Q3 2022 Market Report

Market Reports Avi Galanti

2022 is shaping up to be a pivotal year in the economy and subsequently in real estate. As inflation still hovers around 8%, the Federal Reserve increased rates by 75 basis points in September, the third consecutive 75 points bump. The Fed’s move is a necessary evil, a delicate act between controlling inflation while not triggering a recession.

The Mortgage Rate Effect:

Not surprising, mortgage rates went up and as of right now a 30-year fixed rate is averaging 6.82% nationally (resource: Bloomberg.com). Conventional wisdom would suggest that with such harsh economic news (inflation, rates, plummeting stock values), the real estate market is about to implode; that the appreciation gains over last two and half years are about to be erased in a “correction”. There is no question that buyer demand is down dramatically from the height of the market in early spring 2022. However, there are other factors that are very much applicable in our specific market that may offer a silver lining to home owners and sellers.

Recent Seller Trends:

For years I have been talking about the undeniable trend among the Baby-Boomer generation who are “aging in place”. They are not moving (downsizing) unless they are moving out of the region. Instead, they make minor improvements to allow them to stay in their homes longer. With life expectancy on the rise, the immense inventory of homes owned by this older generation in the suburbs of Bethesda-Chevy Chase, Upper NW DC, and Potomac is not entering the market.
And here’s the kicker: the many thousands of homes that have been purchased since 2015 in our region were secured by mortgages averaging below 4% fixed rates (except for 2018 when averages peaked a bit over 4%). These homeowners are going to be very reluctant to make a move, as they would give up historically low interest rates to take on mortgages with double or triple the rate. For many, the financial implications would render such a move ill advised. And so, while during “normal” market conditions we expect a decent portion of homeowners to move every 5-10 years (move-up, move-down, or move away), given the rapid shift in the economics, we now expect most to remain longer in their homes which translates to an even more tight inventory. The lack of homes on the market, in almost all price ranges, is noteworthy.

Q3 Impact in Our Market:

The market is going through a stabilization period. What this means is that some sellers with very high priced hopes will be forced to realign their expectations as the number of buyers in the market dropped. And “shoot-for-the-moon” escalations are now mostly a rare occurrence. Simply put, the market is much more balanced but that’s not to be mistaken for a market crash or a complete and total reversal of the gains from the last 2 years!
Let’s look at a quick comparison between the market stats of Q3 2022 versus Q3 2021: (Please note: While I highlight only a particular segment of the market in this stat report, the trends illustrated are similar for all types of properties in other DMV submarkets as well.)
One major change noted is that the number of new detached home listings to enter the market in Bethesda-Chevy Chase dropped by nearly 20% in Q3 2022, compared with Q3 2021. The number of ratified contracts also signed sank by 27%. Still, the median home price increased by nearly 10%!

Additionally, in Q3 2021 there were 111 detached homes in B-CC priced under $1.0M. Fast forward to Q3 2022, the number of homes priced under $1.0 dropped to only 64, a 42% decrease. While a notable drop, generally this is in line with a trend I have been watching and reporting on for a long time.
On the flip side, we’re seeing a record number of homes priced $3.0M and above. While these homes tend to sit on the market longer, they too, eventually sell, many for record breaking prices. As I write these lines, there are 29 homes in Bethesda-Chevy Chase offered for sale above $3.0M, a third of which are priced over $5M.

Looking Ahead:

My sense is that the market will remain in a “stabilization period” for the next 4-5 months with limited inventory and a limited buyer-pool, generally reflecting a more balanced market. My recommendation is for buyers as well as sellers to have realistic expectations. It can be a good time to sell and a good time to buy, considering interest rates once were 10% and even 15%! Economists predict that rates will eventually come down later in 2023 when refinancing will always be an option.

I invite you to call me for a confidential, no obligation, consultation about your home.

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