Washington, DC Real Estate Market Trends & Forecasts 2022

The current state of the Washington DC housing market is the direct result of an entire nation recovering from a global pandemic. Not unlike every other metropolitan area, in fact, Washington, DC has had to overcome a lot of obstacles caused by COVID-19. Most notably, the nation’s capital is experiencing a significant difference between supply and demand; there simply aren’t enough homes to keep up with buyers. As a result, home prices remain at or near all-time highs. Historic appreciation rates have simultaneously priced many buyers out of the market and forced local real estate investors to reevaluate their own exit strategies.

Washington, DC Housing Market Overview

• Median Home Value: $708,135

• Median List Price: $556,327 (+5.3% year over year)

• 1-Year Appreciation Rate: +5.7%

• Median Home Value (1-Year Forecast): +10.8%

• Weeks Of Supply: 6.0 (-1.0 year over year)

• New Listings: 1,542 (+6.3% year over year)

• Active Listings: 1,489 (+2.8% year over year)

• Homes Sold: 1,409 (+0.0% year over year)

• Median Days On Market: 12.2 (-3.8 year over year)

• Median Rent: $1,884 (+11.5% year over year)

• Price-To-Rent Ratio: 31.32

• Unemployment Rate: 3.5% (latest estimate by the Bureau Of Labor Statistics)

• Population: 670,050 (latest estimate by the U.S. Census Bureau)

• Median Household Income: $90,842 (latest estimate by the U.S. Census Bureau)

Washington, DC Housing Market Trends 2022

Despite serving as the nation’s capital, the Washington DC housing market remains in line with its nationwide metropolitan counterparts. Consequently, many of today’s Washington DC housing market trends are directly correlated to the pandemic and its lasting impact on the overall economy. It is worth noting, however, that not all trends are created equal. Therefore, it’s important to pay attention to the trends which are having the biggest impact on the Washington DC housing market, not the least of which include:

• Supply Trends: With somewhere in the neighborhood of 3,031 new and active listings, the Washington DC housing market has about six weeks of supply. In other words, real estate in Washington, DC would run out of inventory in six weeks if current sales rates persisted. While six weeks of inventory is nowhere near the six months of inventory healthy, balanced markets typically exhibit, it is relatively high compared to most other cities. With more inventory than the average city, Washington, DC hasn’t seen its home prices increase on the same level as the national average.

• Home Price Trends: While Washington, DC has more inventory than most cities of a similar size, supply remains tight. As a result, home prices have appreciated at a fast pace. In the last year, demand, competition, and the threat of rising interest rates have increased prices by as much as 5.7%. Local home values are expected to continue rising as long as inventory levels can’t keep up with demand.

• Rental Trends: Rentals in the Washington, DC area have followed the same trajectory as home values. That said, rental prices have increased at nearly twice the rate of home values, and should continue to outpace appreciation rates as long as buyers continue to be priced out of the market. If for nothing else, everyone that can’t buy will be forced to rent, inevitably increasing demand in the rental market.

• Interest Rate Trends: The Federal Reserve has increased interest rates aggressively to combat inflation, and mortgage rates are now up nearly two percent year to date. The jump is the largest buyers have seen in years and has increased the cost of homeownership by thousands of dollars in an already expensive market. The threat of further increases will make buyers act sooner in the short term, but as rates get too high they will most likely temper competition.

• Investor Trends: Record appreciation rates over the last two years have eaten into profit margins for rehabbers and flippers. As a result, the Washington DC real estate investing community seems to be leaning in favor of long-term rental properties. Today’s low interest rates enable investors to increase cash flow from properties placed in operation and lower acquisition costs.

Washington, DC Housing Market Forecast 2022-2023

Even the most competent Washington DC housing market forecast needs to be taken with a grain of salt. If for nothing else, every forecast contains an inherent degree of error. Nonetheless, the pandemic has painted a pretty clear picture of how things will most likely unfold in the near future. In particular, there are three Washington DC housing market forecasts that carry more weight than most other predictions:

• Buying a house in Washington, DC will get more expensive: New indicators created in the wake of COVID-19 have increased home prices in Washington, DC by 5.7% over the last year. Moving forward, however, local home values are expected to appreciate an average of 10.8%. Appreciation rates are expected to increase as inventory shrinks.

• Washington, DC foreclosures will increase: Foreclosures are increasing on a national level, and Washington, DC doesn’t look like it’ll be an exception. It is too soon to tell just how many foreclosures will be filed in our nation’s capital, but the expiration of government assistance will almost certainly increase foreclosure rates. Fortunately, the Washington DC housing market has a relatively low unemployment rate. That’s not to say the number of delinquent homeowners won’t increase, but high employment numbers could insulate the city.

• Renting a home in Washington, DC will cost more: The Washington DC housing market has seen rental rate increases outpace home value appreciation over the last year. In about 12 month’s time, in fact, rental rates have increased nearly two times as fast as home values. Moving forward, rents will continue to increase. As more buyers are price out of the market, property owners will be able to increase rents accordingly.

Washington, DC Foreclosure Statistics 2022

According to ATTOM Data Solutions’ February 2022 U.S. Foreclosure Market Report, a total of 25,833 U.S. properties received a foreclosure filing (default notices, scheduled auctions or bank repossessions) over the course of February. At their current level, foreclosures were up 1.0% from the previous month and 129.0% from the same time last year.

