Is Northern Virginia in a Real Estate Bubble?
March 2021
While history is no prediction of the future as many stock analysts will tell you, history does provide context. As we look back over the last 45 years, Northern Virginia has experienced a reduction in real estate sales prices only five times. During the subprime mortgage crisis, our NOVA sales prices dropped an average of 21% and then recovered less than four years later. Throughout 2020 during a national pandemic, we saw home prices increase month over month. As we enter 2021, the trend continues with the January 2021 median sales price increasing 6.4% compared to January 2020.
Three factors contribute to these rising prices – low unemployment, low interest rates and the housing supply and demand curves being out of balance. Let’s look at our unemployment rate first. Even with the pandemic, Northern VA’s unemployment rate of 4.3% is lower than the national average of 6.5%. We are fortunate to have a diverse employment market with many residents employed by federal and local governments, the military, government contractors, non-profits and corporations. To add to buyer demand, our average annual income is greater than the national average. Census data from 2019 shows that almost half of Northern VA residents make $100,000 or more, compared to the entire US where only 19% make $100K or more.
Even with mortgage interest rates creeping up to 3% to 4% from all time lows of 2.25% – 2.5%, these historically low rates are fueling more buying power for homes in the area. To anticipate where mortgage rates are headed, study the 10 year Treasury bond yield. As we write this article, the yield is 1.6%. To put the yield in perspective, when interest rates were in the 2%’s, the 10 year Treasury bond yield was less than 1%.
You have heard it’s a “seller’s market” meaning there are more buyers than sellers of homes. More specifically as we look at “months of inventory” to gauge how the market is behaving, there is less than two months of housing inventory available in Northern VA. What that means is at current buyer demand all homes available on the market would be sold in two months. Realtor.com states that in a balanced market, we would see 6-7 months of inventory. Our housing supply is so low, even a strong spring market when the majority of sellers typically list their homes is not expected to satisfy buyer demand. Why are sellers not selling? They too have low interest rates on their current mortgages. With prices escalating and choices limited, it’s less expensive to stay in their current homes. Moreover, after the sub-prime meltdown, new construction starts were reduced dramatically, further decreasing the number homes for sale.
Our answer – we don’t see the data pointing to a housing bubble. The trends discussed above will most likely continue for the next year or two unless the macro economic picture changes. If you own a single-family home or townhouse and are considering selling, you are in a position to receive a price you will be proud of. That is, assuming your house is staged, move-in ready and priced at market. If you’re a buyer, you’re home search may be challenging. We have several strategies that will position you to purchase your most valuable asset at an affordable price.
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The Magnificent Manors Team of KW Metro Center has the experience and resources to help you reach your real estate wealth goals, and we have safe and effective strategies in place to meet all CDC guidelines. If you’re considering buying, selling or investing, we’re available to start the conversation. Contact me at marybeth@magnificentmanors.com or 703-798-1803.