by Brandon Scott
In 2020, we have seen some real changes to the real estate market both in prices, inventory and volatility. It is mind-blowing that one single event has the capacity to disrupt the our way of life and set a historical marker for future evaluation. Why a historical marker? Well, we will always remember that Covid-19 caused a slowdown in markets across every sector and real estate was not any different. We saw a real slow down in the buyers and sellers entering the market. And there were record months where traditionally we’d expect a leveling out in buyer and seller sentiment. But that has changed, and this year is a true statistical anomaly that is worth looking at in a little more detail, especially around the real estate market.
Just like any market, we know when our up-months are, and our down-months based on historical consumer performance. This methodology is the same approach used by thousands of businesses to determine all manner of things, employees to have on staff that day, the amount of supplies to order, etc. Think about it, how many times have you gone into a store and wanted something and said, “they know it’s a busy season for ‘x’ they should have had more in stock”. We are all are guilty of it, all you have to do is think back to a few months ago when bleach and hand sanitizer were all the rave, the hottest must have product. So, equally, we real estate professional know our market has been trending differently lately; here’s what I am seeing in the market and hearing from agents.
The DC Market.
Washington, DC has been hot and continues to be a prime real estate market. Prices in this area have and are remaining strong due buyer resurgence despite the low inventory. Heightened market activity is largely due to “quarantine fever”. Renters realize that the concession they made initially regarding the square footage of their unit is starting to be the very thing that’s driven many to drive right into home ownership. As a result, the median sales price in Q2 is up nearly 6% higher than this time last year. Today, the median DC home price sits around $630,000. Now, to put this into geographic perspective, this median price will be ideal to get you into a home east of the river, or to at least begin the search for properties that have been renovated and updated. I’ve talked about this before on my Youtube Channel, the days of accessing “economical” housing east of the is becoming more of a playground for the high income than not – a video and article for another day.
To further press my point, the average sales price is $751,866 and that represents a 6.1% increase [in values] over the same time last year. For practical purposes, on average homeowners are seeing about that plus or minus in appreciation. Again, not true for everyone so bear that in mind. There are some zip codes that experienced negative year-over-year change in the median sale price.
For many the median and the average means little but in the case of real estate it’s telling when wanting to understand values and where they are trending, especially when you’re looking to buy a home in a certain geographic area. One other metric I find helpful is the percentage of the original price that was paid for a home. I live by the saying, “the price is written in ink not stone” and I, personally, feel that everything is negotiable. And buying a home is no different, you just have to know what to say that will convince someone there’s value there, but that’s a master class for another day. When it comes to home prices, in DC, buyers have paid nearly 98.8% of the asking price, and this is down 0.5% from Q2 2019. This suggest that buyers continued to offer at and in some cases above asking price. Based on the median and the average, I needed more from this metric; so, I looked at the zip code level for more insights. There I found that areas where people routinely paid above asking price, but I also discovered an anomaly in the data. In the Foggy bottom area, or 20006, there was a property sold for $138,500 and that represented a nearly a 44% reduction in the median sale price year-over-year. This one massive outlier in the data does a pretty good job of skewing the percent of the original sell price paid metric. In the scatterplot below, you’ll see the median sales price based on their zip code. Those points that are circled represent zip codes where the median sales price is ~600,000 and, by and large, these zip codes are all east of the river; underscoring my earlier point. Ironically enough, I received a phone call my client and I discussed the very same. Their logic was that given that prices are so high in their preferred area, they should look at an Inclusionary Zone or ADU area. While both of these are options, developers aren’t interested in building affordable housing, they’re interested in maximizing their bottom-line dollar. Ultimately, the conversation devolved to a really personal aspect of real estate, ‘I want to own in DC, but I don’t know if I would be happy paying less and commuting to live in Ward X or Y’. Sadly, I can’t help with that decision or man versus self, but I can help guide you through buying or selling a home once you make that decision.
Again, the median and average may not be strong enough marker for you, so let’s look at home sales. Property sales, in DC, are down almost 41% compared to Q2 of 2019 with the monthly supply trailing the sales with 39.4% fewer homes available to sale, or a 40% lower inventory than in Q2 2019. If we look at the trend for the last three years, in Q2 of 2018 there were 1,835 homes for sale. In Q2 of 2019, the number of homes for sale jumped to 2,529 with Q2 of 2020 seeing a 40% drop to 1,497 homes for sale. But a tighter inventory doesn’t mean homes are sitting around, although the number of sold homes is down 30% year-over-year, 2,838 compared to 1,990; which suggests that homes that are desirable are being sold quickly.
History doesn’t lie, especially when it comes to the DC mortgage market. The desirability of the DC metropolitan region goes without saying and there is not clear sign that the sentiment is going anywhere. In fact, if DC gains statehood, that could be another driving force to spike values more. But, regardless of your decision you can rest assured that there are hundreds around you that realize that buying a home means this is their first home and not their forever home. And those that have a home and have been thinking about selling can rest assured that you can cash-in on your asset almost at any time, in this market.
Brandon Scott is a licensed real estate agent in Washington, DC, Maryland and Virginia. His license hangs with Coldwell Banker Dupont-Logan, DC. He’s been involved in the mortgage finance industry for the last 16 years in various fields. You can reach him by email at Brandon@bmscott.com. Subscribe to his YouTube Channel at RealTea DMV