate
Highly qualified buyers unfazed by mortgage interest rates and those with cash have been taking advantage of market uncertainty. With rates shifting between 6.7% and 7.7% and extremely tight inventory conditions hampering many buyers, the volume and pace of the DC market has slowed, but prices continue to inch up due to demand vs low inventory.
Rates are still historically low, but as financing buyers adjust, additional rate hikes are levied. Utilize ARM mortgages, and plan for moderate rate drops in 2024. Buyers are hesitant to put money into improvements after closing, so turnkey homes will sell well, and buyers will exercise more caution with home inspections and careful evaluation of price. Also a consideration, school boundary changes are being decided this year. See our blog post on that topic.
What To Expect In 2023 Q3-Q4
Following the July 26th benchmark quarter point rate hike, one additional rate increase is expected this year, likely in October. DC home buyers who must rely on financing will face a daunting market the second half of 2023 due to credit tightening, inventory decreases and affordability issues. We expect DC real estate market activity to slow considerably as a result.
Loan underwriters Freddie Mac and Fannie Mae have tightened the gap between high credit score borrowers and those with lower scores by about half, but this is unlikely to compensate much for restrictive market conditions.
The Impact Shortlist:
- Rates, National Financial Markets
- Recession Predictions
- School Boundaries Redraw
- Political Activity
DC Real Estate Market Summary
With Susan Isaacs
August 2023 in the District of Columbia:
- August 2023 Sold Dollar Volume was $475,874,112, a decline of -15.18% from August 2022’s $561,049,116;
- August 2023 Median Sold Price was $639,000, a slight -1.58% drop from August of 2022;
- Avg Days on Market (DOM) in August was 37 Days, up 23.33% from August 2022;
- Avg SP to Orig. List Price Ratio in August was 97.5%, down only -0.02% from August 2o22;
- Ratio of Avg SP to Avg Orig. LP in August was 97.0% , down slightly -0.56% from August 2022.
Visit the following links for details on individual home types, detailed DC market data and DC real estate values:
Off-Market Inventory & Sales
Keep in mind that a significant percentage of homes bought and sold in the District of Columbia are transacted off-market. This ‘shadow’ inventory is not available to third party sites and is unlikely to be included, or reported with accuracy, by any market data tool. For this reason, Washington DC market data should be viewed as informational, rather than absolute. Assessments of inventory may be quite skewed based on the now commonplace use of ‘Private Exclusive’ listings held by individual brokerages.
How The Economy Impacts Housing
Main factors that affect the housing market are economic growth, housing demand, unemployment. interest rates. consumer confidence, mortgage availability and supply.
Housing Starts
Tracking housing starts by new residential construction permits is a key in determining the health of a local real estate market. When the economy is strong, more new homes are built and sold. In weak economies, fewer permit applications are made and fewer new homes are sold. Housing starts are essential indicators of economic health, and affect related markets such as mortgages, land sales, raw materials and employment.
Home Sales And the Economy
There is a direct correlation between home sales and economic health. As economies slow, money supply becomes harder to borrow, and as a result, fewer home buyers enter the housing market. This leads to diminished home inventory and homes on the market take longer to sell. A greater supply of homes in a market with lower demand generally forces prices downward.
Money Supply Impacts Housing Sales
Money supply is critical to housing market health. When borrowing is too difficult, housing starts and home sales slow significantly. When borrowing is too easy, too many buyers enter the housing market and drive up prices until a market correction or crash occurs.
Foreclosures Reflect a Market Downturn
Foreclosures are an indicator and a result of a housing market decline or crash. If interest rates rise dramatically, borrowers with adjustable rate mortgages may not be able to refinance or stay current on the debt. This results in increased foreclosure activity. Mortgage type isn’t the only reason for heightened foreclosure volume.The leading causes of foreclosure are rising unemployment, debt (medical debt in particular), divorce, death of a spouse or partner who contributed income, and unexpected large expenses.
Economic Slowdowns
When the economy slows, it will affect the housing market, which in turn negatively impacts the economy as housing-related activities decline. This economic cycle breaks once economic improvement begins and housing prices reflect consumers’ confidence in their ability to take on mortgage debt.
DC Is An Unusual Market
The District is a unique and sought-after housing market– among the strongest in the country. Bouyed by the constant ebb and flow of government officials and contractors, Amazon’s HQ2, the tech sector, scarcity of land and the District’s small size (68.3 SqM), and its connectivity to adjoining states, Washington DC has weathered many declining markets well, and recovered quickly.
