by Lizzy Conroy
October 14, 2022
Over the last two years, the McLean and Great Falls real estate markets experienced rapid growth in the number of units sold and price appreciation. Low interest rates, changes in work habits, evolving demographic trends, and the great Covid migration created historically low inventory and high buyer demand. Sellers held all the leverage, while buyers faced challenging market conditions to secure a home. Now that rates are on the rise to tame inflation, the tide is starting to shift toward more “normal” market conditions. While buyers are finding some much needed relief, sellers are still benefiting from low inventory.
Transactions in Q1-Q3 of 2022 in McLean and Great Falls decreased 20% from 1160 to 930. This pull back is the result of continued low inventory in our region and tempered buyer demand. Currently, there is a 2 month supply of homes in McLean and a 1.5 month supply in Great Falls. A balanced Real Estate Market is considered 6 months of inventory. This means sellers who correctly price their homes and offer a product in good condition will still experience positive market response. Buyers who had to escalate over list price and waive contingencies to be competitive now have an opportunity to negotiate for more favorable price and terms.
The most pronounced change in the market is properties priced under $1,000,000. From 2021 to 2022 YTD unit sales have dropped over 29% - primarily because the majority of single family homes in the market currently sell for over $1,000,000. The sales of townhomes and condos now make up the majority of the under $1,000,000 market. 62% of all sales in 2012 were under $1,000,000. Comparatively, today 67% of all sales are over $1,000,0000. The most important message of this data point is that over a 10 year period, residential real estate, on average in this market area, grows in value. What a buyer could purchase for under $1m ten years ago is now valued at 20-30% more.
The only price range with increased sales year-over-year is the $3m+ market, increasing from 67 units sold in the first three quarters of 2021 to 89 units sold in the same time period of 2022. Land scarcity and the cost of new construction has pushed new home prices to new heights, which in turn has pushed up all prices in luxury resale. For example, what used to sell for around $3.0m, now sells for $3.5m+. And, while builders have pulled back from land purchases for the time being, it is not translating to a pull back on their pricing. There is a 4.75 month supply of new homes listed between $2.0 - $3.0m (double all price ranges) and buyers, especially those paying cash, may be able to negotiate additional upgrades and credits.
And now for the elephant in the room, interest rates. Since 1972, the average mortgage rate has been 7.81%, and since 1990 the average rate has been 5.97%. While 2.75% was fantastic, this rate was far below the trend line and unsustainable. Increased interest rates were unavoidable and it may take a couple of months for buyers and sellers to readjust their expectations. Despite minor market volatility, the McLean and Great Falls real estate markets continue to be bolstered by low unemployment, highly rated public schools, proximity to growing city centers such as Arlington, Tysons and Reston, and a stable local economy. Because of these fundamentals, real estate in these sought after areas has proven to be a good investment over the long term.
If you are a seller, now is the time to take advantage of continued low inventory and buyer demand. It is critically important to consult with an agent who has counseled clients through more than one market cycle and can draw on past experience to solidify an effective pricing and marketing strategy. HBC Group has an in-house Home Stylist that can assist in making recommendations and selections that will maximize buyer interest. Homes priced correctly for the market and in good condition continue to command top dollar.
If you are considering buying, it is in your best interest to partner with an experienced local lender and a seasoned real estate agent to strategize on your financing options and contract negotiations so that you can navigate the market successfully. With fewer active buyers and rising days on market there are more opportunities to find your next home and negotiate favorable contingencies.
Karen Briscoe, Lizzy Conroy, and Jenny McClintock with HBC Group at Keller Williams are active and experienced Realtors® in the Northern Virginia marketplace. Their accomplished team represents sellers, buyers, investors, and builders in all price ranges and is available to assist with your real estate needs! What is your Next Move? Get in touch with us today!
www.HBCGroupKW.com, 703-734-0192, Homes@HBCGroupKW.com.