Prices Up in October, but Decelerate to First Annual Price Decline
October Prices Up 2.5% from September: The median home price in Northern Virginia was up 2.5% in October. October's uptick was the first increase since May after four consecutive months of decline: June (-3%), July (-3.3%), August (-3.9%), and September (-1.7%). This is fairly typical of the seasonal price movement we see in housing. Prices up from January to May/June, softening until September, then stabilizing to year-end. All major sub-markets in Northern Virginia increased in price between 2 to 3% in October, except for Prince William which fell 3.7%. Despite the shifting market, October prices in all sub-markets still remain higher than January levels.
Price Deceleration is Becoming More Apparent: October marks the first month in recent years when the average home price in Fairfax County declined year-over-year (-1.5%). Home prices are up a robust 8.2% in the last year (comparing Jan-Oct 2022 to Jan-Oct 2021), but there has been a deceleration in prices during recent months that is becoming more apparent. For example, prices in Q3 tracked up 4.8%, well off the 8.2% recorded in the first ten months of 2022. Annual prices hit negative territory for the first time in October with the average price of a home in October 2021 of $753,600 falling to $742,200 in October 2022. Prices in Northern Virginia are down 6.4% since their May peak. Despite the price deceleration caused by higher interest rates and lower consumer sentiment about the economy, persistent low inventory continues to be the prevailing factor holding prices relatively firm.
Market is Regessing Back to the Mean & 2019
Market Outlook for the Closing of 2022: During the last two months of the year, home sales activity will likely continue to hit new lows in the Washington area. Mortgage rates likely will stay around 7%, with the potential for them to move higher if the Federal Reserve moves aggressively on interest rates again at their December meeting. There was some hope in last week's CPI report that showed October inflation up 0.4% (7.7% year-over-year), which was below the 0.7% forecasted and 8% yoy. The 0.4% was the smallest increase in the last 12 months. The stock market reacted strongly and mortgage rates fell over one-half point. However, one Federal Reserve Board Governor, Christopher Waller, called the 7.7% still "enormous" and "just one data point". Waller added, "The market seems to have gotten way out in front over this one CPI report. These [interest] rates are going to stay - keep going up - and they're going to stay high for a while until we see this inflation get down closer to our target."
Overall, prospective buyers and sellers in the DC metro area are in "wait-and-see" mode, putting off any discretionary moves and holding out hope that interest rates will come down after the first of the year. Home prices will fall from their peak levels, but because prices ran up so much during the pandemic, values will still be higher than they were 3 years ago. The encouraging news for the market, however, is that the underlying economic and demographic fundamentals in the Washington area are strong, and the region's housing market should fare better than others if the national economy goes into a recession in 2023.