Data from Zillow Group Inc. shows that home values in Fairfax County have soared to $635,074. This represents a 7.9% price increase in the past year, with prices only expected to go up more over the short term. Yikes, and this is in the middle of global pandemic. What goes up must come down right? Unfortunately, it's not so simple when it comes to real estate, and the uncertainty is having a direct impact on the middle class.
The current surge in home prices is caused by a number of variables. First, mortgage rates have never been so attractive. Last winter mortgage rates reached all-time record lows with averages hovering around 2.625% for a 30-year mortgage. In March 2021 Federal Reserve Chair Powell went so far as to say on '60 Minutes' that he doesn't plan to raise the Fed Funds rate (what bank mortgage rates are based off of) until 2023. Lower interest rates allow buyers to afford more house than they would have otherwise qualified for.
This coupled with the dismally low housing supply in Fairfax County is causing additional price hacks. Long & Foster estimates that the housing supply (a ratio of the number of homes availale in a given market) is down 46% verse the same time a year ago - during the height of the Coronavirus pandemic. The Washington Post recently reported how the U.S. housing market is 3.8 million single-family homes short of what is needed to meet the country's housing demand, up 52% as compared with 2018's shortfall, according to a new analysis from mortgage-finance company Freddie Mac. So what does all of this mean for middle range buyers in the future?
Well for one thing, rising home prices may eventually price residents out of their local markets. This may mean a surge of people may decide to move out of Northern Virginia staple counties (e.g. Fairfax County, Prince William, Arlington and Louden Counties into surrounding areas like Fauquier County, Culpepper and Stafford Counties where housing costs are more affordable. The likelihood of this is further compounded by the emergence of teleworking.
Another trend is that a lot of buyers are considering postponing their purchases until next year. The idea is that home-buying conditions might improve in the near future, compared to how things are right now. Unfortunately, the current data doesn't support this in the near-term future.
In fact, those who postpone their purchases until later in 2021, or wait until 2022, could encounter higher prices. In addition, many other buyers are also waiting for the pandemic to end before entering the market. Though the end of the current mortgage forbearance program, initiated at teh beginning of the pandemic to help homeowners impacted by the virus, is expected to yield to increase the supply of available homes, it's not expected to be enough. In fact, the expectation is that the supply-demand dynamics will continue to push home prices up by 8 percent in 2021 – up from the previously predicted rate of 4.2 percent (FHFA Home Price Index).