Contract activity in September 2022 was down 34.3% from September 2021 and was down in all price categories. Through the first nine months of the year, contract activity is down 20.8%. The average number of days on the market for homes receiving contracts was 33 days in September 2022, up from 28 days last September.
The Urgency Index, simply the percentage of homes going under contract that were on the market 30 days or less, was down in September compared to last September. 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 September 2022, the Urgency Index was 64.5%, down from 70.3% in September 2021.
The number of homes on the market at the end of September was down 16.0% compared to the end of September The number of new listings coming on the market decreased 26.0% compared to September of 2021. The decrease in inventory was not enough to offset the decrease in contract activity raising overall supply to 1.7 months from 1.3 months at the end of September 2021.
30-year fixed mortgage interest rates at the end of September stood at 6.7%. That is a full point higher than just a month ago and almost four points higher than this time last year. Amusement parks don’t have roller coasters this crazy, and there is no consensus where rates are headed from here.
The payment on a no-money-down, 30-year fixed mortgage for a median-priced home is 109% higher than it was a decade ago in September 2012, and the median price is up 44%. The payment is also 59% higher than last September because of higher prices and much higher interest rates. The mortgage payment for a median priced home ($3,988) was much higher in September than the median rented price ($2,700).
DIRECTION OF THE MARKET
On the heels of back-to-back record setting years, the Northern Virginia real estate market has clearly been impacted by rising and volatile mortgage interest rates, high consumer goods inflation, and rising home prices. All of these have combined to make homes considerably less affordable. A reduction in demand from the overheated markets of 2020 and 2021 was unavoidable, and since interest rates began to rise in April contract activity throughout the region has fallen considerably compared to 2021. Contracts fell 34.3% in Northern Virginia in September. Should interest rates continue to rise a further contraction in demand would be expected. Nonetheless, and despite these headwinds, the market has shown remarkable resilience. Current contract activity is only slightly lower than 2018 and 2019. The market back then was considered to be a modest sellers’ market. What is different now is that listing inventory remains constrained, and there are only 60% as many homes on the market today as there were in September 2018. This time last year there was a 1.3-month supply of homes on the market in Northern Virginia, and the supply has climbed to just 1.7 months now. So, despite the noticeable drop in buyer activity, the lack of listings is keeping modest upward pressure on home prices. And we see little reason to believe there will be a consequential increase in listing activity. An enormous number of homeowners are holding mortgages with sub-3% interest rates and they will have to have a compelling reason to sell and give up that rate and finance a new purchase with rates currently above 6%.