As I sit down to write this year’s Market Report, I am reminded that over the last 20 years of my real estate career, we’ve been through steady markets, down markets, up markets, confusing markets, and frenzied markets all have kept me on my toes!
2023 was a year of shifting consumer attitudes. As mentioned in my previous published analysis, the dramatic drop in buyer activity was countered effectively by a significant drop in homes available for sale, keeping the delicate balance between supply and demand, and therefore keeping median prices steady, despite 30-year mortgage rates reaching 8% for a period. The last time rates were this high was in the late 1990s to early 2000s. With many homeowners locked into mortgages at the 2-3% rate, it is no wonder many made the financial decision to stay in their homes and delay a move, not wanting to give up their current mortgage for a new house with triple the rate. The notion (or fear) that the market is “soft” contributed to the issue, as self-fulfilling prophecies tend to do, and many would-be-sellers preferred to offer their property for rent rather than “risk” selling for less than they had hoped for.
Consider this: in just two years, the number of detached homes listed for sale in Bethesda and Chevy Chase combined dropped from 1,404 in 2021 to only 1,013 in 2023 – a 26.5% decrease – while the number of detached homes offered for rent over the same period shot up by 20%.
The Big Picture and What’s Ahead
We entered 2023 with fear of a fragile economy; out-of-control inflation and possible recession were the big buzzwords. In fact, the economy fared well. The November inflation rate was 3.1%, the unemployment rate in the US is currently 3.7% (close to a 20-year low), the NASDAQ climbed 44% in 2023, and the Federal Reserve indicated rate drops in 2024, pushing mortgage rates down closer to 6% as of December 2023.
While the buyer frenzy we experienced through the COVID-19 pandemic slowed down in 2022 and died down in 2023, home prices have generally kept steady, gaining very modest appreciation in certain areas, dropping a bit of value in others.
Still, the story is that of shifting consumer behaviors – homeowners reluctant to sell, buyers hesitant to buy, both electing to wait and see. All that is about to change, as I believe 2024 will be a very exciting year for residential real estate. Early signs show more and more buyers are poised to re-enter the market and the built-up demand will likely translate to multiple bids and a subsequent bump in property values.
My advice to buyers during the last quarter of 2023 was to not wait, but rather to seize on the opportunity of more buyer-friendly market conditions before the swell of competitive buyers arrives a mortgage rate can always be refinanced. A few smart clients heeded this advice and were able to negotiate favorable terms with no competition from other buyers.
A Look Back at 2023:
Consistently across the region, we saw big drops in the number of new listings entering the market, in Bethesda 22% fewer homes were offered for sale compared with 2022. Similarly, the number of contracts entered decreased significantly – Potomac with approximately 26% fewer contracts in 2023 than in 2022, Bethesda with 22.4% fewer contracts, NW DC with a nearly 15% drop, and lastly Chevy Chase MD with 16% fewer contracts.
Yet, with the exception of Chevy Chase, MD all other markets registered a modest increase in Median Sold Price. In Chevy Chase, for the first time in as long as I can remember, the Median Sold Price fell by 2.5% to $1.56M in 2023, compared with $1.6M in 2022. Despite that fact, I am positive the Chevy Chase home market remains strong and resilient.
Another noticeable stat worth mentioning is that the List Price to Sold Price Ratio fell across the board by a range of 2 to 4 points. This is significant because it strengthens my previous assertion that even though buyer activity dropped, and subsequently multiple offers with large escalations were less common, sellers still fared very well, on average asking higher prices and selling over asking. The best case in point is Potomac, MD where the List Price to Sold Price Ratio fell from 105% on average in 2022 to “just” 101.2% in 2023, and yet the Median Sold Price went up by 3.8% from $1.3M in 2022 to $1.35M in 2023.
