Contract activity in April 2022 was down 13.3% from April 2021 and was down in five price categories. Through the first four months of the year, contract activity is down 12.4%. The average number of days on the market for homes receiving contracts was just 12 days in April 2022, down from 16 days last April.
The Urgency Index, simply the percentage of homes going under contract that were on the market 30 days or less, was up in April compared to last April. 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 April 2022, the Urgency Index was 94.0%, up from 89.9% in April 2021, and that is Northern Virginia’s highest April Urgency Index in the past 12 years.
The number of homes on the market at the end of April was down 22.8% compared to the end of April 2021. The number of new listings coming on the market decreased 16.4% compared to April of 2021. The decrease in contract activity combined with the decrease in inventory lowering overall supply to 0.7 months from 0.8 months at the end of April 2021.
30-year fixed mortgage interest rates at the end of April stood at 5.10%. That is more than two full points higher than this time last year and almost a half point higher than just a month ago. That means that in the space of a year, rising rates have reduced buying power by 22%. While rates remain low from a historical perspective, this rapid increase clearly makes it tougher for first time buyers.
The payment on a no-money-down, 30-year fixed mortgage for a median-priced home is 80.5% higher than it was a decade ago in April 2012, and the median price is up 55.7%. The payment is also 38.2% higher than last April because of higher prices and much higher interest rates. The mortgage payment for a median priced home ($3,719) was much higher in April than the median rented price ($2,550).
DIRECTION OF THE MARKET
While Northern Virginia’s real estate market is still decidedly tilted in favor of sellers, overall economic circumstances are beginning to alter the landscape. A year ago, mortgage interest rates were just below 3% and they are just above 5% now. Nationally, inflation stood at 4.2% and it is double that today. Home prices have climbed on average 9% in the last twelve months. Any one of those factors puts a pinch on homebuyers, making homes considerably less affordable, and the combined impact is considerable. And that’s showing up in contract activity in the lower prices ranges that are most sensitive to mortgage interest rates and inflation. Compared to last April, the number of newly ratified contracts for homes priced less than $500,000 was off 24% in April of this year; for homes priced between $500,000 and $1,000,000 contracts were off 13% – but homes priced more than $1,000,000 saw a 10% rise in contracts. We are undoubtedly entering a period of softening demand for more modestly priced homes – but the relative supply of those homes remains quite low. Considering that a “balanced market” is one with 3-6 months of supply, every single price category below $1.5 million has less than a one month’s supply. That means that there is still upward pressure on home prices, but that pressure won’t be as significant as it has been over the last couple of years. We’re still a long way away from a balanced market, but we’re slowly headed that way.