Real estate fascinates many people. However, the real estate market was particularly exciting last year. Whether you are active in the market or have little interest in it, there was a lot to talk about this year (and we’re only halfway there!).
The headlines, neighbors’ stories, and our personal experiences have inspired much conversation recently in this busy, sometimes unpredictable market. Unsurprisingly, we hear some useful analysis, but we could also hear the myths, misconceptions, and falsehoods about the state of the market and how it is evolving.
What really happened in the real estate market between January and June 2021? Has every home been sold in the market? Did they all get a dozen offers and sell them for $ 100,000 above asking price?
The answer is no. (Well, a home really did sell for over $ 1 million above asking price, but that was rather extraordinary to say the least). The extreme demand and its effects were well-advertised events that happened to many, but certainly not to all. Most houses that received multiple offers and sold quickly (and sometimes above asking price) had a few things in common: they were in desirable neighborhoods, they showed up very well, they had good outdoor space, and they were cheap (or a combination) of it).
Many sellers who invested in their homes to do their best did very well. That included painting the interiors in light neutrals, lightening darker kitchen cabinets (more color!), Swapping out dated countertops, updating bathroom vanities and faucets, replacing worn carpets, reworking scratched floors, removing clutter, and that Refreshing the landscaping.
The other end of the spectrum also did well. Homes in their original condition (or close to it) that hadn’t been modernized but were in desirable neighborhoods – and most importantly – were the right price, attracted contractors and those looking to buy to renovate.
The houses that were having trouble were somewhere in between. This is true of almost any type of market. Homes that were updated at some point in their history but struggled 10-20 years ago.
Sellers who thought the hot market meant simply putting up a sign and receiving multiple offers were often disappointed. In some cases, not only do these homeowners fail to receive multiple offers, but they may also have zero offers at all. The unintended impact, in many cases, was that buyers saw the home unsold in a very active market and wondered what was wrong with it.
What do the statistics say?
COVID has changed the way many people live. Home offices and backyards, for example, will weigh more heavily than home cinemas and chefs this year. The first half of 2021 continued the trend towards more condominiums on the market and high demand for single and terraced houses with outdoor space.
To really understand the market today, we need to understand two key statistics: the number of homes for sale and under contract, and the demand for those homes. Either isolated means little.
The headline for housing construction in 2021 is and will continue to be: “There is a shortage of stocks”. Let’s unpack this.
Closed residential sales in Northern Virginia rose 19% in the first quarter of 2021 from the same quarter of 2020. March 13, 2020 is the date NOVA closed due to COVID, but March 2020 sales were still 12 % higher than 2019 We were on track for a very strong spring market by March 13th. April 2020 stats went in the direction everyone expected, down 14% from 2019. But by the end of May we were back in business. The number of properties sold in May 2020 was 13% compared to 2019. In the further course of the year, sales increased further compared to the previous year to the range of 30%.
So if we compare the rest of 2021, in May 2020 we remember that we were already back in a very strong market. So what you learn is that April 2021 sales are up 41%, which might not come as too much of a surprise, but May is up 59% and June will likely be similar (statistics not published at the time of this article).
Houses are being sold – quickly. The demand is great – it must be time for the correction, right?
Statistics are fantastic for analyzing where we’ve been, but how do we use them to figure out where we’re going? We need to look at the second half of the equation: inventory.
First, let’s understand how today’s NOVA inventory compares to the past 18 years. The average number of listings in the Northern Virginia market at the end of June was:
- 2006-2008: 11,100
- 2003-2018: 6,178
- 2021: 2,479
So there is less than a quarter of the properties for sale in the market now than before the 2008 crash, when demand collapsed, people were flooded on their lots, and prices fell. And all of that at interest rates above 5%! Back then, predatory lending practices were a major reason for this (lending for more than the value of the house and people who “over-bought” houses that they could not afford). Today’s regulations prohibit these predatory practices and have regulated the mortgage industry to minimize “overbought”.
Today we know that stocks are very low compared to stocks over the past 20 years. Now let’s look at the demand. How do we determine the demand? Is the demand dwindling? Absorption rates give us the answer. Absorption rates are defined as the number of contracts concluded per month divided by the number of contracts concluded plus the number of apartments currently for sale.
If 10 contracts were signed in June and 5 apartments were for sale as of June 30, the absorption rate would be 10 / (10 + 5) = 67%. Anything over 60% is an extreme “seller’s market”. The absorption rates for municipalities in the NOVA area were almost all over 50% at the end of May 2021, and many more than 60% for single-family houses and terraced houses.
Is there a downturn? Presumably, this demand won’t go away overnight. People fear that inflation will rise and therefore interest rates will rise. But even if they go up to 5% it can still be very affordable. (Just ask those who bought houses in the 1980s!)
On site, here in NOVA, we have planned many more incredible developments with National Landing, as well as the projects for North Old Town and Eisenhower. The only correction we see in the near future will be when there is another unplanned and extremely disruptive disaster that COVID trumps. (Even COVID could not dampen the NOVA real estate market for long!)
In conclusion, buyers and sellers can expect a similar pace, hot demand, and bustling market in line with the normal seasonal ups and downs. Since July is a little quieter than the hustle and bustle in May and June, I’m going on vacation!
Rebecca McCullough is a licensed Virginia real estate agent with McEnearney Associates, Inc. of Old Town Alexandria, VA. For more information on selling or buying in today’s complex marketplace, contact Rebecca at 571-384-0941 or visit her website RebeccaMcCullough.com.
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McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. www.McEnearney.com Equal opportunities in living. #WeAreMcEnearney