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. The following represents the forecast team’s update to the 2023 outlook issued last December. Overall economic conditions remain favorable but with mounting risks due to continuing monetary tightening by the Federal Reserve Bank in response to stubbornly persistent inflation, declining profits for companies across a wide range of industries, and the realization of layoffs announced by some of the largest technology firms over recent months. Mortgage rates have pulled back from recent highs but remain about 300 basis points higher than pre-pandemic norms. As expected, higher interest rates are impacting both buyers and sellers causing inventories to be even tighter than during the pandemic, but with slightly softer demand pressures. Pricing is still relatively strong, but a lack of inventory has dropped the number of units sold by around 20% across Northern Virginia. With some minor adjustments, our forecast for the remainder of 2023 holds with our expectations in the original forecast:
- Demand will remain soft compared to the last two years as some households are priced out of the market due to elevated mortgage rates and others recover from the shock of missing out on 3%, or lower, 30-year fixed rates. Still, there is so much pent-up demand that suggests we will continue to be a sellers’ market. Moreover, it does appear that buyers are acclimating to higher mortgage rates, which is influenced by continuing increases in monthly rental rates. Even at substantially higher monthly costs, buying a home is still a sound financial choice for many households.
- Inventories will get tighter, even with less absolute demand, as current owners bask in the joy of having very low mortgage rates. It will be hard to justify leaving a home with a refinanced loan below 3% for another home with a higher price and a loan rate that could be doubled.
- Unit sales will decline, on average, though the drop-off will not be as sharp as what we saw in the third quarter of 2022. These unit sales declines will impact Realtor and broker revenues. On average, expect unit sales for 2023 to decline in the 10% to 15% range across most market segments compared to 2022.
- Prices will remain stable, with general expectations of modest rises. This reflects the conflicting effects of affordability and lessening demand with continuing tight availability of homes and a resilient labor market. On balance, expect prices to rise by about 1% to 2%, with some notable variances in specific market segments that will be discussed below. Well-priced units will still sell quickly at or near the original list price.
Forecast by Jurisdiction
Fairfax County (view charts)
After almost two years of rapidly rising prices, the market for single-family homes in the region’s largest jurisdiction will be effectively flat in 2023 with an average 0.7% price gain. Total unit sales will drop 10% for the year as inventories remain very tight. Inventories will drop 13%, which is not good, but a less severe decline in recent years.
The forecast team expects inventory losses of 22% on average in townhomes located in Fairfax County, mostly related to existing owners staying put. This will drop total unit sales by 15% on an annual basis but will support pricing stability with a small expected increase in median prices of 0.4%.
The Fairfax condominium market will see an average price rise of 4.3% but unit sales decreasing by 23% on the year. The original forecast expected some improvement in Fairfax condo inventories, but the data through April performed lower than expected, and we have revised the forecast to show an average drop in inventories for this market segment of almost 50% for the year. We hope to be proven wrong, but the downward trend line compels a relatively negative outlook.
Arlington County (view charts)
Single-family home prices have been aggressively rising over several years, but the December forecast reflected a softening of price rises. However, the demand for single-family homes in Arlington is proving very resilient. Moreover, the recent announcement by Arlington that single-family homes in some areas can be converted to multifamily may spark a surge of investor activity that will drive up home prices for those units that are on the market. We see average prices over the year increasing by 9.2% for single-family homes in Arlington. Unit sales will decrease by about 4%, and inventories will continue their multi-year drop. The average number of units for sale will decrease by 7% in 2023. New and existing residents will continue to be hard-pressed to find options for single-family homes in Arlington.
Prices for Arlington townhomes will remain effectively flat for 2023 on dropping inventories. This somewhat conflicting result reflects mortgage rate expectations. The forecast team has revised the outlook for unit sales based on early 2023 data with fewer than 250 townhomes selling in all of 2023, a 9.5% drop compared to 2022.
The Arlington condo market saw a dramatic increase in inventories during the pandemic compared to the Amazon HQ2-influenced market of 2018 and 2019. However, a different set of market forces takes hold as condo owners stay put because of mortgage rates and a lack of alternative housing inventory. We see the average number of units at month-end inventories to drop by 37% this year, resulting in a drop of 12% in unit sales. Paradoxically, we see little change in the average housing prices for the year, which is reflective of market trends since the start of the pandemic.
Alexandria City (view charts)
Referring to the chart for median prices of Arlington single-family homes shows extraordinary month-to-month volatility over the past two years. This makes forecasting very difficult. The forecast team’s collective judgment is that price volatility will decline to more normal seasonal variations and will be mostly flat at the end of 2023 on a month-over-year basis, with a modest annual increase of about 1.6%. In a sliver of good news for Realtors, forecast trends suggest that total unit sales in this market segment will buck regional trends by rising 5.4%, though that only reflects a gain of 19 more homes sold for the year in the small market. Inventories will continue their long-run trend of decline but remain above the bottom seen in late 2021.
The Alexandria townhome market segment will see effectively flat inventory levels in 2023. Unit sales of townhomes will drop about 15% to about 619 units for the year after a wild ride during the pandemic. Tight inventories will spark a modest rise in prices of about 3% for the year, with constraints on price growth driven by overall affordability levels.
The condo market in Alexandria will see a pullback in recent price spikes in the second half of 2023, though the annual average will show about an 8% price increase. Inventories will return to levels slightly above pre-pandemic norms, an almost 20% drop compared to 2022, which will impact total unit sales, which will decline by almost 17%.
Learn more at cra.gmu.edu and NVAR.com/stats.