What started out as a hot year in the housing market is ending on a cool front. The slowdown was driven by an increase in mortgage rates, concerns of a recession, and general market uncertainty. On Wednesday December 14 the Fed raised rates again, this time by only half a percentage point, with the projection that it will continue on this path into 2023. Many experts predicted that if the US entered a recession, interest rates would come down. Not so, says the Fed. Despite its projection that the economy will be operating at a stall speed, Fed Chair Jerome Powell believes rate hikes are necessary to restore price stability.
The good news is, that as many parts of the country brace for price adjustments, the Washington DC metro area is predicted to remain stable. The market looks very different this year than it did last. In December sales have been down about 50% compared to last year. New listings are down as well. Many buyers pulled out of the market due to affordability issues, while others chose to wait and see if rates would come down. The market lost sales and inventory primarily from the lack of “up sellers”, who had little incentive to give up their locked in lower rates. Even with slower sales and a lower volume, median price increased 4.6%, and according to Bright MLS, is expected to increase 1.1% in 2023. While this may seem low, it is still growth as opposed to a decline.
Areas preparing for the biggest adjustments are those that saw the biggest upswings during the pandemic. Experts predict that as people return to the office,demand for homes in outlying, remote “Zoom towns” will decrease. It is also believed that the slowed economy will affect prices in second home markets and that regions with lower household incomes will feel the effects of higher interest rates more than others.
Washington DC and its surrounding areas have a strong and growing job market, with the highest number of fast-growing firms, and a large percent of jobs in high-tech industries. Household incomes are among the highest in the country. Our area is one of the most educated in the country. These factors are indicators of a stable economy and should lead to a continuing demand for housing.
Predictions are often wrong. Who would have guessed that mortgage rates would double in 2022, and that the Fed is projected to increase its rate to 5% in 2023, the highest level since 2007? While it is important to know where we may be headed, we can’t always adjust our course. If you need to buy or sell a home in 2022, let us help you navigate this market.