Contract activity in June 2023 was down 15.4% from June 2022 and was down for five price categories.
Through the first six months of the year, contract activity is down 25.0%. The average number of days on the market for homes receiving contracts was 17 days in June 2022, up slightly from 16 days last June.
The Urgency Index, simply the percentage of homes going under contract that were on the market 30 days or less, was up in June compared to last June. During the past 19 years, the Index has been as high as 94.4% (April 2004) and as low as 22.9% (November 2006). In June 2023, the Urgency Index was 87.9%, up from 85.5% in June 2022.
The number of homes on the market at the end of June (1,339) was down 41.2% compared to the end of June 2022 and was down for five out of six price categories. The number of new listings coming on the market decreased 29.4% compared to June 2022. The decrease in contract activity was offset by a bigger decrease in inventory, lowering overall supply to 0.8 months from 1.2 months the end of June 2022. To provide some context, during the “Great Recession” in June 2008, supply was 4.4 months, the average days on market was 84, and there were 9,300 homes on the market.
30-year fixed mortgage interest rates at the end of June stood at 6.71%. Since the end of June rates have stayed persistently high and will likely continue to be well into the 4th quarter before we see a noticeable drop in rates.
The payment on a no-money-down, 30-year fixed mortgage for a median-priced home is 83% higher than it was a decade ago in June 2013, and the median price is up 43%. The payment is also 17% higher than last May because of higher interest rates and higher prices. The mortgage payment for a median priced home ($4,618) was much higher in June than the median rented price ($2,850).
DIRECTION OF THE MARKET
Despite the significant pullback in contract activity because of interest rates that edged near 7% by the end of June, home prices still rose in June and have risen year-to-date. The monthly payment for a median-priced home in Northern Virginia is 17% higher than just a year ago. But prices are still up. It’s all because of supply – there simply isn’t enough inventory to satisfy the relatively weak demand.
This time last year, there were almost 2,300 homes on the market, and that dropped to just over 1,300 now. The supply of homes priced under $500,000 is less than two weeks. Absorption rates are solidly in the “sellers’ market” range, and the homes that are selling were only on the market for 17 days. We’ve turned the “direction of the market” sideways because it’s really like looking at two sides of the same coin. It is a great market for motivated sellers, but a very challenging one for buyers who are dealing with higher home prices and high interest rates. As we have noted in this space before, this imbalance won’t stay this way forever, but it’s going to take a drop in mortgage rates to unleash the pent-up demand from buyers and sellers alike.