How will rising mortgage rates and low inventory affect buyers and sellers in the Washington Metro region?

by Corcoran McEnearney

For the last 24 months, the DC region’s real estate market has been the hottest we’ve seen in our 42 years in business. Fueled by record-low interest rates and record-low inventory, empowered buyers were chasing the relatively few homes on the market, driving prices higher. It was an incredible time to be a seller, a perhaps frustrating time for buyers — and it couldn’t last forever.

Rapidly rising mortgage rates combined with higher home prices mean that homes are roughly 30% less affordable today than this time last year, and it is clearly having an impact on contract activity. This means that sellers will have to adjust their expectations a bit, as there will simply be fewer buyers — especially first-time buyers who are most affected by higher rates. There won’t be as many multiple offers and homes will likely stay on the market longer. There still isn’t enough supply to meet even this lower demand, and it may take as long as another two years to get to a true balance between supply and demand. The important thing to remember is that this re-balancing in no way should cause worry about a crash. We’re talking about slowing price growth to normal levels of 3% – 5%.

30-year fixed mortgage interest rates have jumped two full percentage points in the last four months, from 3% to more than 5%, and that undoubtedly puts a pinch on homebuyers in what is still a very competitive sellers’ market. But as surprising and as swift as that rise has been, bear in mind that the average rate over the last 32 years is 6% – and it has been as high as 10.5% during that period of time.

The decision to purchase a home is personal, and shouldn’t be based on trying to “time” the market. Buy when you’re ready to buy. We know there is concern that rising rates will bring home prices down, and while it is absolutely true that buying activity will lessen because of higher rates, the biggest challenge in the market is the lack of inventory, not the lack of buyers. This spring, most of the region had less than a half-month supply – and we usually think of 3-to-6 months’ supply as balanced. Don’t defer a purchase decision because you’re waiting for prices to come down. The pace of rising home prices will ease in the face of lower demand, but they will still rise.

Your choice of an experienced Realtor and Loan Officer are key to navigating the changing market. If you are ready to buy or sell a home, reach out to a McEnearney Associate today for exceptional service. We are the trusted real estate resource throughout the DC metro area.