Contract activity in May 2022 was down 18.0% from May 2021 and was down in all price categories. Through the first five months of the year, contract activity is down 13.8%. The average number of days on the market for homes receiving contracts was just 13 days in May 2022, down from 15 days last May.
The Urgency Index, simply the percentage of homes going under contract that were on the market 30 days or less, was up in May compared to last May. 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 May 2022, the Urgency Index was 92.3%, up from 90.3% in May 2021, and that is Northern Virginia’s highest May Urgency Index in the past 12 years.
The number of homes on the market at the end of May was down 20.4% compared to the end of May 2021. The number of new listings coming on the market decreased 15.5% compared to May of 2021. The decrease in inventory more than offset the decrease in contract activity lowering overall supply to 0.7 months from 0.8 months at the end of May 2021.
30-year fixed mortgage interest rates at the end of May stood at 5.09%. That is more than two full points higher than this time last year but almost the same as just one month ago. In the current economic environment, we expect significant volatility in rates on a daily basis.
The payment on a no-money-down, 30-year fixed mortgage for a median-priced home is 81.8% higher than it was a decade ago in May 2012, and the median price is up 55.2%. The payment is also 40% higher than last May because of higher prices and much higher interest rates. The mortgage payment for a median priced home ($3,872) was much higher in May than the median rented price ($2,700).
DIRECTION OF THE MARKET
It’s still a sellers’ market in Northern Virginia – but it’s also a quieter one. We’re in an unusual time when both contract activity and listing inventory are lower than last year. It is remarkable to see the number of newly ratified contracts fall and nonetheless have overall supply of homes on the market fall as well. In fact, Northern Virginia was the only area in metro DC with lower supply compared to last May. Clearly, higher mortgage interest rates are having a depressing effect on contract activity, and that’s especially true for homes priced less than $1,000,000. Since interest rates started to climb in March, contract activity for homes under one million is down 20%, while it’s only off 2% for homes priced higher. It is important to view the current market in some context. Historically, markets maintaining four to six months of supply have been considered in equilibrium – meaning that prices are stable. Consider that at the current pace of contract activity inventory would have to be six times higher than the current level for this to be a balanced market – and there is absolutely no reason to believe that inventory will rise in any significant way this year. While prices will not rise at the double-digit pace we saw in 2020 and 2021, they will continue to rise. We expect appreciation to be in the 4% – 6% range. And the good news for buyers is this somewhat gentler market will offer the opportunity to negotiate contingencies that were almost impossible to get through during the last two years.