Are house prices collapsing in the DMV?
The COVID-19 pandemic brought with it a series of challenges and difficulties for families worldwide, and in our area, it also brought the hottest real estate market I have seen in my more than 16 years of career. Those of us who lived through, or perhaps I should say survived, the American housing bubble in the early 2000s always feel a bit cautious when we see the real estate market overheating. At least in my case, where I mainly serve first-time buyers, I feel a responsibility and concern when home prices rise excessively, as it reduces my clients’ opportunities.
However, I also feel some satisfaction when my predictions about trends and prices come true, such as when I explained that it was impossible for the market to collapse when the pandemic started. In this sense, I am once again encouraged to share my opinions about the real estate market in the metropolitan area.
Why do I believe that prices won’t collapse as many are expecting? My answer has two parts. The first reason is historical. Banks and financial institutions have learned their lesson since the housing bubble burst in 2005 and now have a structure in place that allows them to offer modifications and assistance plans to homeowners to prevent them from losing their homes. The costs of a foreclosure are so high that it is more profitable for them to modify loans and keep clients in their homes, committing them to pay. Moreover, for many years now, loans are made with complete documentation, so people cannot buy homes they truly cannot afford, unlike in 2000-2005 when loans were made on a signature alone (the infamous “stated loans”).
The second reason is a combination of the low inventory we were already experiencing with global supply chain issues. Before the pandemic, Maryland, DC, and Virginia were experiencing an overheated real estate market due to historically low interest rates, which produced a wave of buyers that quickly drove home prices up. This situation is compounded by the slowdown in new home construction due to a shortage of materials caused by disruptions in production and distribution chains. To date, these problems do not have a clear solution in sight, making it almost impossible for home prices to collapse, as inventory will remain historically low.
And, although prices will not collapse, one thing we can affirm is that the rate of increase in home prices has slowed down. And that is good news for everyone because we do not want it to become impossible to achieve homeownership in our area since, although the cost of living has increased, wages remain the same. As a real estate agent, I consider it my duty to promote a healthy real estate market that benefits both buyers and sellers equally and allows us all to enjoy the fruits of our labor while keeping my community informed to make sound financial decisions.
