Why has the real estate market slowed down?  In my opinion, it is a combination of a few factors.

Why has the real estate market slowed down?

First and foremost, it is interest rates.  Over the last year, rates have risen nearly 1.5%.  A lot of people say they can’t believe with rates so low, how people cannot qualify for a mortgage.  Well this kind of increase will remove buyers from the market regardless of where the rates start and where they end up – 3.25 to 4.75 or 8 to 9.5.   An increase in interest rates like this is going to have an impact on the market.

Also, house prices have increased by over 17% the last 3 years in our area.  This price increase has also helped to eliminate buyers from the market.  Higher prices in any area of our lives – cars, restaurants, food, etc. will eliminate buyers – it is a natural fact.  Couple this with the interest rate increase and we have a slower market.

Additionally, there are fewer homes to choose from in the lower price points as well making it difficult for buyers to even find acceptable housing to purchase.  There are only 1,210 properties priced below $300,000 in all of Northern Virginia and only 271 are single family homes, the rest are town houses or condos.  If there are fewer options for entry into the market, there are going to be fewer sales thus slowing down the market.

The upcoming finance reform with QM, QRM, and Basel III the first of the year together with the easing of QE 3 leaves a lot of speculation about the future of rates and sequentially, the housing market.  Keep a keen eye on these developments to measure their impact.

So is the sky falling Chicken Little? 

Why has the real estate market slowed down interest rate increase

Well, let the numbers tell the story.  The housing market today is not substantially different than this same time last year and everyone was excited about the market then.  Funny how the brisk spring market with low inventory, low interest rates and multiple contracts has clouded the vision of some people.  Inventory is up just 6% over last year – not a terrible or scary number.  Sales are up in a week to week comparison to last year by 3.5% – a pretty good increase, right?  The 2.1 month supply of homes is virtually the same as last year’s 2.0.  Distressed property inventory has dropped 40% – which is a fantastic number.  This has resulted in a majority of the increase in homes for sale being arm’s length transactions – another good thing.  The last number to mention is properties that settled the last 30 days.  We are up 14% over last year indicating we are actually experiencing more sales.  So, if looked at from a long term perspective, our real estate market is actually doing pretty well.  All this being said, we still need to price properties properly as well as get them in the right condition to get them sold for our clients.

Keep a positive outlook on the market, good things will happen.  Now, go sell something!

Scott MacDonald

RE/MAX Gateway, LLC

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