Written by Jonas Sterling McGaha, Founder, The Sterling Realty Group

The DC real estate market has been breaking historic records in 2021, with listing and offer prices at all-time highs and inventory volume and time on market at all-time lows. The District has never seen anything quite like the current market, leaving homeowners wondering if now is the time to sell or if they’re better off waiting for the market to calm.

Any DC homeowner on the fence about selling now should consider the following five factors before making their decision.

1) Fall is one of the best times to sell

August and September can be a bit slow on the DC real estate market. Sellers are competing against the sweltering heat, summer vacation plans, an influx of tourists chasing locals away, and back-to-school chaos. But every year, the market turns upward as the area heads into the pleasant autumn season.

According to the real estate data firm Homelight, October is the best month of the year to sell your house fast in DC. But that window of opportunity in the autumn closes quickly, as the December through March period becomes the slowest time of the year for DC house sales.

Homeowners who wish to sell need to start the listing process now so their house can be on the market during that coveted October timeframe. If you miss the October listing window, you risk being stuck on the market during the winter months, when both DC and its housing market are ice cold.

2) Record low mortgage rates are ending

Low mortgage rates help new buyers afford houses, pushing them into the market sooner and allowing them to buy bigger homes. According to Long and Foster, the mortgage on a $600K house would be $1500 less per month today than it was in 2000, thanks just to low interest rates.

Millennials, the largest generation in American history, have been slow to become homeowners due to economic recessions, stagnant wages, and heavy student loan debt. But thanks to low mortgage rates and improved savings during COVID, Millennials have recently been flooding into the market as first-time buyers. The entry of these younger folks into the market has been like a shot of adrenaline for the housing market, helping to spur the recent market rise.

But all good things must come to an end, and according to Forbes, “the end of the housing boom will be when mortgage rates rise.” These “rates are likely to rise when financial markets anticipate more inflation and action by the Federal Reserve to stem inflation.”

Thanks to multiple rounds of COVID-related economic stimulus, America is at risk of rising inflation. The Labor Department recently announced that consumer prices jumped another 5% in July, the largest jump since 2008. Earlier this year, inflation rates were at a higher level (4%) than mortgage rates (3%), an economic statistic that has not been seen since 1980.

The Federal Reserve combats inflation by increasing interest rates. With the current Fed rate around zero percent and inflation on the rise, there is nowhere for the Fed to go with interest rates except up. When the Fed raises interest rates, mortgage rates will increase along with it, homes will become less affordable, and the housing market will cool.

DC Realtor Angela Allison agrees: “It’s smart to get on market while the rates are so low. The rates are going to go up, they have to go up, and we’re going to start to see a turn in buyer demand. It’s so crazy how this market turns on a dime – it can shift that much, that quick. Get on now, because we really don’t know what’s going to happen in the fall.”

3) The supply of homes is rising

One well-known impact of an item being in low supply and high demand is that the price of that item rises. The price continues to rise until it reaches a point where even the most enthusiastic and motivated buyer says, “Yeah, I’m not paying that much.” Or, as is often the case in home buying, mortgage underwriters say “Yeah, we’re not cutting a check this big for that house.”

According to data from the Federal Reserve Board, the housing market held just 3.5 months worth of inventory in October 2020, the lowest amount of inventory in history. During 2021, the amount of inventory has been steadily rising, and as of June, 6.3 months worth of inventory are on the market. This rising supply means more options for buyers, weakening the seller’s market of the past year, and it counts as another sign that the market is starting to cool.

A looming foreclosure surge is also on the horizon. Right now, mortgage forbearances and bans on evictions and foreclosures have been keeping the supply of low-priced foreclosures off the market. These safety nets will be ending soon, and homeowners who have already walked away from their homes or who have suffered a long-term loss of income will be headed towards short sales and foreclosure auctions.

When the pent-up foreclosure supply is finally released, buyers will have even more options to choose from, and traditional sellers may have to start lowering prices to stay competitive.

Finally, after taking a pause due to COVID and skyrocketing lumber prices, the new home construction industry is expected to have a busy year. The Mortgage Bankers Association (MBA) predicts that 1.1 million new homes will be built in 2021, a rate not seen since 2007. According to Lawrence Yun, chief economist at the National Association of Realtors, “Most large builders have record or near record backlogs of new homes under contract and waiting to be built.” These new homes will also add to the rising supply of houses.

With the supply of homes rising quickly, homeowners who delay putting their homes up for sale are at risk of having their listings get lost in the middle of a deluge of competing properties flooding the market. Instead, the seller’s goal should be to enter the market before the anticipated spike in housing supply.

4) COVID is ending

Today’s hot market was sparked by the COVID pandemic. Fears of the virus kept buyers and sellers in lockdown, and that pent-up demand finally exploded once COVID restrictions were relaxed. The COVID-related economic stimulus drove down mortgage rates, making homes more affordable.

In addition, the increase in working from home has caused homeowners to rethink how many rooms they need, where they want to live, and what kind of house they could buy with their budget. The media has labeled this phenomenon “The Great Re-Shuffling.” Being able to work from home has caused an unprecedented exit from cities as buyers seek bigger homes at cheaper prices in the suburbs.

With DC vaccination rates approaching 70%, and President Joe Biden pushing federal employees to get vaccinated, the DC area should be able to weather the recent storm caused by the COVID Delta variant. Schools are expected to open up on 8/30, allowing many parents to return to the workforce, and unemployment is expected to continue to drop.

Given this positive economic outlook, certain Congressmen have said they do not expect any more federal stimulus.

All of this means that the pandemic is coming to an end, and life should start to look like the so-called “old normal” again. This also is likely to mean a return to the old normal in the housing market, with prices dropping over the winter back to the range of pre-COVID levels.

Any homeowners thinking about selling should jump into the market now, before COVID and its pumped-up housing prices come to an end.

5) The DC market is hot right now

The DC area is currently under an Excessive Heat Weather Warning as the heat index reaches a sticky 110 degrees, approaching an all-time record.

The DC real estate market is just as hot as the recent weather:

  • DC home prices have reached a median home price of $700K, which is an all-time record and up 12% from last year.
  • DC had 1,123 closed sales last month, which is a 10-year high and up 23% from the norm.
  • DC homes sat on the market for only 7 days also a 10-year record.

The above numbers show we are still in a strong “seller’s market”. All signs point to these record market highs continuing for another few months, but it is unlikely the market peak will survive the cold DC winter.

Winter is Coming

Homeowners on the fence about selling should make a decision quickly because the upcoming October peak buying season may be the last hurrah for this hot market. If you miss this autumn window, you may be waiting until spring to sell.

It’s unclear what the market conditions will be like this coming spring. Mortgage rates will probably be up, the supply of houses will likely be high due to foreclosures and new construction coming into inventory, and COVID will hopefully be behind us.

All of these factors are likely to be a drag on the DC housing market, meaning spring sellers may not be able to profit from the best prices the DC area has ever seen.