The District’s real estate market has shown slow growth this year, and signs of changes ahead. So far in 2016, average home prices in the District are up about 1.4 percent from 2015. While certainly on about an average pace nationally, this growth pales in comparison to 2015 (average sales price up 3.6 percent), 2014 (average sales price up 5.6 percent), and 2013 (average sales price up 6.7 percent).
Historically, the nationwide real estate market operates on a theoretical 18-year cycle. This cycle generally operates in four phases: recovery, expansion, hyper supply and recession. Phase 1 of recovery ushers in slow growth from the previous cycle; thus, slow price growth. Expansion generally sees a surge in average home prices and a more confident, stable market. Next phase 3 of hyper supply shows the market excessive homes for sale, which leads to a downturn in home prices. Finally, recession marks the low part of the market, and the cycle repeats itself.
This cycle has repeated approximately every 18 years nationwide with few exceptions.
We know how we fall into this cycle based on the past five to six years: nationwide, the real estate bubble burst at the start of 2009, and home prices nationally hit historic lows in 2012. While the D.C. market continued to grow in average sales price at a rapid rate since 2010, the rest of the United States was slow to follow. The cycle isn’t perfect: some markets will naturally be stronger than others.
Since about 2009, the D.C. market has been through both a recovery and a boom. As the nation experienced the effects of the housing bubble, recovery in the District was both fast and encouraging for homeowners. As city living has become increasingly popular, D.C. has become one of the strongest markets in the United States by several measures.
However, the data show that this cycle may be reaching a peak in the District. Whereas rapid growth was found 2012 through 2015, many indicators of success, including average home sales prices, are slowing down. The days of sales well above listed price may begin to slow as the market turns.
Our local real estate market has its own complexities that interact with this cycle. One of the greatest interactions with this cycle is our limited supply of housing within the District. Whereas supply is typically greater nationwide, D.C. has always naturally been lacking the supply of homes on the market. This is likely one reason that the D.C. housing market recovered so well post-2009; that is, our market remained a seller’s market due to a lack of inventory.
Moving forward, homeowners who are hoping to sell their home should remain cautious in overpricing their home. Just because a particular style home or condo sold for a record high price in recent years doesn’t mean that the same can be said in today’s market. The theme isn’t to live in fear of another recession, but rather to own your home while educated to natural trends in the market. On the opposite side, buyers should be aware that the District will likely remain a safer, conservative market and that getting a “steal” on a home is still not as likely.
Of course, this cycle of rises and falls in the real estate market is theoretical. In a strong market such as the District’s, it is important to carry on no matter the predictions. As for the rest of 2016, I predict a continued slow growth compared to our market’s previous booming years.