On the Fence About Buying a New Home?
The Arlington, VA real estate market, as well as the surrounding DC area, continues to have low inventory.
At the end of 2016, Arlington home buyers had less than two months supply to choose from. Generally speaking, anything less than three months is a sellers market and anything more than six months supply is considered a buyers market. For a more complete discussion on the topic of supply and absorption rate, check out our past blog on this topic.
In addition to low inventory Arlington home buyers also saw interest rates rise during the last two months of the prior.
Prior to the Presidential election interest rates on the 30 year mortgage were in the mid three percent range. After the election investors took money out of bonds and invested more in stocks. This drove up yields on bonds and interest rates rose to the low to mid four percent range. In December the Federal Reserve raised short term borrowing rates and indicated that in 2017 that trend would continue.
Many buyers believe that interest rates may come down, but that goes against the current trend and indicators.
While we certainly do not have a crystal ball and anything is possible, the historical trends point to more potential for rates going up. Remember, it was only 8 years ago that the 30 year mortgage rate was above six percent and for home buyers who are under 35 years of age there have been 30 year mortgage rates as high as eighteen percent in their lifetime. It would only take relatively small increase in mortgage rates to equate to a loss of 25% purchasing power.
Some buyers believe that with rising rates prices will come down. Again, we do not have a crystal ball, but indicators do not point to that.
With less than two months supply on the market, it is far more likely that prices will go up than go down and for the Arlington real estate market to go into a buyers market the inventory would have to triple from two months to six months. It is also possible that more buyers will enter the market both long term and seasonally as we move from winter to spring. The long term reasons have to do with the potential loosening of credit that the Trump administration has indicated. Since 2010 mortgage loans have become more difficult to get and many believe that trend will now reverse which could bring more potential buyers into the market.
In the unlikely event that prices do come down it will more than likely not have as much impact as the decrease in purchasing power.
Many buyers in the Arlington market are on the fence about buying now versus waiting. Many of those that are looking may not see exactly what they want since inventory is low and are passing on homes they do see. So what should buyers do? You could take a risk that rates, prices or both will rise and wait for the perfect home. Your other option would be to adjust your criteria. Making small changes to your search criteria (type/size/features, location, price) might make a big difference in finding a home now and avoiding the potential risk of paying more later.
If you are thinking about a starting your search or need help with your current home search email the Orange Line Living Team today at [email protected] or call 571-969-7653.