2022 NVAR Region Forecast
(Click here to watch the forecast video)
The Northern Virginia Association of Realtors® (NVAR), in conjunction with the Center for Regional Analysis at George Mason University (GMU-CRA), issues a consensus forecast for the NVAR region’s housing market. The association convenes a panel of key experts from differing sectors of the real estate industry to review preliminary forecasts developed by GMU-CRA economists and offer their insights into current and near-future market conditions.
In the third quarter of 2021, as the NVAR Forecast Advisory Committee and the GMU Center for Regional Analysis team were gearing up for the 2022 Annual Forecast sessions, there was much hope that the worst of the COVID-19 pandemic was clearly in the rearview mirror. The economy would see supply chain disruptions unwind and even the Federal Reserve would begin to taper financial support for U.S. markets. Then just in time for holiday travel season the Omicron edition of COVID-19 is heightening concerns about a new surge in pandemic caseloads and a retreat of post-COVID transitions. Fortunately, emerging research is pointing to more evidence that immunization and sensible personal behavior may be enough to thwart any new health disasters and the economy can move on to a post-pandemic footing.
Importantly, the NVAR/GMU forecast team retained key assumptions moving forward into 2022, though some market timing may be altered. First and foremost, the Greater D.C. regional economy will continue to perform well bolstered by the technology sector and supported by new rounds of federal spending as Congress enacts key portions of the Administration’s economic program. Some parts of the hard-hit hospitality sector will continue to struggle as business travel remains relatively weak throughout 2022. Wages are rising, though net of inflation seem to just be holding. Still, high wage sectors of the economy will continue to have more openings than workers, so jobs are plentiful and households will gain confidence in making major purchases – such as homes.
The one financial caveat is our expectation that the Federal Reserve, after a few months’ delay, will implement a reduction in asset purchases and will likely raise interest rates. Stocks may have some cyclical corrections during 2022 and thus, overall, we see upward pressures on mortgage rates throughout the year. By year end, we will not be surprised with mortgage rates at or near the 4.0% mark– still low by historical patterns but pushing some potential buyers out of market affordability. Rising inflation is a threat and the myth of transitory inflation has crashed onto the rocks of market reality. Inflation pressures should ease in the second half of 2022 as supply chain bottlenecks ease, but business cost increases tied to surging wages for skilled workers will push prices higher across a wide range of goods and services, which will impact housing affordability
Overall, prices of homes in the NVAR region will continue to rise, but at a more moderate pace than seen in the past 12 to 18 months. The recent announcement that the upper bound for conforming loans in the NVAR region will see a major jump to $970,800 will help offset mortgage rate increases. We will carefully monitor how this policy change by Freddie and Fannie will be capitalized into housing prices and make adjustments to this forecast if needed, with updates posted on NVAR.com/marketstats. Inventories, as measured by month-end market counts, will decline along pre-pandemic trends with a few market cohort exceptions that are presented below. Buyer patience will continue to be required as housing options in many Northern Virginia neighborhoods remain scarce. Still, our analysis suggests that total unit sales across all locations and market segments will drop less than 1% compared to a very active 2021 and will grow in some market segments. The market will be a bit cooler than 2021 but will still likely track the region’s strong pre-pandemic sales activity.
Forecast by Jurisdiction
Fairfax County (view charts)
After a year and a half of rapidly rising prices, the market for single family homes in the region’s largest jurisdiction will, despite some headwinds from mortgage rates and tight inventories, see rising prices (about 3.3%) and present strong unit sales figures just below 2021 levels (-0.8% or about 70 fewer units for the year). Inventories of single-family homes will continue to drop. Our data forecasting suggests that the inventories will hit new 10-year lows.
The forecast team expects inventory gains in townhomes located in Fairfax County and related jurisdictions that will track closely with 2021 for most of the year, but will remain somewhat elevated in the fourth quarter of next year. Total annual sales will rise with increased inventory.
Though year-over-year prices for Fairfax-located condominiums will track closely with other market segments, rising 3.2% for December 2022 compared to December 2021, the overall trend line for prices is somewhat flat for most months next year. Condo inventories will remain elevated compared to pre-pandemic markets, but somewhat lower than last year. Buyers looking for condos in Tysons or Reston will have some choice in properties, but our forecast suggests total units sold will decline by 9.7% compared to an unusually active 2021.
Arlington County (view charts)
As stated in previous reports, the median prices of homes sold in Arlington (and Alexandria) can swing dramatically from month to month because these are relatively small markets. The characteristics of a few homes can notably change the data trend. The chart for single-family home prices in Arlington has seen a very noticeable increase in month-to-month price volatility. This is not market volatility in a normal sense, but simply reflects variations in home size, age, school catchment area, and other factors. The pronounced volatility existed prior to the pandemic but following the month-to-month price points since early 2020 has been a bumpy ride. We expect the market to pull back to more regular market behavior in 2022, so while the peak prices will be lower in 2022 compared to this year, the overall trend will remain positive. Unit sales will increase modestly (+1.7%) although inventories will be even tighter than 2020. Single-family homes in Arlington are still the hottest real estate ticket in town.
Townhomes in Arlington, which saw notable increases in inventories of the past year and a half, will see fewer sellers with month-end inventories down an average of 10% for the year. We think 2022 will return this market segment to more long-run trends – meaning before the Amazon HQ2 announcement. Total unit sales levels will not see month-to-month volatility like 2021 but will be consistently positive in the latter months of 2022. Prices will also be more stable with overall increases of about 3.1%.
Arlington condo inventories will drop somewhat but will remain at levels not seen since 2017. There will still be good market opportunities for buyers for condos inside the beltway – though the pricing power remains firmly on the seller side of the ledger. Because of comparatively strong inventories, we see prices rising more modestly in this market segment, less than 2%, and total annual unit sales will decrease by 36 units (-2%). The impacts of units coming onto market as part of National Landing developments—tied to Amazon – may soften the market for existing units. Older condo buildings across the region will still need to have excellent documentation to alleviate concerns about the financial sustainability of condo associations and the physical condition of their properties.
Alexandria City (view charts)
Median sales prices in Alexandria for single-family homes will lose some of the volatility seen in 2021. Prices will rise but in a pattern more like pre-pandemic Alexandria. Still, we expect year-end prices to be 5.3% higher – among the best performing market segments in 2022. Of course, this is the thinnest market segment covered in this forecast with monthly unit sales peaking at about 60 in June and inventories that will continue to drop. We expect there to be about 20 single-family homes for sale in all of Alexandria at the end of December 2022.
Alexandria townhome inventories will also shrink, though we think that total annual unit sales will rise 4.1% (+42 units). This effectively means that days on market will be lower, keeping the rather frantic market activity firmly in place in Alexandria for 2022. This will also be the story of the city’s condo markets with a jump in annual units sold of 11.2% while month-end inventories will average out to be the same as 2021. The constraint on condo prices under market conditions that could support more dramatic price gains can be attributed to likely increases in condo association fees that impact buyer purchasing power.
While we are getting closer to a post-pandemic housing market, we are not there yet. Employers are talking about hybrid work arrangements being persistent if not permanent. Prices for building materials will remain substantially elevated for most of 2022, which means that new construction will be very expensive in our core jurisdictions. We are starting to hear that some multifamily developments are likely to be delayed due to increased prices and material shortages. All this means is that market conditions could return to 2020 levels of volatility with concomitant impacts on NVAR area housing markets. Stay tuned to these and other market trends by monitoring the NVAR website and regular CRA market updates.
Watch the full report here.
Learn more at cra.gmu.edu and NVAR.com/stats.