If you shopped for a home in 2017, you probably got a little frustrated. The inventory levels were lower across the board, with an average of 20% fewer homes on the market than 2016. Many of our clients placed offers on many homes before getting one under contract, and even then, they would get used to hearing “we have multiple offers and need your highest and best!” Motivated buyers took heed and paid what they thought the home was worth; others skeptically chose to keep looking.
The year ended on a robust level. Personally, it was my best year in the decade I’ve been helping people buy and sell homes, but keep in mind I started just after the boom that ended abruptly in 2007. Total sales dollar volume was up 9.10% in the Mid-Atlantic region, and the median sales price jumped 4.52% to $324,000. The number of homes sold was also up, increasing by 4.6% over 2016. Despite that, it took less time to sell a home in the Mid-Atlantic market, with that figure dropping by almost 15%!
There was a point during the year where sales were lagging 2016 and people started to panic (including me!). But this was a function of the lack of inventory, and if you looked closer, you could see that the market was still quite healthy. My favorite indicator of a strong housing market is the absorption rate, which is how many months of inventory there are in a particular area. If you simply look at the number of active listings right now in the Mid-Atlantic region (32,985) and divide that by the number of homes sold in the current month (we’re using November, and there were 10,749 homes sold), then you get a rough number of 3. That means it would take about 3 months to clear all of the inventory out there right now, which is phenomenal. Some areas are even less; for instance, where my office is in Edgewood, MD, right now the absorption is only 2! There are 70 active listings on the market there with 35 homes sold in November. Economists tell us that a healthy market is an absorption of 4 or less.
Other factors will contribute to what we will see in 2018. The unemployment rate is steady at 4.1%, and full employment is considered at 4%, which means you can’t get any lower. There is a natural cycle of job turnover and attrition that prevents a true “100% employment.” Because of this, wages will continue to rise; this year they jumped 3.22% from January to September, and we can expect this to continue. Also, the stock market has been one of the stories of the year in the business world; the Dow is hanging around 25,000, proving that corporate market values are flourishing.
If you add these up and factor in mortgage rates, which are somehow lower than they were in January, and rental rates that continue to climb, we can expect buyers to be out shopping in packs trying to take advantage of a prime home shopping season, and since home prices already started the upward trend last year, home Sellers are aware of where they’re going to continue to go. Buckle up your seatbelt and get ready to move!