I write this as we are once again being inundated by snow, listings are scarce, and there remains an imbalance of buyers over sellers in most of our local markets. Prices are rising for homes in Northern Virginia beyond the expectations of most sellers and market professionals, although not to the extent seen in previous hot markets.
For the past three years, I have been the strongest proponent for significantly higher prices for residential real estate in Northern Virginia. Not only has this been accurate, but the increases have gone beyond my predictions. So now that the “consensus” is beginning to jump to that conclusion when forecasting ahead for 2014, 2015 and 2016, where are we really going?
First, this is a much trickier and potentially volatile market than we have seen in the past three years. What looked like one directional forces pushes prices higher from 2010 to now do not look as obvious today. Specifically:
- Affordability issues are coming into play, an issue magnified by tighter lending standards.
- Many areas are beginning to see rental gluts, and there are an unusual number of homes for rent versus to sell. I expect that to reverse to previous norms over time.
- Appraisers are often having difficulty supporting higher prices in many neighborhoods throughout Northern Virginia, not because the market hasn’t really gone there (after all, theoretically an appraisal should be an accurate reflection of market value) but because the rules and standards set by the industry demand a more conservative approach to the appraisal process these days. Unlike past markets, when appraisers were accused of having their MAI designation stand for “made as instructed,” the bias in appraisals now is toward lower estimated values, not higher.
- Anecdotally, the number of inquiries from homeowners asking about their current value (“What do you think I can sell my home for today?”) are increasing rapidly. And why not? Most neighborhoods have seen well-below market turnover in the past three years as prices rise. Many who were “under water” on home loans are no longer, and many who need to move for more space or possibly retirement are seriously pondering if now is the time to act.
- A less-certain job market may be taking a toll. Although the employment situation has been ultra-strong in Northern Virginia, and prospects for the immediate future are much better than most locations, the fear of future sequestrations, defense cutbacks, etc. have created a pall for many people which did not exist the past three years.
Several weeks ago, I wrote a piece entitled “Neither Higher Interest Rates Nor Higher Prices are a Sure Thing for 2014” http://wordpress.com/read/post/id/19483478/1095//p>
At the time, the ten year Treasury was at 3.0% and the consensus was for a definite move to 3 1/2% to 4% by year end, with housing prices surging another ten percent or so. Before jumping on that band wagon, I say this, “Not so fast.”
So here is what to look for in both the immediate future, and the next few years:
- The spring market will likely be much more active than most people are predicting. Initially, the adequate number of buyers in Northern Virginia looking to trade up or move from rental status will absorb any new inventory, and prices should rise. However, I am less sanguine about this buying power continuing beyond the first wave. The selling has been so limited in the past few years, that a doubling of listings over 2013 is not unlikely. At some point there will be a cross over of buyer demand versus seller supply. When that occurs is pure speculation at this point.
- Predictions of surging prices through 2016 are not likely to materialize. Builders are being more aggressive in satisfying buyer demand, and competition from existing home sales will be more fierce than anticipated. The “Much Higher Price” train which I had been promoting for the past few years will likely slow. The market will be much more selective in choosing which areas and types of housing will be “hot” and for those locations and types, prices will be strong. Identifying these trends will be much more important in the next few years, as opposed to the relatively easy shotgun approach of the past, in which prices everywhere were on the rise.
I welcome and encourage you to contact me for further discussion on these issues.
Ray Wedell, Realtor
Awarded the RE/MAX Brokerage of the Year for 2013
Chartered Financial Analyst, CFA