Regional Real Estate Market
The DC Metro Area includes Washington DC and parts of Maryland, Virginia, and West Virginia. It’s important to clarify the areas of the region being used by data reports before relying upon their numbers. Real estate is local first, so while we look at data for various regions surrounding the District of Columbia, our primary focus is on the District itself, parts of northern Virginia, and particular Maryland counties. We find this to be the most accurate representation of the market we live and work in.
Here are the four primary measures of the DCMA regional housing market for all home types:
National Real Estate Market
Forbes Advisor Highlights
Some Experts Foresee Sluggish Housing Market Recovery
Housing market activity remains weak overall thanks to high mortgage rates, elevated home prices and constrained housing inventory—a trifecta of headwinds perpetuating the housing affordability crisis. At the same time, high inflation and more interest rate hikes still hang in the air.
Mortgage rates took off in mid-July and hardly looked back with the average 30-year fixed rate peaking at 7.23% the week of August 24. This rate is the highest since March 2022 and comes in the wake of Federal Reserve policymakers voting to raise the federal funds rate by 25 basis points at the committee’s July meeting—the 11th rate increase since the Fed began its inflation battle in March 2022. A basis point is one-hundredth of one percentage point.
The federal funds rate is the rate financial institutions lend to each other overnight.
A Fed rate hike indirectly impacts long-term home loans, such as 30-year, fixed-rate mortgages. The federal funds rate hovered near zero in March 2022 when the Fed began raising rates. After 11 rate hikes, the rate range is currently 5.25% to 5.5%.
And the Fed has continually signaled it will not stop there.
“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” Federal Chair Jerome Powell stated in his remarks at the Federal Reserve’s annual Jackson Hole summit last month.”Two percent is and will remain our inflation target.”
September Rate Decision: Fed Skips, Projects Rates Above 5% for 2024
In his live statement, Fed Chair Powell confirmed that rates will remain unchanged, at least until the next FOMC meeting in October.
Fed projections suggest the terminal federal funds rate will reach 5.6% by the end of 2023, 5.1% by the end of 2024 and 3.9% end of 2025, implying at least one more rate increase this year.
The Conference Board’s updated CEO Insights Newsletter September 20th notes that core CPI, which excludes volatile food and energy prices, rose 4.3% in August from the previous year, slowing from 4.7% year-over-year in July. One final rate hike is expected in November, and no rate cuts are expected until Q2 2024. The newsletter goes on to say that a more prolonged surge in energy prices could introduce additional inflationary pressures and push the Fed to become even more aggressive.
How Will the Fed’s Decision Affect Mortgage Rates?
Predictions from industry-related experts range
- Fannie Mae: 30-year mortgage rates will fall into the 6.3% to 6.8% range in 2024
- Mortgage Bankers Assn.: 30-year mortgage rates will drop to 5.4% by EOY 2024
- NAR: Rates will remain close to 6%.
Per The Mortgage Reports:
“Interest rates trended upward throughout the summer, shooting above 7% and reaching a 22-year high in August. However, September is showing signs of relief and this Fed action could help rates decrease.
Most recently, the average 30-year fixed-rate mortgage (FRM) fell two basis points (0.02%) immediately following June’s FOMC meeting and rose three basis points (0.03%) after July’s hike, according to Freddie Mac.
Interest rates typically rise alongside increases to the fed funds rate and run off of balance sheet holdings. In its statement, the FOMC described financial markets “sound and resilient” and the currently tight credit conditions are “likely to weigh on economic activity, hiring, and inflation.”
The FOMC’s pause in hiking strategy coupled with those economic indicators signal they believe inflation and interest rates should start to gradually dissipate.
“We expect that inflation will continue to drop closer to the Fed’s target, the job market will continue to slow, and that mortgage rates should begin to reflect that the Fed’s moves in 2024 will be cuts – not further increases. This should provide some relief in terms of better affordability for potential homebuyers.”
–Mike Fratantoni, Chief Economist, Mortgage Bankers Assn
Indeed, Fed Chair Powell said following the Sept. 20th FOMC meeting: “The time will come, at some point–and I’m not saying when–that it’s appropriate to cut.” But Powell emphasized that there is no plan, the Fed will act in response to data in its totality, and that the timeline is uncertain.
Many experts forecast mortgage rates remaining well above 6% for the remainder of this year and higher than hoped throughout 2024.
Here’s Bankrate’s take: “With the 10-year Treasury yield rising in recent weeks, mortgage rates have gone along for the ride and remain elevated.
