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Escalations and Exhaustion: The Unseasonably Hot DC Area Housing Market
The cold weather has not cooled activity in the DC area housing market — at least for the few homes that are available. And a recent listing on Capitol Hill is an example of that.
During the five days that the three-bedroom home was on the market, there were two open houses, one with 90 attendees and one with almost 65. As the offer deadline approached, 12 parties did a pre-offer inspection and ultimately 19 offers came in, of which 14 had no contingencies. Listing agent Tyler Jeffrey of Washington Fine Properties told UrbanTurf that the home, listed for $795,000, will likely close for $160,000 above the asking price. Jeffrey thinks that a basement unit rental made it particularly attractive to buyers who might not otherwise have felt as comfortable competing.
The competition on the listing is an example of the imbalance in the supply-demand dynamics that have been in play for the past couple years in the DC area market. However, an extremely low inventory of homes for sale is making the situation worse for homebuyers.
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At the end of 2021, there were just over 4,000 active listings on the market in the region, according to Bright MLS, down 22% compared to the prior year and the lowest level on record for the region. Although supply is up 9% year-over-year in Prince George's County, there were significant drops everywhere else in the region, led by Alexandria (down 42%) and Fairfax (down 41%).
Homebuyer demand remains high despite the low supply of homes for sale. And, between an influx of younger buyers into the market and low interest rates, people are buying homes quickly, if not quicker than they had a year ago. While the DC area is not alone in seeing this type of activity, conditions here contribute to a perfect storm of competition: high-income households, a strong regional economy, and buyers willing to shell out big bucks.
A home that recently sold in Chevy Chase DC is a good example of this storm.
The house across from Rock Creek Park had some factors working against it, like a split-level layout and it coming on the market in the typically-slow month of January. However, it also offered a lot for its $1.3 million price tag, like "a home office with a private entrance" and a pool. The home was shown 120 times in less than a week and ultimately received 17 offers, closing for more than $400,000 above the original asking price.
"This home brought buyers out who had not been planning to buy yet, but were drawn to the unique combination of features," listing agent Pam Wye of Compass told UrbanTurf. "We attribute this [premium] largely to the complete lack of inventory at that particular time in January combined with the seemingly record number of buyers focused on securing a home early in the year."
The area's suburban market does not offer a reprieve from this competition. Sarah and Michael King have been looking to purchase a house as they relocate from Indianapolis, but since they began their search last year, their flexible moving time has done little to assure them of success. They have made seven offers on homes in various Montgomery County neighborhoods since October and haven't gotten to the closing table.
Each offer and listing had its own particular set of circumstances, some more disheartening than others. For example, the Kings got radio silence from a seller after putting in an offer on a listing they knew about before it hit the market; ultimately, the seller sat on the offer and accepted another for $5,000 more without giving them the opportunity to counter.
In many instances, they have offered roughly 10% above the listing price as a rule of thumb, but that wouldn't have helped for one of those missed listings in Potomac: more than 20 offers came in, putting the property beyond what they would have expected to pay. The one listing they had under contract had actually been sitting on the market; luckily, they saw it in-person and realized that the property's renovation needs exceeded what they were comfortable doing.
"[Ordering] six or seven pre-offer inspections at $500 a pop with nothing to show for it, it gets costly over time," Michael King told UrbanTurf.
The Kings are still being diligent in their search, although they have had to learn a lot about the market and make adjustments to their budget — especially in anticipation of both increased competition as the seasons change.
Part of the learning curve for some may also be that the highest offer doesn't necessarily make for a winning bid — it can also come down to the seller's perception of which buyer will be easiest to work with.
"[For the Capitol Hill listing], it didn't just come down to dollars, but also strength of purchaser," Jeffrey explained to UrbanTurf, noting that sellers tend to want to work with whichever buyer inspires the most confidence in the deal closing. "In a market where inventory is so thin and everyone is putting in their best offers and want their offer to be accepted, a big tool agents can do for their clients is to make sure [the offer] is organized."
This means that if an offer comes in and has any minor errors like missing initials, regardless of how high the escalation, a seller may question whether the prospective buyer has read through and understands all of the terms of the transaction. Wye also stated that her sellers selected a "strong" bid rather than the one with the highest price tag.
A report on the January housing market out next week will provide some indication as to whether or not the supply of homes on the market is increasing, alleviating some of the pressure on buyers. But with just a six-week supply available now, there is a long way to go to reach the six-month inventory benchmark that is indicative of a balanced market.
Note: For this article, Bright's definition of the area included DC, Alexandria, Falls Church, and the counties of Arlington, Fairfax, Loudoun, Montgomery, Prince George’s, and Prince William.
Photos by Chris Ellenbogen and HomeVisit.
See other articles related to: bidding wars, competition, dc area market trends, dc bidding wars, dc housing market, housing market, housing market trends
This article originally published at https://dc.urbanturf.com/articles/blog/escalations-and-exhaustion-the-unseasonably-hot-dc-area-housing-market/19262.
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