Home Prices Trend Up in May
May Prices Increased 2.3% from April: The median home price in Northern Virginia continued to trend up hitting a new high of $660,000, adding another $15,000 to last month's $645,000 median price. All major sub-markets in Northern Virginia increased in price between 2 to 3% with Arlington leading at 6%. Loudoun was the only sub-market declining in May (-3%).
The unrelenting increase in interest rates is impacting buyer behavior. Since January, interest rates have increased from 3.5% and began to level off at 5.5% (up 55%). With this week's release of the new inflation data, the 30-year mortgage rate is nearing 6%. At 6%, the mortgage payment for an average loan ($600,000) has increased $900/mo since January. Alternatively, buyers have lost $170,000 in purchasing power when trying to maintain the same mortgage payment at 3.5% compared to 6%.
Low Inventory Persists | New Listings Decline
Buyer Behavior Shifts; Sellers Take Notice: Just like when the housing market experienced a buyer surge in late 2020 after interest rates fell 40%, we are experiencing a shift in buyer behavior resulting from the dramatic increase in rates. Since March, showings in Virginia have fallen over 35%. In fact, we're seeing a level of showings in June usually not seen until much later in the year. Despite the fall in showings (buyers), we continue to experience steady pricing. This may be a result of New Listings declining 10 to 20% in 2022, depending on the sub-market. This means there have been nearly 3,100 fewer homes in Northern Virginia offered for sale from Jan-May 2022 than in the same 2021 period. We are seeing the elimination of the "excess number of buyers" participating in the market since 2020-21, combined with a decline in listings contributing to persistent low inventory. The result is a more balanced market between buyers and sellers.
Seller Price Reductions Spike Higher
The table below illustrates the underlying behavior between buyers and sellers. Comparing the first two-week period of March and June in Fairfax County, we can see why prices have remained strong. In two-thirds of the home sales, Buyers are still escalating prices above seller ask to win. Correspondingly, the average buyer escalation remains elevated at 106%. The most notable change in behavior is the spike in seller price reductions. Earlier this year, MLS data showed less than 10% of Active listings experienced a price reduction. By March, this increased to 13%. Currently, MLS data shows of the 1,300+ Active listings in Fairfax County, nearly 30% have experienced a price reduction.