It is, of course, a cliché that “location, location, location” is what matters most to home buyers. Today, however, many may be more concerned with “price, price, price.”
The median sales price for homes sold in the second quarter was $425,000 in the DC Metro area. We’ve only seen it that high three times before: in Q2 2013, Q2 2007, and Q3 2005.
The median sales price in the Baltimore area was $250,000 in the second quarter of this year. That’s just $5,000 less than we saw in Q3 2013, and that was the highest since 2008.
Climbing home prices are a double-edged sword. Home owners are delighted by the increase in value of their property. But you probably remember the hectic market of 2003-2005, when home values outpaced income growth. The market reached a tipping point in late 2005 when buyers started pulling back as prices got too high.
Home prices haven’t climbed as sharply as they did back then, but when you also take into account today’s higher mortgage interest rates, many buyers are feeling the pinch. And if buyers can’t afford to buy, they won’t compete for homes—and that is what can really push home prices up.
According to reports from Trulia and the National Association of Realtors, buyers around the country are finding that homes have become harder to afford. The NAR’s Housing Affordability Index fell to 176 last year, after reaching an all-time high of 197 in 2012. (Higher number means homes are more affordable.)
That is a national index, of course, and anyone who has moved here from another region knows that home prices are high in this area.
At the same time, the Washington metro area has one of the lowest unemployment rates in the nation, and attracts some of the nation’s best and brightest to work in homeland security, technology, and government. Many of these employees are well-educated and well-paid—just the kind of buyers who can afford our expensive real estate.
Let’s also remember rising home prices tend to fuel the move-up market. Reaping their recent profits and buying a bigger home is a powerful temptation for many, and their buying and selling is part of what makes a housing market active and competitive.
—Chris Sicks has reported on the Washington-Baltimore real estate market for over 20 years. Contact him at email@example.com