by Marc Dosik
guest contributor and sponsor

Real Estate agents are having a hard time predicting if a listing will sell fast with multiple offers and get bid up or will sit on the market. Seems different for every house.

Rising interest rates are raising the stakes for homebuyers. Combined with still-low inventory, DC's spring real estate market remains competitive.

Some would-be buyers may be facing another season of disappointment. But this situation won’t last forever. Higher interest rates are pricing some buyers out. Some experts anticipate that those higher rates will produce a noticeable slow-down in competition later this summer.

The speed and scale of interest rate increases mean that a home within budget for a buyer one week can become unaffordable soon afterward. 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 in March. 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.

Contract activity in April 2022 was down 13.1% from April 2021 in all price categories except the highest priced houses. Through the first five months of 2022, contract activity is down 8.7%. The average number of days on the market for homes receiving contracts was 31 days in April 2022, up slightly from 30 days in April 2021.

While the real estate market is still tilted in favor of sellers, overall economic circumstances are beginning to change the picture. A year ago, mortgage interest rates were just below 3% and they are just above 5% now. Nationally, inflation is double what it was a year ago. Home prices have climbed on average 5% 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. We see that impact in contract activity in the lower priced homes that are most sensitive to mortgage interest rates and inflation. Lowest priced houses, and mid-range, saw a decrease in contracts. But homes over $1 million saw a 3% rise.

We are surely entering a period of softening demand for more modestly priced homes – but the relative supply of those homes remains quite low. 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.