Q1 2022 Market Report

Market Reports Avi Galanti

The First Quarhere’s a quick look at the numbers along with my analysis of where we arecline.here’s a quick look at the numbers along with my analysis of where we are

The Driving Factors of the Housing Shortage

The housing deficit is not something new; the decline is over a decade in the making. To understand what’s going on, and to counter speculation that we’re in a housing bubble, we must look at the ongoing housing shortage. One of the fundamental market forces that has historically driven the DC metro area, especially the city and its close-in suburbs, is that there is no new land to be developed. The small tracks we sometimes see being built are all but negligible in terms of having the ability to “flood the zone” with newly developed housing and subsequently tip the scale of supply versus demand. The reality is that in order to build a new home, an old one needs to come down – it is a one-for-one exchange. While new subdivisions and neighborhoods are being developed in the outermost circles of the DC Metro area, the supply of new homes in red-hot, close-in neighborhoods in or around DC is limited and finite.
The housing supply shortages are not a new concept in our area, however, it’s been brought to new levels with the pandemic in what can be called the perfect storm. On one hand, we have the Baby Boomer generation living longer, healthier lives and aging in place. At the same time, we are witnessing a booming Millennials’ economy fueling the new home-buyer market, looking to leave small condo apartments in the city in search of the perfect urban-suburban home. This dynamic is exacerbated by problems with supply chain and building supply shortages, as well as rising labor costs.

A Favorable Sellers Market Continues in Bethesda-Chevy Chase in Q1 2022

During Q1 2020 in Bethesda-Chevy Chase, 372 new listings of detached homes have entered the market. Over the same period in 2021, that number dropped by nearly 12% to only 328 new listings, and by this quarter of 2022, the number continued to plummet by another 15.25%, to just 278 new listings.
While demand remained strong, despite increased interest rates, detached home prices have continued to escalate across the market to new heights.
In Q1 2021, the average detached home price in Bethesda-Chevy Chase was $1,537,000, while the median home price was $1,392,000. The average Sold to List Price Ratio was “just” 103.5%. Fast forward to Q1 2022, all indicators rose sharply, to $1,667,000 Average Sold Price, $1,430,000 Median price, and 107.4% Sold to List Price Ratio.

The Sellers’ Market – Will it Last?

So what’s ahead you ask? I predict the market conditions will continue to be favorable to sellers, at least through the summer. But all bets are off come the fall. As interest rates increase, buyers’ financial ability to pay high prices will diminish, and as a result, we may see a more balanced market come fall. The Feds are expected to announce rate increases of 25 to 50 basis points at each meeting between now and into 2023 to effectively battle inflation, currently at about 8%, by design forcing the economy to slow down, and perhaps bringing about a recession in 2023. The odds for a recession in 2023 have increased to about 30% according to most analysts.
A 30-year fixed mortgage is already hovering around 5% (notably, a year ago rates were under 3%) and are likely to continue to rise, and while 400,000 more jobs were added last month to the US economy (8 consecutive months of strong job reports), inflation is the main concern on everyone’s mind.
If you’re thinking about selling and have the flexibility of timing, my recommendation is to make the decision sooner rather than later, certainly if the decision is between selling in 2022 and 2023.
The residential real estate market is complex, however, and not all types of homes, neighborhoods, or price points behave the same. There are many nuances that we cannot explore here, but please reach out to me to discuss your individual real estate needs.
All the best.

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