It has been an amazing year, actually two. When I wrote a market condition report for a local bank in January of 2020, nearly 22 months ago, before I knew what Covid was, I made a couple observations.
- “I am concerned that we are going to move a lower volume of waterfront sales as we are finally getting to a moment of supply and demand equilibrium with fewer sellers wanting to participate at these price levels, which are still significantly below the highs seen before the financial crisis, now 12 years behind us”
- “It is clear to me that in order to see enough supply to meet demand the prices will need to come up. I believe it will take the buyers, who are largely considering a very discretionary second home purchase, some time to accept a revised pricing paradigm which I believe will take time, resulting in diminished short term volume, perhaps as long as a year or two.”
So, I think I think I was right about the pricing, but wrong about time. Covid hit, the stock market corrected, and we were quiet and a little frightened for the waterfront part of our business. It was quiet at first but long before Memorial Day weekend the wave started. We saw demand rise, and rise fast. We were inundated with activity, and much of it from the north as opposed to Northern VA, DC, and Montgomery County which had made up the preponderance of our waterfront business for many years. People were not yet relocating here but they wanted an alternative home to shelter in. I went into the pandemic with twenty waterfront listings, some listed for years, and they all evaporated. We were selling homes to folks from Philadelphia and NY, sight unseen.
As the summer progressed we saw bidding wars and it was not long before sellers decided to test the market and the newfound demand was greeted with supply although, on average, woefully inadequate. I contacted many sellers who wanted to sell but were not happy with prices to give them the good news: that the market had turned their way. Most, nearly all, said they were glad to hear it but they were committed to their homes that had been an albatross for them as they were using them and so glad they had a place to go.
We have seen follow through on this up to this moment and we are starting to slow down. For business through September, we are up 10.88% over last year at the same time but both August and September brought significant decreases in volume 33% and 47% respectively. We are also seeing a huge difference in active listings. As of September 30th we have 38% less active listings than we had a year prior at a moment that we already had significantly less inventory. If you compare our inventory levels to September 2019 the statistic is quite staggering. 444 v. 130, nearly a drop of 70%! My own prediction, knowing there are only 118 residential properties under contract in MLS, is that we will settle less dollar volume of property this year than last and this statistic will be dramatically more significant in terms of unit volume as the prices are up again this year over 2020.
So what does the sudden volume drop-off mean? Is it supply?; Which is objectively demonstrated as problematic or, is it demand?; Which is a somewhat more subjective metric. Could it be a little of both? Could the market withstand further price increases to draw out supply? Are mortgage rates going to surge, and if so, what will that do? It would be disingenuous, of course, to state a prediction with any real confidence but here is what I am seeing and predicting for next year.
- Good waterfront property is still in high demand and just not available, period. This market is affected by mortgage rates but not as much as the normal, inland market. While it is just my own opinion, I believe we are just now getting back to our 2007 highs for waterfront property in a region that has made many more, and significant new highs. While Washington and economic influences can change things at lightning quick speeds, I think we will see more price growth, perhaps significant, in our waterfront market until we have more inventory to choose from.
- The normal inland market has also been on a tear. Maybe not back to all time highs (under $300k certainly is though), I believe this will keep growing but not as much, and not as fast. We will need more inventory for people to contemplate moving to in order for them to make a decision to sell their existing home. This issue will require the market to catch its' breath.
- We have rediscovery going on here for all markets. We live in a very special place and the newfound exposure to folks who have not experienced it before is going to provide an otherwise unrelated source of demand, particularly for our waterfront product.