2021 Northern VA Real Estate Market
Market Update: 2nd Quarter 2021
• Rates Continue Near Lows
Interest rates and home values are correlated. Higher rates mean more of a buyer’s monthly payment will go to interest, so buying power goes down.
As of mid July, the interest rates according to Freddie Mac’s weekly mortgage survey continue to hover just below 3%.
• The Inventory Problem…Ending?
In the last update, I discussed how there were not enough homes for sale to meet demand. This quarter has been more of the same.
However, there are predictions and reports coming out that the market could shift to become more balanced soon, as opposed to heavily favoring sellers.
Real estate data takes time to become relevant, because of the time it takes homes on the market to sell and close.
However, nationally there are more new listings coming on the market than there were since before the pandemic.
Simultaneously, we are seeing a slight decrease in showings if compared to last year.
This chart, which was put into place by ShowingTime shows the large dip due to covid. But it also shows that in Virginia, the number of showings related to the beginning of the year is lower than the previous 2 years.
On top of that, I constantly speak with others in the industry, both mortgage agents and other experts. And they have agreed that the typical “summer slowdown” is a bit more pronounced this year.
So what does this mean? Not much yet. We will see if the market is truly turning towards favoring homebuyers over the following months when sales data catches up with us.
But here is what we know:
• There are less reports of bidding wars. Multiple offers are not as common as they were earlier this year and end of last year. This is confirmed by preliminary data from a large brokerage.
• It is expected the standard summer “lull” will be magnified in 2021. Now that the US and other countries are reopening, the pent up demand to travel and do other activities could have some buyers taking a break.
• It is expected prices will stabilize. Many believe, myself included, that asking prices are more in line with final sales price. This is obviously on average, as some homes will still be bid up, while others may have to lower.
• The rates are not expected to move drastically. The Fed has been clear they are taking a “wait and see” approach about easing the purchase of bonds/mortgage backed securities and raising rates. So it is unlikely we will see much higher rates soon.
What does this mean for you?
If you are buying a home and plan to live in it or own it long term, it is a great time to step into the housing market and lock in a low rate, especially since there are less bidding wars.
This is true whether you need to buy and sell, or are a first time buyer.
For sellers, it is less likely you will have multiple offers on your home. It also means you can expect buyers to add back in more contingencies (home inspections, appraisals) into offers since there could be less competition.
Real estate is hyper local. Each town and even neighborhood has its own market. If you want to talk to someone about your real estate goals, reach out to us today.
Market Update: 1st Quarter 2021
• Inventory (number of homes for sale)
Inventory has reached a problematically low level. Quite frankly, if you are buying a home in Northern VA you will in most cases find there are not many homes for sale.
Number of homes currently for sale are down 25% from last month. And last month was already way below what is average for Northern VA.
Even more staggering, there are about 50% less homes for sale right now than there was this time last year.
The inventory problem is most pronounced with single family homes. In the beginning of April last year, there were 6,545 single family homes for sale. This year? 1,890. That is a unheard of 71% decrease in number of single family homes for sale.
The inventory problem is not as present with condos. There are actually more for sale now than there were this time last year.
Bottom line, inventory is at record lows. If you are selling this is good news if you have somewhere to live once you sell.
If you are buying, it takes patience, tenacity and be prepared to write a quick and strong offer.
• Mortgage Interest Rates
Rates are still hovering near historic lows, where they hit last month.
However, starting in late March rates did start to creep up.
Every Thursday, Freddie Mac releases there mortgage rates survey which lenders report their interest rates. The average has gone from the mid 2%s to the low 3%s.
If the rates continue to rise, it should eventually give way to more homes for sale as buying power decreases.
This usually would be a negative thing for buyers, as monthly payments will be higher and the amount you can borrow will go down.
However, in a market where many buyers are frustrated with the number of homes for sale, rising rates could be a positive thing for financially solid buyers.
• Home Values
Home values have seen large increases over the last year for the most part, especially the areas where supply is low (universal laws of supply and demand apply here).