“Inflation remains higher than desired and the Fed is shrinking its balance sheet, both of which are keeping mortgage rates above 7 percent,” says Greg McBride, CFA, Bankrate chief financial analyst. “Once the Fed hints they’re done raising interest rates, mortgage rates and other long-term rates will pull back. The Fed wants to keep conditions tight and staying mum on additional rate hikes is part of that.”
Mortgage rates remain well above where they were a year ago, and this – following the rapid rise in housing prices over the past couple of years – has created a double whammy for potential homebuyers. Home prices are more expensive and the financing is pricier, resulting in a slowdown in the housing market.
The cost of a home equity line of credit (HELOC) should remain flat since HELOCs stay aligned with changes in the federal funds rate. HELOCs are typically linked to the prime rate, the interest rate that banks charge their best customers. Those with outstanding balances on their HELOC will likely see rates stay close to where they are currently.”
When Should Homebuyers Act?
- 30-year mortgage rates are currently expected to fall to somewhere between 5.4% and 6.8% in 2024
- Instead of waiting for rates to drop, homebuyers should consider buying now and refinancing later to avoid increased competition next year.
–Business Insider
FED INFLATION NOWCAST
INFLATION, MONTH-OVER-MONTH PERCENT CHANGE
| Month | CPI | Core CPI | PCE | Core PCE | Updated |
|---|---|---|---|---|---|
| September 2023 | 0.38 | 0.37 | 0.33 | 0.33 | 09/12 |
| August 2023 | 0.79 | 0.38 | 0.63 | 0.35 | 09/12 |
| Note: If the cell is blank, it implies that the actual data corresponding to the month for that inflation measure have already been released. | |||||
Inflation hit its most recent peak in June 2022, when the rate was 9.06%
NATIONAL MARKET
Housing Market Forecast for September 2023
Forbes Advisor
Housing supply remains at near historic lows—especially entry-level supply—consequently propping up demand and sustaining higher home prices.
Even so, new single-family homes have been coming to the rescue—at least to some extent—enticing eager shoppers frustrated by the limited resale inventory. Moreover, the price gap between the median existing-home sales price and new home sales price has closed markedly in recent months, another incentive luring home seekers.
Existing Homes
There was a speck of good news for inventory on the resale side—most likely due to home seekers either leaving the market or turning to new construction.
Existing inventory has stalled at record lows for months. After a flat June, inventory of unsold, existing homes increased by 3.7% between June and July. Yet, this only bumps existing inventory from a paltry 3.1-month supply to a 3.3-month supply at the current sales pace. Many experts say a balanced housing market has four to six months of inventory.
Meanwhile, at the current sales rate, the seasonally adjusted estimate of new houses for sale was 437,000 at the end of July, representing 7.3 months of supply at the current sales pace, down from 10.9 months of supply a year ago.
“Inventory is approximately 46% below the historical average dating back to 1999,” says Jack Macdowell, chief investment officer and co-founder at Palisades Group. “We think that it is highly unlikely that the inventory problem will be resolved in 2023,” Macdowell says.
New Homes
Despite mortgage rates holding firm above 6.75% in July, new home sales rose 4.4% to a seasonally adjusted annual rate of 714,000 compared to a rate of 684,000 in June.
Another metric revealing that new homes are having their moment was the 35.5% year-over-year increase in July of new home purchase mortgage applications, according to the Mortgage Bankers Association.
FHA-insured loans are an increasing share of those new home purchase applications. The share of new home sales backed by FHA loans rose from 12.1% to 14% in the second quarter of this year, according to National Association of Homebuilders (NAHB) analysis. FHA loans are popular with low- to moderate-income borrowers and first-time home buyers because of the lower credit score and down payment requirements.
“With low existing home inventory, new home inventory is becoming competitive, and new homes are now competitive on price,” said Robert Frick, corporate economist with Navy Federal Credit Union, in an emailed statement.
In October 2022, the median sales price for a new home was $496,800, while the median existing-home sales price was $378,800—a difference of $118,000. The gap now is only $30,000.
The median new home sales price in the U.S., which dipped to a 2023 low of $417,200 in April, has since been on the rise amid persistent demand. In July, the median sales price for a new home leaped to $436,700, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).
Year-over-year new home sales are also on a tear, surging by 31.5%, even as existing-home sales continue to sag.
Housing Starts Forecast for 2023
There were mixed messages in the construction realm, suggesting some home builder wariness amid escalating mortgage rates and other industry challenges.
Single-family construction starts jumped up by 6.7% following a dip in June. Applications for building permits rose 0.6% from the previous month, according to the Census Bureau and HUD.
At the same time, builder confidence took a nosedive following seven months of increases.
