MRIS: Detached Average Home Prices
I ran into an old client of ours recently and, after sharing the status and accomplishments of our children (and marveling at where the time has gone), she asked, “The real estate market must be pretty good for you right now, . . . right?”
I replied with a wry smile “Yes . . and . . . no.”
Yes it’s true the real estate market has recovered locally -and quite dramatically so. Statistically our market peaked in late 2007 with the average selling price of a detached home in Bethesda reaching $1,052,368. As of the end of July 2013 the average price of a detached home in Bethesda was $1,026,709, just $25,000 below the highest peak ever in the history of mankind!
By way of comparison the interest rate on a 30-year fixed-rate conforming loan in late 2007 was just over 6% back then, almost 2% higher than today’s mortgage interest rate. Is the market “good” right now? If you are selling your home it sure is. Home prices are up over 11% from the bottom of the market in 2009.
How about if you are buying a home? The decline in mortgage interest rate from 2007 to 2013 translates into a savings of over $278,000 in interest costs on a $625,500 mortgage (that’s the “agency jumbo” limit for high cost areas like ours) over 30 years. That’s some serious money and for us the single most enticing factor for people considering buying a home right now. So how could I possibly qualify my answer with a “No” about the real estate market?
The market is tough in our area for trade-up and first-time home buyers. Inventory, the amount of available homes for sale, is extremely tight. Competitive bidding wars are common on well-priced property, especially at or below the median price (middle point) of the market.
Interestingly the median price is $889,000 for a detached home in Bethesda, UP 2.3%
since 2007. There is “compression” in the market. Demand at the mid point and below is higher than the upper ranges of the market (say homes listed over $1.5M+) and competition can be fierce.
We’ve been working with buyers across all price ranges in the Bethesda area and recently a home one of our clients was interested in had 16 offers come in! We recently helped a couple secure another home that had multiple offers but it required them to bid nearly $60,000 over the asking price to secure it. Is that a good market for a buyer?
The answer is “no”, given the competition so often experienced, but the “prize” in this market remains securing a historically low interest rate so that helps mitigate the pricing escalations we are seeing.
Buyers however are doing the math and realizing that long-term interest rates may have a much more severe impact on them financially (see chart below for the recent trend in conforming loan rates, loans amounts below $417,000, for 30 year fixed-rate loans).
FreddieMac: 30-Year Fixed-Rate Conforming Loans
For example, we are helping a couple look for a home right now and as their buyer’s agents we have been using creative strategies to find homes that are not on the market yet.
We found such a property and helped our clients make what we believed was a great offer. However, the owners were not quite motivated to move and delayed responding to the offer for over a month. In the meantime interest rates climbed sharply, especially after the Fed Reserve Chairman announced that the Fed may begin tapering off the stimulus the Fed has been injecting into the economy since the financial crisis began. The net result was an increase in interest rates from around 3% to 4.375% since the time we started looking for a home. That increase in rates, in our client’s case, translates into an additional $175,000 in interest costs over 30 years!
Given the financial impact, these prospective buyers have begun to question whether the offer they made a month ago was still appropriate. More over they have begun to wonder if they shouldn’t consider a lower price point.
This is why interest rates are such a big deal and why a rise of just 1% can have a big impact on our market and overall pricing.
As rates rise the cost of owning a home skyrockets and the number of people that can afford our expensive Bethesda homes begins to contract. Interest rates will be a good barometer for the strength of housing in our area in the coming months. Rising rates will have a dampening effect on pricing and should increase the overall level of inventory
(we are already seeing this in outer Montgomery County where inventory has climbed steeply). While the general media focuses on the positive news around the country on housing (and to be sure there’s a lot of good news), Amy and I have our pulse on the market and are feeling the frustration and fatigue many of our prospective home purchasers are having right now trying to secure a home in our market. The business of real estate is hard right now in many respects.
Bottom-line: It’s a great time to sell and still a very good time to buy…IF you can find and compete for the right home!
We are here to help so please think of us if you know of anyone considering the sale or purchase of a home. We can help guide them through a successful transaction.