(rare night pic of Wash Monument)                                                 As we enter 2017, it is that time of the year for something I usually avoid: Annual Forecasts. Everyone seems to make them; how many ever pan out?

washingtonmonument                                 But the enormous change and uncertainty that people feel following the past election, and introduction of a new Administration increases uncertainty, compels me to outline where we are and where we are likely headed in terms of residential real estate in Northern Virginia and Washington, D.C.

First, according to a recent Inman survey, the gauge of professionals’ optimism is as follows, nationwide:

—- 27% of respondents claim to be “optimistic” about the overall housing market.

—- 52% say that Donal Trump will have a positive impact on real estate markets.

—-50% think unit sales will be higher in 2017 than 2016.

—- 75% believe prices will rise in 2017.

My followers know that I am always hesitant at a time of universal optimism or pessimism. The survey results indicate a very mixed bag, as most real estate surveys prior to any year have a slightly upward bias. So the above results are not too different from the norm.

Trends Which We Will Likely See in 2017:

—— I am in the camp that says the long period of incredibly ultra-low interest rates is over. I am somewhat surprised that we have not seen more price appreciation over the past few years given how low interest rates have been. I am also concerned that with today’s long term fixed rates at levels lower than most us us used to consider “teaser” rates on an ARM, new entrants to the market have become too complacent in assuming these rates continue. How buyers react to higher interest rates will be a major factor in real estate sales and prices in 2017. Housing as a form of stability and long term wealth creation will be re-introduced as a driving force for buyers in 2017.

Prediction: With inventory levels at extreme lows entering 2017, the initial move in prices will be up, as buyers scramble to purchase the better alternatives, and do so while interest rates are still extraordinarily low.

—– 2017 will be seen as an unusual year marked with high unpredictability. There will be greater differences in demand from state-to-state, town-to-town, and neighborhood-to-neighborhood than we are used to seeing. I say this for two reasons: 1) The “Trump Effect” will reallocate areas of emphasis for capital that will be a boon to some areas and not to others; 2) The nature of real estate sales, and public awareness of alternatives, is changing on a daily basis. This trend is not going to decelerate in 2017. Such changes will make many of today’s cast-in-stone mantras less relevant and in some cases, obsolete. It is easy to say there will be significant change. Pinpointing what that change will be difficult, and how it will effect the overall industry remains the challenge. What will be viewed as uncertainty will actually be a progression from one way of doing business to another; of viewing alternatives in a different way than in the past.

Prediction: The era of the part-time real estate professional may be coming to an end. Technological changes and the need for knowledge will force those who hope to be successful to be on top of things everyday. This will become a necessity for those hoping to succeed. The pace of change and introduction of new technologies will increase, not slow down. So will demands on individuals and firms.

—– Higher interest rates are likely to free up inventory, which could lead to an explosive spring market. Granted, this is a bold statement and may be based on hope and intuition as much as facts. However, low inventories are the norm now, and many of those homes still for sale are on the market for a reason (poor condition; not showing well; markedly overpriced, etc.). Well-priced homes are selling almost immediately across-the-board. If interest rates begin to rise, sellers are likely to surface who do not want to “miss the boat”, given the traditional relationship between interest rates and housing demand. Buyers (and there are many sitting on their hands at this point) will respond to the improvement in inventory by stepping up before interest rates get beyond their affordability ranges. Fundamentals for an active spring market are very much in place. Potential sellers should take great care in choosing a listing agent. Buyers should use premier sites like Zillow and stay abreast of inventory in their desired markets.

Prediction: Changes in Administrations generally increase activity. Changes which fundamentally shift employment emphasis do so even more. Both factors are in place now, in addition to a long hiatus of low activity in a period of low interest rates. Volumes will increase. The chance that a “sling shot” effect takes hold is not to be ruled out; volumes could boom this spring.

—– The average age of first time home buyers has been increasing. This is no longer a young “millennial” market (aren’t we tired of hearing this yet?) but a very mature group of renters who are beginning to surface as real buyers. They are smart, know what their life style is, and have a keen eye to the future. This group will be significant buyers in 2017.

Prediction: Demand from new buyers, particularly at the middle and lower-middle price ranges, will be strong in 2017.

—– For Reston in particular: The overbuilding in new rental units will set the stage for future condominium conversions, likely in 2018-2020. The process of getting project approval, construction, and sales for major new projects is extraordinarily lengthy. Many of the buildings coming online now were planned during a completely different economic time. Today’s “rental squeeze” is becoming more of a mirage, and the likely introduction of over 2,000 new rental units in Reston alone in the immediate future will likely transform this market in ways people are not considering today. How do these periods of overbuilding/underbuilding always occur? For many reasons, but for the current crop of upcoming units, decisions to make these rental units were made years ago when investment capital was raised for their financing. Rising prices will likely generate requests for condo conversion in many rental buildings, but that effect likely will not take hold until 2018-2020. There will be a glut of “luxury” apartments that will rely on higher overall prices to correct an upcoming imbalance between rental housing and demand to own. Apartment managers will attempt to disguise the burden through aggressive move-in incentives and unpublished individual “deals”, but this is merely a response to an environment in which supply exceeds demand at builders’ desired prices, and one in which developers seem to be all building to the same price point rather than where the demand is likely to be. Keep in mind: This is NOT the prevailing opinion out there today, but my own conclusions based on personal observation.

—– Expect the unexpected. We are faced with a changing environment on almost all fronts, and the pace of change in many areas is simply mind-boggling. Those sticking firmly to a plan set in stone on January 1 to get them through the entire year will suffer, as quicker organizations/people identify changing trends and act accordingly.

Ray Wedell, Zillow Premier Agent

Realtor & Chartered Financial Analyst, CFA

Samson Properties




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