Real Estate Year in Review, 2013

What a difference a few years can make. Why, just 24 short months ago the real estate market was described as ‘oversaturated and underperforming with low housing prices and long market times.’

Turn that statement on its head and you have a view of the current real estate market.

It’s not very difficult to sum up the year 2013 in local real estate. If you’ve sampled the Arlington market either through buying, selling or perusing, you’ve experienced these three things:

1. Rising home prices

2. Shrinking inventory

3. Low interest rates

Nothing shocking there. However, if you dig a little deeper there are some interesting nuances.

First, interest rates have hovered, perhaps longer than expected. Maybe due to the government shut-down debacle this past fall, maybe not. Low interest rates make it very attractive for home buyers to get into the game, but like two opposing forces, pricey homes have often kept them out.

Because rising home prices can scare off buyers it is more important than ever to consider the price vs. cost dynamic. Yes, home prices have been on the rise, but an increase in prices doesn’t necessarily mean buying a home costs more (wait, whaaat?).

This infographic from KCM sums it up nicely. For example, an interest rate increase from 4.2% to 5.2% on a $250,000 mortgage will result in $150 increase in payments per month, making a home purchase actually cost more in the long run.

(By the way, sources are saying that an interest rate increase is likely within the next twelve months).

Second, 2013 was a year where move-up buyers trumped first-time buyers. Even with low interest rates, those high home prices we just mentioned caused many first-time buyers to get bypassed (or outbid) on the road to homeownership. The fact that move-up buyers stood to make some money on the sale of their existing home put them in a better position to buy-up.

“First-time buyers play a key role in the housing market's health and strength of the economy…It used to be: You rent first, and then buy. Now, you live in a basement, then rent, and then buy. That pushes a lot of spending to later in life, and the economy needs that spending." – Jed Kolko, chief economist for Trulia.com

Next, senior downsizing was a big trend. Except these ‘seniors’ were not elderly folks in rocking chairs who were not able to care for the family home. These were active empty nesters more interested in getting out to travel, visit friends and family and take advantage of local shopping and restaurants. This funny Toyota commercial gives an interesting perspective.

Finally, home equity loans also contributed to near-ridiculously low inventory levels with many people choosing to renovate vs. move. If you’ve ever watched HGTV’s Love it or List it you know how tough that decision can be. It depends on a number of factors, some financial, some emotional. Not everyone wants to leave their neighbors or undertake a home search. Yet not every renovation is worth the time, money, effort and aggravation.

What to expect in 2014? We don’t think you’ll see a lot of real estate drama next year – more likely you’ll see much of the same. 2014 has all the makings of a transition year, with prices and interest rates continuing to rise, but inventory of available homes increasing, too.

Sellers: There is still time to capitalize on higher-than-normal home prices, but expect the demand to slow a bit in the coming months. Also, don’t be put-off by selling in the ‘off’ months of the holidays and winter. There are serious buyers out there who are tired of waiting – and they’re not likely to pass up a home because of the season.