Question: Are there any signs of the market slowing down?
Answer: As we know from previous columns, the second half of the year tends to be slower and less intense for buyers than the first half of the year. I think the second half of 2024 will bring a more significant second half slowdown than we’re used to (unless interest rates drop by 1% or more).
Prices Have Increased Significantly This Year
Despite lingering high interest rates, home prices have generally increased 5-10% in 2024 due to low supply and buyers accepting long-term high interest rates. Higher prices have been the result of ongoing competition amongst buyers and those buyers begrudgingly offering more to get into the undersupplied housing market. If demand tapers off and/or supply increases, leading to less competition, buyers will happily pay less than the prices we’ve been seeing in the first half of the year.
Below you can see the 5-10%+ year-over-year (YoY) increase in median and average prices for Northern Virginia and the Greater DC Area.
New Listing Volume Finally Trending Up
Northern Virginia and the Greater DC Area have finally begun seeing a trend in increasing new listing volume, with two months in a row and three out of the last four months of YoY increases in the number of listings coming to market. The last time both regions had a year-over-year increase in new listing volume was June 2021, which can be chalked up to June/spring 2020 listing volume being extremely low in the months following the COVID outbreak and lockdowns.
Listing volume is a critical measure to follow because increasing volume should bring some balance back to the market, unless that volume is the result of interest rates falling, which will cause demand to spike.
Active Supply Trending Up
If we want to see more balance for buyers, an increase in new listing volume will need to be coupled with an increase in active listing supply because it means that demand is lagging new supply, which is necessary for more market balance.
While we’ve seen increasing listing volume in three of the last four months, we’ve also seen increasing active listing supply in the Greater DC Area each of the past four months and in Northern Virginia in the last two months. There have been four consecutive months of YoY increases in active listing supply in the Greater DC Area just one other time since 2016. There have been consecutive months of YoY increases in active listing supply in Northern Virginia just three other times since 2016.
Months of Supply Near Five Year Highs
Months of Supply (MoS) is a great market indicator, combining supply and demand metrics into one measure. Higher MoS favors buyers and lower MoS favors sellers. According to economists, a truly balanced market has about six MoS, but we don’t come anywhere close to that around here, aside from a few small sub-markets (e.g. $2M+ homes).
MoS has been slowly increasing regionally since bottoming out at 1-2 weeks of supply in early 2022 and the 1.3 MoS and 1.74 MoS reading in May 2024 for Northern Virginia and the Greater DC Area, respectively, are the highest readings we’ve had in a month (barely) since October 2019.
Presidential Elections Put Buyers on Edge
In addition to the normal seasonal second-half slowdown and the market trends noted above, we’re also staring down the barrel of what will be a scary Presidential election cycle, no matter what side you’re on. It is normal for buyers to be on edge in the months leading up to the election and take a wait-and-see approach and I think we’ll probably experience a more extreme version of it this year. The good news is that things tend to go back to normal in the residential space quickly, once the election is over.
Expectations for 2024 and 2025
I want to be clear, I am not suggesting that we are heading towards a significant market correction where buyers will gain an advantage over sellers, but I do think it’s likely that some of the 5-10% gains from the first half of this year get erased in the second half (maybe 2-5%) because competition will fall, supply will improve, and sellers will be more willing to negotiate. However, we will still be severely undersupplied, and our region has a constant source of demand for housing that will keep the market buoyed despite my expectations for a shift in market conditions.
Furthermore, I do not expect these conditions to last beyond 2024 and I’d bet that we will return to intense competition and price growth by January 2025, like we usually do.
Of course, if interest rates start to fall to around 6%, or less, that will likely stimulate demand enough to reverse trend on active listing supply and Months of Supply, while also keeping first half price increases steady through the end of the year.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.
Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.