“February foreclosure activity looks a lot like what we can expect to see for at least the next six months – double digit month-over-month growth, and triple digit year-over-year increases,” said Rick Sharga, executive vice president at RealtyTrac, an ATTOM company. “This isn’t an indication of economic turmoil, or of weakness in the housing market; it’s simply the gradual return to normal levels of foreclosure activity after two years of artificially low numbers due to government and industry efforts to protect financially impacted homeowners from defaulting.”

Foreclosures are on the rise, and the Washington DC housing market is no exception. As recently as February, “Washington, D.C.’s foreclosure rate was one in every 16,588 households, putting it in between the states of Montana (#44) and Kansas (#43),” according to SoFi Technologies, Inc. Foreclosures in the Washington DC real estate market are up year over year, and there’s nothing to suggest they won’t keep rising. As a result, real estate investors in Washington, DC need to start lining up financing immediately. Doing so will simultaneously enable them to help distressed homeowners and secure deals.

Washington, DC Median Home Prices 2022

The median home value in the Washington DC real estate market is approximately $708,135. Today’s median home value is the result of years of historic appreciation, dating as far back as the last recession. As recently as 2012, when the market bottomed out during The Great Recession, the median home value in Washington, DC dropped as low as $420,000. Since reaching their lowest point of the last recession, however, local home values have increased for more than 10 consecutive years—to the tune of nearly seventy percent.

The largest home price increases have taken place over the last two years. When the pandemic was officially declared a global emergency, the median home value in the Washington DC real estate market was about $647,000. Supply and demand constraints created by COVID-19 caused home values to increase as much as 9.4% in as little as two years.

To put things into perspective, the median home value in the United States has increased considerably more over the last 24 months. Since the beginning of the pandemic, the median home value in the US has increased 33.9%.

Moving forward, the median home value in the United States is expected to once again outpace the Washington DC housing market. Whereas nationwide forecasts are calling for a 14.9% increase over the next year, real estate in Washington DC may only increase as much as 10.8%.

Washington, DC Real Estate Investing: Should You Invest?

With a relatively high distribution of foreclosed homes, the Washington DC real estate investing community has made a profitable living off of flipping and rehabbing distressed homes. At the very least, distressed homes offered attractive profit margins at a time when home prices were increasing each year. That said, homes seemed to have reached a tipping point.

Appreciation brought about by the pandemic has weighed on profit margins for at least a few years. In two year’s time, it has grown harder to find homes to flip because they are simply too expensive to acquire. While more people flipped than ever last year, profits weren’t what investors had come to expect.

“Even as quick-turnaround sales by investors shot up, gross profit margins on home flips in 2021 sank to their lowest level in more than a decade after dropping at the fastest pace in more than 15 years,” according to ATTOM Data Solutions year-end 2021 U.S. Home Flipping Report.

Per the latest report, “Homes flipped in 2021 typically generated a gross profit of $65,000 nationwide (the difference between the median sales price and the median amount originally paid by investors). That was down 3 percent from $67,000 in 2020 and translated into just a 31 percent return on investment compared to the original acquisition price – the lowest margin since 2008.”

Increases in home values have detracted from profit margins on a national level. That said, the Washington DC housing market seems to offer more potential for investors than most other markets. “Among the 53 metro areas in the U.S. with a population of 1 million or more, those with the largest gross-flipping profits in 2021 were San Jose, CA ($265,500); San Francisco, CA ($172,000); Seattle, WA ($149,950); San Diego, CA ($145,500) and Washington, DC ($139,555), according to the report”

Despite being one of the best places to flip a home, the Washington DC housing market is starting to see a change in investor sentiment. While it’s still possible to flip for attractive profits, many investors are turning to long-term rental properties. Thanks to relatively low interest rates, traditional loans may simultaneously help offset higher acquisition costs and increase monthly cash flow from properties placed in operation.

Summary

As the nation’s capital, the Washington DC housing market continues to impress. Thanks—in large part—to a thriving economy and relatively low unemployment rate, activity remains high. Perhaps even more importantly, however, Washington, DC seems to have slightly more inventory than many of its national counterparts. The ability to supply more buyers has tempered appreciation and kept home prices relatively affordable. Therein lies the secret to the Washington DC housing market’s future success: slower appreciation rates should stimulate more buying activity, even at a time when interest rates are rising. As a result, investors should see plenty of demand for their homes and services.

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Sources

https://www.zillow.com/home-values/
https://www.zillow.com/research/data/
https://www.zillow.com/washington-dc/home-values/
https://www.freddiemac.com/pmms
https://www.bls.gov/eag/eag.dc_washington_md.htm
https://www.census.gov/quickfacts/DC
https://www.redfin.com/news/data-center/
https://www.apartmentlist.com/research/category/data-rent-estimates
https://gcaar.com/docs/default-source/dc-market-reports/2022/march-2022-dc.pdf?sfvrsn=2a724292_2
https://www.attomdata.com/news/market-trends/foreclosures/attom-february-2022-u-s-foreclosure-market-report/
https://www.attomdata.com/news/home-flipping/attom-year-end-2021-u-s-home-flipping-report/
https://www.sofi.com/learn/content/foreclosure-rates-for-50-states/#:~:text=Massachusetts,one%20in%20every%207%2C747%20homes.