The way in which the economic movements impacted the housing market in Washington D.C. over the past couple of years led to an extremely competitive market. While the housing prices are on an ascending trend across the nation, cities that also experienced job growth are putting a lot of pressure on home buyers as well. The growing prices in Washington D.C.’s housing market, coupled with high competition among buyers, fast sales, and the lowest housing inventory since 1983, transformed the nation’s capital market into the definition of a seller’s market.
The capital city of Washington D.C., is the center of power in the nation. Housing all three branches of the government, around 30% of the workforce are employed in government positions, be it legislative, judicial, security, or political. Because when we talk about the workforce from Washington D.C. we aren’t limited to the District of Columbia, but its surrounding area as well. This means Arlington, VA, with the Pentagon and other surrounding Washington metropolitan areas. While jobs have high earnings, Washingtonians are dealing with an incredibly competitive real estate market. This article aims to pinpoint exactly what impacts these trends and what homebuyers can expect in the near future.
Lack of Inventory
As mentioned above, Washington D.C. is dealing with a low housing inventory. This housing shortage was not a result of the pandemic alone. While the aggressive government spending did affect the amount of new housing being built over the last couple of years, Washington’s housing shortage was felt even before the pandemic. This can be seen by looking at the number of permits requested by real estate developers. Before the last market crash, around 26,000 building permits were released annually; during 2006 that number started to drop, going below 10,000 in 2008. The trend changed since then but still remained low and in 2020 the number of building permits issued in Washington’s metropolitan area was around 14,000.
Yes, this does affect the housing inventory, but the amount of building permits released prior to 2006 was one of the catalysts for the housing market of 2008-2009. Washington D.C. has 1.5 months of housing supply available on the market compared to last year’s 1.9. A 23% drop in inventory does impact housing prices as demand is steady but supply is dropping. This coupled with a global pandemic, Wall Street turned inside-out and incredibly low-interest rates, and we get incredibly motivated homebuyers. Homes are selling in 11 days since they hit the market and homebuyers are literally fighting for them.
Washington D.C.’s market is beyond ideal right now for any potential seller. Homebuyers are drawn to new listings like moths to a flame and any house is likely to get multiple offers and bidding matches above the asking price. This year will be another strong one for the housing market as two types of customers are looking to purchase. Firstly, we have the demand from existing homebuyers looking for larger homes that allow for social distancing and office space for remote working. Secondly, we have those that postponed purchasing a home in the false hope that the market will crash because of the pandemic’s effects or because they were uncertain of what tomorrow will bring.
Unfortunately for those who were waiting for the market to crash, that scenario is highly unlikely to happen unless another calamity impacts the economy. At the moment, listing services like Zillow are limiting their forecasting functions but price growth is expected to continue. Home sales are forecasted to grow by 30% during 2021, having the potential of being the largest home sales growth since 1983. Because of this intensely competitive market and limited housing inventory, housing prices are expected to appreciate at a rate similar to the Great Recession. While homebuyers will be pitted against each other, home sellers will reap the benefits of a heavily unbalanced market.
D.C. Current Market
After analyzing all the factors from above that influence Washington’s housing market, we take a look at NAR’s facts. According to them, housing market prices in Washington D.C. experienced a 4.1% growth between March of 2020 and 2021. Over the same period, there was an increase in homes sold of 19%, while the active inventory is down by 9%. From March to April of 2021, the number of units sold grew by 31% from 756 homes sold to 991. Looking at today’s numbers we can see that the median home value in Washington D.C. was $650,000 in May 2020 and is 685,000 in May of 2021. This is a 5.6% growth over the last 12 months. The beacon of light at the end of the tunnel for homebuyers, however, is that the number of new listings grew over the last year by 22%, but will that be enough to satisfy the growing demand?
Homes, on average, receive multiple offers during the few days they spend on the market. As an average, these homes sell for at least 1% above the asking price and hot properties become battling grounds for bidding wars that lead to selling for 3% above the asking price. As of March of 2021, around 42% of Washington D.C. homes sell above the asking price, a significant growth from 13% of last year. While sellers are getting benefits above and beyond the normal amount for selling their homes, buyers are struggling to come up with ways to cover the costs necessary to outbid other buyers.
How can you Buy a Home in this Market?
Saying that you should work with real estate agents in Washington DC doesn’t seem to cut for this city but it would definitely increase your chances. Fighting tooth and nail should not be required, but sharpening your nails might not be a bad idea with the current state of the market. Now, to stray away from the violence which we do not condone, buying a home in Washington D.C. can be like playing chess. Follow the rules and use the strategy to your advantage.
Successful Washington homebuyers are winners in this market regardless of how far above the asking price they had to pay. One thing to always keep in mind, however, is your budget. Know what you can afford, be aware of how far your blanket can stretch and if you see something that you like, make an offer. Chances are that if you found that property, somebody else is also eyeing it. Do not hesitate if you are certain of your strategy and go in for the kill … I mean, the purchase. The whole country is a seller’s market and knowing how to navigate it might make the difference between a happy homeowner and a disgruntled, dissatisfied bidder.
The housing market has always had a certain level of volatility between its ups and downs. The previous housing market crash has made us all wary of economic movements that might or might not have an impact. However, hoping for a 2021 housing market crash is not an option as many people are left jobless, houseless, and with bad credit.
The current market trends in Washington D.C. are not the result of extensive housing developments but a lack thereof. Prices aren’t growing because people can take out credits for exorbitant funds without having the financial security necessary, but because the supply is low and people can afford it as surprising as it may sound. The primary influencer of housing prices is the amount someone is willing to pay for it. Everything else is based on what’s happening in the economy, but if someone can afford to buy, they will buy it regardless of its price tag.