The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) that tracks builder sentiment sank from 56 to 50. A reading of 50 or above means more builders see good conditions ahead for new construction.
Thanks to mortgage rates back on the upswing, builders returned to offering incentives in August as a dangling carrot for home seekers, with 25% of builders offering sales cuts compared to 22% in July. More builders also offered incentives to spark sales, up 3% between July and August.
“Rising mortgage rates and high construction costs stemming from a dearth of construction workers, a lack of buildable lots and ongoing shortages of distribution transformers put a chill on builder sentiment in August,” Alicia Huey, chairman of NAHB, said in a press statement.
Builder headwinds also include tighter credit conditions due to the Fed’s aggressive interest rate hikes to curb inflation. Experts foresee a negative impact on the pace of home building.
“Long-term interest rates that affect residential financing costs are rising again, putting a speed limit on the recovery of single-family construction,” said Bill Adams, chief economist at Comerica Bank, in an emailed statement. “Home builders are decreasing the sizes of new units they build to try to make new construction more affordable.”
Global News | Recession Watch
The Conference Board
Global Recession Map
Global leading indicators signal a likely further slowing in global GDP.
Declines in real GDP per capita are often associated with recessions.
The Conference Board
Global Forecast
Global real GDP is forecasted to grow by 2.7 percent in 2023, down from 3.3 percent in 2022. We expect further slowing to 2.4 percent in 2024. Economic growth is moderating under the weight of still high inflation and monetary policy tightening. Rather than a global recession, we expect a relatively subdued economic outlook. Growth is generally strongest in emerging Asian economies, and weakest in Europe and the US.
Rapid monetary policy tightening over the last year or so led to weakening in global housing, bank lending, and the industrial sector. However, this weakness has been more than offset by strength in other sectors, most notably service-sector activities, which is visible in labor markets. Strong consumer spending and the fading impact of shocks of recent years have been difficult to assess, leading to ongoing forecast revisions. Nonetheless, recent data point to moderation of these positive trends, leading to slower global growth in the second half of 2023 and early 2024.
Two key risks stand out regarding the global economic outlook. The first relates to inflation. While headline inflation has peaked in most economies, core inflation (excluding volatile items such as food and energy) has proven stickier and has not decisively peaked in many economies. Price pressures in the (global) goods and industrial sectors have receded, and if history is any guide, services prices should likewise moderate over the next quarters. However, the speed of this disinflationary process is hard to assess and will depend on a number of factors including weakening demand and pricing power of firms, labor market dynamics, and passthrough from past input price increases. The second risk relates to financial market stability. Central banks tightened monetary policy rapidly and this exposed weaknesses in the banking sector, and financial markets in general. While most indicators point to relative stability in global financial markets, long and variable lags in the passthrough of monetary policy mean more financial turmoil could be on the horizon.
Apart from country-specific deviations, such as a possible rebound in US GDP in 2025, business would do well to prepare for a slowing global economic growth environment over the next decade. Relatively slow growth of about 2.5 percent for 2023-2024 for the global economy reflects the ongoing pivot to a more modest global GDP growth environment for the next decade, which is estimated at around 2.6 percent, down from an average annual pace of 3.3 percent in the decade leading up to the pandemic.
The 10-year economic outlook signals a prolonged period of disruptions and uncertainties for businesses, but there are also opportunities. Global growth will return to its slowing trajectory with mature markets making smaller contributions to global GDP over the next decade. Nonetheless, there are still opportunities for firms to invest in both mature markets—given their wealth and need for innovation to compensate for shrinking labor forces—and emerging markets—given their need for both physical and digital infrastructure to support their sizable and young labor forces. Keys to ensuring growth over the longer term include developing new lines of business; strengthening corporate culture; embracing digital transformation and automation; recruiting for talent with new skills not currently represented in the company; and maximizing the hybrid work model where it makes sense.
Note: Since October 2022 The Conference Board uses official Chinese GDP data in our global aggregation which led to an upward revision of the global aggregate growth rate. The alternative figures for China that we used before were lower, and hence our global aggregate was also lower. The change from using official GDP data as our main series for China is made for several reasons including: lack of up-to-date data that constrain the tracking of our alternative GDP measure on a timelier basis; lack of detailed data to perform the necessary calculations as described in the original methodology; and biases in official GDP data appearing smaller in earlier years. We continue to track alternative GDP data for China but will do so on a less frequent basis.
