Metropolitan Washington DC home prices are on the rise. Is this due to the lack of inventory? Low interest rates? I believe it’s a combination of both. Currently, the DC real estate inventory is low. Meaning, the supply of homes for the amount of buyers that are looking to purchase (demand) is low. When demand is high and supply is low, prices tend to increase. But why is the demand so high? The current low interest rates and the threat of those interest rates to increase has encouraged buyers that this may be their last chance to purchase before things are no longer affordable. First time home buyers are also getting into the market. Rental prices are also increasing due to the lack of the supply of homes for purchase. If there are no homes to purchase, people will have to rent. In that case, more renters will hit the rental market, increasing rental prices.
Hence, promoting home ownership so your monthly rent would go towards paying down your principle mortgage balance versus just rent. All in all, the current market encourages us to purchase. But why aren’t owners selling? My personal belief is that homeowners that purchased during the “bubble,” have since been able to refinance, making their current mortgage more affordable. Many buyers who bought during the bubble years are under water in their house. By refinancing, these now owners can afford their mortgage, pay down their principle loan, and hopefully not have to bring any money to the table when they want to sell their home. Why sell now and have to bring money to the table when you could wait it out now that you have a more affordable mortgage? Supply and demand, simple economics. The DC real estate market is seeing it first hand.