2 min read
Here is the trend I have seen from the 10 new client strategy sessions we have had this week: Everyone has been thinking about moving for some time, but the cost to trade up is intimidating them.
There was a big headline about mortgage rates which I am sure a lot of people are considering how this may affect them.
Let's break it down.
The Trump administration is injecting $200 billion into the mortgage market to force rates down into the 5s. We need to have a serious talk about the reality of the DC market.
While the headlines focus on "affordability," the ground truth for our area, specifically for single-family detached homes with yards, is much more sobering.
The Payment Gap is the Real Constraint: Many of you and your friends and families who are homeowners are sitting on 3% or 4% mortgages. Even if the government successfully pushes rates to 5.5%, the jump in monthly payment to "upgrade" to a larger home is still a massive hurdle. This "rate lock" is keeping the very homes you want off the market.
The Shrinking Supply of "Dirt": We all know the areas in and around DC with highly-rated school districts, walkable, and close to the city. There is just no more undeveloped land. When a plot does become available, developers aren't building single homes anymore; they are building townhomes and condos to maximize density.
Zoning vs. The Yard: As local zoning laws shift to encourage urban density and multi-unit lots, the traditional single-family home with a private yard isn't just "low in supply." It is actually shrinking as a percentage of our housing stock.
Wall Street: The administration’s plan to ban "corporate buyers" sounds great on the news, but in our zip codes, institutional investors own less than 1% of the homes. You aren't competing with a hedge fund; you're competing with a neighbor who realizes that a detached home is becoming a "massive luxury item."
Generational Wealth: Families are gifting money to their younger generation to get them in the homeownership game at a massive scale in the DC area. This helps support home prices and the market. I don't see this trend changing any time soon. This eliminates the constraint of down payment and focuses the issue on the monthly payment.
My Take: I don’t see a path where prices for detached homes in prime DC-metro locations go down. In fact, by lowering interest rates without a way to create more inventory, the government may inadvertently pump up the prices of these scarce assets even further.
If you own a detached home with a yard in a prime school district, you are holding a "Gold" asset. If you are looking to buy one, the "wait for a crash" strategy likely won't work in a market where the product itself is being phased out by density.
p.s. If you are wrestling with the thought of upgrading, reach out to book a strategy call with our team. We will be your partner to help you think through this massive decision. We are here to help!
