Rising interest rates are expected to cool the housing market, but some markets may be immune — chiefly in Washington, D.C., where decisionmakers are raising rates.
The housing market in the nation’s capital has shaken off previous economic swoons, and it is continuing to stay hot even as rising interest rates and record prices cool demand across much of the nation.
Sales in the District and Montgomery County, Md., soared 11.3 percent from March to April, according to the Greater Capital Area Association of Realtors. Northern Virginia home sales rose 5.8 percent month-over-month, according to the Northern Virginia Association of Realtors.
Those figures defy national trends, where rising prices and mortgage rates caused U.S. home sales to drop 2.4 percent from March to April, according to data from the National Association of Realtors released Thursday.
Realtors say that the D.C. metro area’s high incomes and education levels, coupled with low housing supply, make the region resilient to spiking mortgage rates that are further driving up prices.
But they note that much of the recent activity has centered around pricier homes, with higher-income buyers paying above list price to lock in mortgage rates over fears that they will rise further. Price hikes are making homeownership less attainable for first-time buyers.
“Towards the lower entry points of our market, you’re seeing the biggest impact from interest rates, as they’re causing people to not be able to afford what they were seeking,” said Harrison Beacher, president of the Greater Capital Area Association of Realtors.
The median sold price in D.C. reached $699,000 last month, up 5.9 percent from both March 2022 and April 2021, according to the association.
The District’s prices didn’t rise as much as the national average, which spiked an unprecedented 14.8 percent month-to-month. That’s because prices were already elevated in the region, experts say.
The median house sale price in the D.C. metro area has risen every year for the last nine years, increasing by 50 percent since April 2013 and seeing its largest hikes during the pandemic, according to data from real estate firm Bright MLS.
One major factor driving high prices is the meager number of homes for sale. The D.C. metro area’s housing inventory has been cut in half since the start of the pandemic, falling from 1.78 months of supply in April 2020 to 0.86 last month, according to Bright MLS. The same analysis found that housing supply improved from March to April, jumping 26 percent.
Another is the influx of high-paying jobs coming to the region, bolstered by prominent corporations and federal government contractors looking to get closer to Washington policymakers.
Aerospace giant Boeing, which relies heavily on federal contracts, announced earlier this month that it would move its corporate headquarters to Arlington, Va. That comes after Amazon announced plans to build a massive headquarters in Arlington and hire 1,900 new employees in the area, which some advocates warned will only worsen housing affordability.
Those factors, coupled with the fact that the D.C. metro area has quickly bounced back from previous downturns, including the 2008 housing crisis, raise the question of whether home prices will come down anytime soon, even if prices start to dip in other parts of the country.
“If there is a national correction or adjustment, not being drastic, jobs and income will stay strong, which helps protect prices,” Beacher said. “Nationwide, when prices go down 20 or 25 percent in some markets, D.C. has never really contracted more than 8.5 percent.”
Soaring mortgage rates are adding to the cost of buying a home. The average 30-year fixed mortgage rate hit 5.3 percent last week, up from 3.2 percent at the start of the year, according to Freddie Mac.
Mortgage rates shot up shortly after the Federal Reserve hiked interest rates in mid-March to combat the nation’s surging inflation. Fed Chairman Jerome Powell has said that the central bank could hike interest rates again if inflation persists, a move that would drive mortgage rates up further.
Those rates are forcing some prospective buyers, particularly low- and middle-income families, to reduce their budget or stay out of the market entirely. According to Zillow, a buyer with a $1,500 monthly budget could afford a $340,000 house under last year’s rates. Now, that monthly payment would only get them a $275,000 home.
“We do expect the market to begin rebalancing this spring as rising costs keep enough would-be buyers on the sidelines for inventory to begin catching up with demand, but we have not yet reached that point,” Zillow economist Nicole Bachaud said in a statement.
D.C. area realtors note that sales are down from their peak last year, when mortgage rates hit record lows and cash-flush buyers quickly bought up the region’s housing inventory. Closed sales in the nation’s capital fell 11.9 percent from April 2021, while Northern Virginia sales dipped 13 percent.
“Rising mortgage rates and limited supply have finally cooled the market but when considered in context of our pre-covid world, we are still experiencing outstanding growth in housing sales,” Derrick Swaak, managing broker at TTR Sotheby’s International Realty and a Northern Virginia Association of Realtors board member, said in a statement.