The Conference Board
U.S. Economic Forecast
August 01, 2023 | Report by Erick Lundh
The Conference Board forecasts that the growth seen in many parts of the economy will gradually buckle under mounting headwinds later this year, leading to a very short and shallow recession. This outlook is associated with numerous factors, including, elevated inflation, high interest rates, dissipating pandemic savings, lower government spending, and the resumption of mandatory student loan repayments. We forecast that real GDP growth will slow to 1.9 percent in 2023, and then fall to 0.5 percent in 2024.
Following a period of renewed strength in early 2023, consumer spending growth has slowed in recent months. However, despite numerous headwinds associated with inflation and interest rates, US consumers have not closed their wallets altogether. This trend cannot hold, in our view. Compensation growth is decelerating, pandemic savings are dwindling, and revolving credit utilization is rising. Additionally, new student loan repayment requirements will begin to impact younger consumers later this year. Thus, we forecast that overall consumer spending will grow in Q3 2023, but anticipate a contraction in Q4 2023 and Q1 2024. As inflation and interest rates abate in 2024, we expect consumption to begin to expand once more.
Meanwhile, following weak growth in Q1 2023, business investment bounced back in Q2 2023 despite interest rate increases. This was largely due to a surge in business spending on equipment (especially computing and transportation equipment) and elevated investment in structures (especially in manufacturing). However, we expect this trend to reverse later this year as US consumption softens and interest rates continue to rise (we believe the Fed will raise rates by 25 basis points once more this year, likely in Q4 2023). Additionally, commercial and industrial lending by banks continues to decline in the wake of the US banking crisis. Residential investment, which is highly sensitive to Fed policy, has already contracted significantly as interest rates have climbed. We don’t expect a recovery in this sector until rates begin to fall next year.
Government spending represented one of the few positive growth drivers for 2023 as federal non-defense spending benefited from outlays associated with infrastructure investment legislation passed in 2021 and 2022. However, reductions in discretionary outlays ($1.5 Trillion over 10 years) detailed in the Fiscal Responsibility Act, which averted the debt ceiling crisis, will limit overall government spending and act as a drag on growth later this year and early next.
On inflation, we expect to see progress over the coming quarters, but the path will probably be bumpy. That large decrease in the reported year-over-year PCE deflator in Q2 2023 was welcome but was due in-part to base effects. Starting in Q3 2023, rents, which are a significant contributor to faster inflation, are expected to cool. This will drive inflation even lower. However, this does not mean the fight to tame inflation is over – far from it. We expect year-over-year inflation readings to remain at about 3 percent at 2023 yearend and that the Fed’s 2 percent target will not be achieved until the end of 2024.
Labor market tightness will moderate somewhat over the coming quarters but will remain acute relative to previous economic downturns, reflecting persistent labor shortages in some industries and labor hoarding in others. This should prevent overall economic growth from slipping too deeply into contractionary territory and facilitate a rebound next year.
Several factors impacted our revised forecast this month. Q2 2023 real GDP growth came in much stronger than expected (although large revisions to the advance estimate are likely) and monthly Personal Consumption Expenditure growth reaccelerated in June. Additionally, our consumer confidence index saw meaningful improvement in both June and July. Presently, we acknowledge that the likelihood of a ‘soft landing’ for the economy is rising, but we continue to believe that a very short and shallow recession is the more likely scenario.
Looking into 2024, we expect the volatility that dominated the US economy over the pandemic period to diminish. In the second half of 2024, we forecast that overall growth will return to more stable pre-pandemic rates, inflation will drift closer to 2 percent, and the Fed will lower rates to near 4 percent. However, due to an aging labor force we expect tightness in the labor market to remain an ongoing challenge for the foreseeable future.
Fed Benchmark Rate
The current Federal Reserve interest rate was raised a quarter-point in July 2023 from 5.25% to 5.50%, which is at its highest level in 22 years.
The current Federal Reserve interest rate is 5.5% as of Sept 09, 2023.
| This Week | Month Ago | Year Ago | |
|---|---|---|---|
| Fed Funds Rate (Current target rate 5.25-5.50) | 5.5 | 5.5 | 2.5 |
What it means: The interest rate at which banks and other depository institutions lend money to each other, usually on an overnight basis. The law requires banks to keep a certain percentage of their customer’s money on reserve, where the banks earn no interest on it. Consequently, banks try to stay as close to the reserve limit as possible without going under it, lending money back and forth to maintain the proper level.
How it’s used: Like the federal discount rate, the federal funds rate is used to control the supply of available funds and hence, inflation and other interest rates. Raising the rate makes it more expensive to borrow. That lowers the supply of available money, which increases the short-term interest rates and helps keep inflation in check. Lowering the rate has the opposite effect, bringing short-term interest rates down.