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Housing market tightens again as inventory hits historic lows

by Clarence Jones

The D.C.-area housing market is experiencing a slowdown as rising interest rates discourage both buyers and sellers. Since the series of mortgage rate hikes began in March 2022, the market has seen a decrease in activity as buyers wait for lower rates, lower prices, and increased inventory. However, with interest rates rising again in 2023, many are adjusting their expectations to a new status quo where inventory remains tight, prices remain high, and relief seems unlikely anytime soon.

Nationwide, housing inventory is up from its all-time low in January 2022 but remains lower than ever before at this time of year. In the D.C. area, monthly listings were down nearly 30 percent from a year ago, and inventory for the region as a whole is scarce. Prices continue to climb, with the median sales price for all types of housing in the D.C. region increasing by 4.8 percent from the previous year. Some suburbs have seen even bigger increases, with Fairfax City experiencing a standout gain of 9.1 percent.

Avi Adler, president of the Greater Capital Area Association of Realtors, describes the housing market as “somewhat dysfunctional” due to higher interest rates and fewer buyers and sellers. Buyers in the D.C.-area will have to adjust their expectations and compete harder for available housing, which may mean spending more and buying smaller or commuting farther.

Additionally, homes in the region are spending less time on the market compared to the previous year, indicating high demand. Residential properties in Loudoun County, Virginia, spent an average of five days on the market in July, down from eight days the previous year. D.C. was an outlier, with residential properties spending an average of 17 days on the market.

Buyers who can afford to pay cash have an advantage in this market, especially as prices rise and inventory remains low. In April 2023, nearly one in four residential properties in the D.C. area were bought entirely with cash. However, first-time homebuyers without the ability to pay cash face difficult odds.

The uncertainty of future work arrangements, as companies reconsider remote-work policies, adds another layer of complexity to the market. Some potential buyers may opt to rent instead, as rent prices have remained relatively stable compared to home prices.

Overall, experts advise buyers to act now if they can afford the current market conditions. Waiting for the market to change may not be the best strategy, as there is no evidence to suggest that home prices will decrease in the next five to ten years. For those unable to enter the market now, experts advise patience and strategic thinking, such as taking advantage of predictable lulls in the housing market during the holidays.

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