Contract activity in July 2022 was down 26.2% from July 2021 and was down in all price categories. Through the first seven months of the year, contract activity is down 18.3%. The average number of days on the market for homes receiving contracts was 22 days in July 2022, the same as last July.
The Urgency Index, simply the percentage of homes going under contract that were on the market 30 days or less, was down in July compared to last July. 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 July 2022, the Urgency Index was 76.3%, down from 79.6% in July 2021.
The number of homes on the market at the end of July was down 15.4% compared to the end of July 2021. The number of new listings coming on the market decreased 28.5% compared to July of 2021. The decrease in inventory was not enough to offset the decrease in contract activity raising overall supply to 1.5 months from 1.3 months at the end of July 2021.
30-year fixed mortgage interest rates at the end of July stood at 5.30%. That is two and a half points higher than this time last year but is 40 basis points lower than just one month ago. We continue to expect significant volatility in rates on a daily basis, but we’d be very surprised if they reach 6% at any time the rest of this year.
The payment on a no-money-down, 30-year fixed mortgage for a median-priced home is 71.7% higher than it was a decade ago in July 2012, and the median price is up 38.7%. The payment is also 37.3% higher than last July because of higher prices and interest rates. The mortgage payment for a median priced home ($3,609) was much higher in July than the median rented price ($2,800).
DIRECTION OF THE MARKET
The reset is underway. In the two-plus years since the Northern Virginia real estate market emerged from the brief COVID-related pause, the scales have been decidedly tilted in favor of sellers. And even though sellers had virtually all the leverage, buyers who were frustrated by incredibly few choices on the market at least had historically low interest rates to help them along. However, since late spring of 2022 we’ve seen a significant shift. Mortgage interest rates have jumped more than two full percentage points,
raising the payment for an identically priced home by 16%. But homes aren’t priced the same today as they were in the spring – they are more expensive. Inflation in consumer prices has put the pinch on would-be buyers as well. A drop in the level of buyer activity was inevitable, and in July there were 28% fewer homes that went under contract than last July. There has even been a lot of chatter about the real estate market crashing, and handwringing over prices dropping. It simply isn’t true. Contract activity
is certainly lower than last year and lower than 2020, but those were the two hottest years in Northern Virginia’s real estate market. The level of buyer activity couldn’t have kept up its frenetic pace, and when you toss in concerns about the reemergence of COVID and the fact that there is a ground war in Ukraine, it’s actually pretty stunning buyer activity has held up as well as it has. And while the pace of home price appreciation has slowed, prices remain high because the supply of homes on the market is still limited. Buyer activity has returned to levels seen in 2018 and 2019, but the number of homes on the market is less than half of what it was back then. Pricing pressure has everything to do with supply. Right now, the supply of condos on the market is 1.5 months, the supply of attached homes is 1.1 months, and the supply of detached homes is 1.6 months. While all those figures are higher than last year, and even than last month, that is still indicative of a sellers’ market – just a little softer one. Buyers have a few more choices, they’re not in competition with other buyers in most cases, they’ll be able to have a better shot at
negotiating contingencies, and sellers will have to be realistic about their prices. But it’s going to be OK.