Many areas are also likely increasing as we speak. I can tell you anecdotally they have, but since real estate closings take 30-90 days more reliable data is not available yet.
I can say that average listing prices of single family & townhomes in Northern VA are up 5.8% so far in 2021 over 2020.
2020 In Review and Questions for 2021
2020 was an economical paradox. COVID-19 changed the way we interact & work. The unemployment rate soared, there were lockdowns that resulted in many businesses closing for a time. Some closed permanently.
However, the government also intervened and on a big level with economic stimulus packages and dropping the fed rate close to zero.
For all the suffering that has happened in 2020, the real estate market was extremely strong. The biggest issue? Not enough homes for sale to meet the demand.
So what will happen in 2021?
This update will address some of the biggest questions in the upcoming year, and a recap of how we got here.
The Biggest Questions in 2021
When Will the Inventory Increase?
In the beginning of 2020, the number of active real estate listings on the market in Northern VA was near the 5 year low.
By the end of 2020, inventory decreased even more.
As you can see, home listings are seasonal. Springtime is generally the peak, and January is the low.
In 2020, the peak was in the summer because of spring stay at home orders. But the real story is the inventory overall.
Inventory has been by far below 10 years lows.
What does this mean? There is a shortage of homes for sale, and the good listings sell quickly.
It has been a great environment for sellers, and aside from good rates, a frustrating market for buyers.
So when will the inventory increase? To put it simply, when the demand decreases, supply will increase.
Right now record low mortgage interest rates mean if you are buying you can get more house, at a lower payment.
This has caused many buyers to be in the market at once.
Will 2021 see an increase in homes for sale? I would predict yes, modestly.
The tumultuous year and resulting economic conditions has kept the inventory low, and it is hard to picture 2021 being as chaotic.
There is also another factor that could cause an increase in listings. Let’s dive into that next.
Are There a Wave of Foreclosures & Short Sales Coming?
An opinion piece from economist Michael Strain on Bloomberg made the following prediction:
When these forbearance provisions expire in 2021, expect a wave of foreclosures to follow.-Michael Strain
First of all, let’s review what he is referring to. When the coronavirus started, many homeowners in Northern VA, and all over the country, sought relief from mortgage payments via forbearance.
This meant that temporarily, owners did not have to pay their mortgage. The missed payments would be made up at a later date.
Restrictions were also put in place to delay lenders from starting the foreclosure process. The restrictions will, however, at some point expire.
So that means homeowners are potentially facing increased payments, or even a lump sum due because of forbearance (depending on the agreement with the loan servicer.) At the same time, they could face foreclosure if the payments cannot be made.
Foreclosure is a difficult thing for many families. However, foreclosed homes are a natural part of the real estate market.
Will the Northern VA real estate market see a wave of foreclosed homes in 2021? I think it will be less than many experts think.
The biggest reason is that home prices in the area have been on a sharp upward trajectory in many areas. This means that many homeowners have equity in their homes.
If owners are in a dire financial situation, many of them can simply sell their home and get into a more affordable situation.
So although foreclosures will increase because of the end of forbearance periods, the active seller’s market will allow many owners to sell rather than get foreclosed on.
This could, however, bring more listings to the market in a market that has a large amount of buyers and not enough homes.
Is There a Shift in Where People are Moving?
There is narrative that buyers are trying to move out of more populated areas, and heading out to more suburban areas with more land.
As mentioned in this article by Fortune, the stats do not really back up such a claim.
Finding stats to support this theory is not easy, unless there were a mass exodus of buyers going from densely populated areas to more rural.
Right now it looks like any supposed “mass exodus” is overstated.
However, being in the industry and helping buyers and sellers all over Northern VA I can tell you that some of the “farther out” areas have seen sharp increases in demand.
This demand has outpaced what is seen in towns that are closer to DC.
Will it continue into 2021? Possibly. But as things go back to somewhat normal, this sharp increase in demand for certain areas will likely balance out.
