Contract activity in March 2022 was down 17.2% from March 2021 and was down in all six price categories. Through the first three months of the year, contract activity is down 12.1%. The average number of days on the market for homes receiving contracts was just 15 days in March 2022, down from 19 days last March.
The Urgency Index, simply the percentage of homes going under contract that were on the market 30 days or less, was up in March compared to last March. During the past 18 years, the Index has been as high as 94.4% (April 2004) and as low as 22.9% (November 2006). In March 2022, the Urgency Index was 92.0%, up from 88.3% in March 2021, and that is Northern Virginia’s highest March Urgency Index in the past 12 years.
The number of homes on the market at the end of March was down 22.7% compared to the end of March 2021. The number of new listings coming on the market decreased 7.0% compared to March of 2021. The decrease in contract activity combined with the decrease in inventory lowering overall supply to 0.5 months from 0.6 months at the end of March 2021.
30-year fixed mortgage interest rates at the end of March stood at 4.67%. That is more than one and a half points higher than this time last year and almost a full point higher than just a month ago. And since the end of March rates have climbed to 5%. While rates remain low from a historical perspective, this rapid increase was a bit of a shock to the system and makes it tougher for first time buyers in particular.
The payment on a no-money-down, 30-year fixed mortgage for a median-priced home is 71.8% higher than it was a decade ago in March 2012, and the median price is up 58.5%. The payment is also 30.9% higher than last March because of higher prices and much higher interest rates. The mortgage payment for a median priced home ($3,359) was higher in March than the median rented price ($2,500).
DIRECTION OF THE MARKET
There has probably never been a better time to be a seller as anxious buyers continue to chase limited inventory. And for the first time since the onset of COVID, even the condo market is pretty hot. Even though absorption rates are slightly lower than this time last year, all three property types – detached and attached homes, as well as condos – are above 60%. That’s the threshold for what we consider to be an “extreme” seller’s market. But for buyers, this has become an even more challenging market, as the unexpected and rapid rise in mortgage interest rates has made housing less affordable than it was even a month ago. Those rising rates have pushed some buyers off the fence and into the market because of concerns that rates might rise further and have caused others to either adjust their home search to lower price ranges or farther out geographically, or to decide to hit the pause button. This is obviously a personal decision and reflects a market that is slowly adjusting. We continue to believe the economic truism that markets seek balance over time, and we are at the beginning of that transition. Nonetheless, we see no reason to believe that prices will come down even as demand eases up a bit. There are simply too few homes on the market. Consider this: if twice as many homes came on the market and contract activity contracted by 20%, there would still be just over one month’s supply of homes. That’s low by any measure. Inventory isn’t going to double anytime soon. The pace of appreciation will almost certainly slow, but it’s still going to be a seller’s market.