When Will Rates Rise?
The chart above shows the sharp decline in interest rates starting in the beginning of 2019.
This was set in motion after the fed put the reserve interest rates near zero, and the uncertainty in the market caused the 10 year treasury note to drop. This caused the mortgage rates to go to historically low levels.
So what will the interest rates do in 2021? The fed has said that they are going to keep the rate low for the next few years, even if inflation goes above 2%, which previously has been the trigger for them to raise rates.
The interest rates are not directly tied to the fed’s rate. It is more closely connected to the treasury notes, here is a great article about that.
However, the consensus by Fannie Mae & Freddie Mac is that the mortgage rates will remain mostly unchanged in 2021.
Could they go up? Of course. But it seems that the economic conditions will keep them low into 2021, and possibly beyond.
Will the Coronavirus Still Affect the Market?
The pandemic that hit the globe will ripple through many sectors of the economy.
Real estate has been a bright spot, primarily because of two factors we discussed already: extremely low mortgage rates & extremely low inventory.
High demand & low supply means rising sale prices and increased equity.
The low inventory problem existed before the coronavirus, but afterward the situation much more pronounced.
For example, I wrote an offer on a home for sale in Manassas VA. It was well over list price (which was on the lower side of fair). We lost, and the total offer count was 45.
The rates were fairly low before the virus, but they hit all time lows after.
The pandemic’s effect on the Northern VA market are likely to outlive the actual pandemic, as monetary policy and home buyer behavior have both changed.
2021 will be a real estate market shaped by the environment the coronavirus has created.
Will Home Prices Go Up or Down?
Home prices in our area over the last 10 years have gone up considerably.
You can see from the graph above, there was a sharp increase from 2011-2013, and another sharp increase this year.
2011 reflected a time of recovery from the financial crisis that started in the housing market.
And this year? Stop me if you have heard this, but low mortgage rates giving buyers more buying power coupled with low supply has powered this spike.
Predicting home values in the short term is difficult. In the long term, it is easier. Real estate has shown great appreciation over time in Northern VA.
When buying a home, unless you are a home flipper, it is a good idea to plan to own it as long as possible.
If you forced me to make a guess, I would say values will go up in 2021. It is hard to picture them going down considering the current situation we are in.
Even if that changed, there is enough demand to buy up any supply increase and keep values increasing.
Will There Be More New Construction Homes in Northern VA?
What is the solution for a shortage of homes for sale? Part of the equation is new construction homes.
New homes in Loudoun County are bringing more homes in formerly rural areas.
Fairfax County developers are turning dilapidated properties into brand new homes, and often subdividing to put 2-3 homes where 1 once stood.
So will new construction solve the housing shortage? Unfortunately, builders had trouble completing there projects in 2020.
There have been multiple reasons. Lockdowns, problems with supply delays and trouble finding buildable land are all contributing factors.
The graph above shows just how drastically buyers went for new construction homes once resale homes supply was low.
Prices of new homes also shot up as inventory went down in 2020. Builders raised base prices rapidly in many new home communities.
Nationally, the Census Bureau reports that new construction permits have seen an increase in the latter half of 2020.
Will 2021 be better if you are looking to buy a new construction home? My guess is yes, but it will take time.
Some of the factors affecting home builders in 2020 should resolve in 2021. But remember, building a home is a process. I would look for an increase new homes available near the end of 2021.
What Areas are Included?
Northern VA is not a perfectly defined area.
Here are the counties/independent cities I used for the stats and include in the “Northern VA area”: Fairfax County, Loudoun County, Prince William County, Fairfax City, Manassas City, Manassas Park, Alexandria City, Arlington County and Falls Church City.
Homes For Sale
Here are some homes currently for sale in Northern VA.
Selling Your Home
Are you checking the market to sell real estate in Northern VA? We can help. Every town and neighborhood has its own micro market, so I would be glad to talk with you about yours.