Following a nationwide trend, Montgomery County’s housing market slowed in 2018, hampered by low inventory, higher prices and rising mortgage rates, according to local real estate agents.
Home sales declined 4 percent countywide in 2018 when compared with 2017, according to Rockville-based Bright MLS. The number of pending sales (homes under contract but not yet closed) was down 7.9 percent at the end of 2018 when compared with the end of the previous year.
And the number of sales, pending sales and active listings were all below the five-year average, according to Bright MLS. The good news for sellers was that the median sale price was up 4.8 percent to $440,000, compared with about $420,000 in 2017.
But the facts and figures don’t tell the whole story. Buyer preferences have shifted in recent years, resulting in more people seeking walkable neighborhoods, shorter commute times and homes that require less renovation work and maintenance. That evolution of buyer tastes means that homes in walkable communities and inside the Beltway continue to sell well, as do more affordable properties, while more expensive properties, especially in car-oriented communities like Potomac, aren’t moving as quickly.
Potomac saw a 50 percent drop in the sale of homes priced above $2 million between 2005 and 2018, according to an analysis of Bright MLS data by Avi Galanti, a vice president at Compass, a real estate brokerage. In Bethesda and Chevy Chase, however, there was a 67 percent increase in the number of homes that sold for more than $2 million during the same period. Here are the key trends that are affecting the Bethesda-area real estate market.
Supply Is Down…
Multiple factors led to a decline in the number of houses for sale in Montgomery County in 2018. In December, there were 1,649 active listings in Montgomery County, according to Bright MLS, well below the five-year average of 1,913 (but 5.1 percent above the 1,569 listings in December 2017). The number of active listings in Potomac was down 15.5 percent, from 148 in December 2017 to 125 in December 2018, while in Bethesda, active listings dropped 1.4 percent year-over-year, from 213 to 210. Silver Spring saw an equal number of listings year-over-year at 280, while Chevy Chase registered a 3.5 percent increase, from 86 homes on the market to 89.
Inventory has been low for several reasons. For one, homeowners aren’t as eager to sell when they aren’t confident they can find and afford a new home, says Kara Sheehan, an agent with Washington Fine Properties. Low inventory becomes a self-fulfilling prophecy when people decide against moving up or downsizing because they can’t find anything to buy. Empty nesters, for example, face a conundrum if they own an older home that requires time and money to make it palatable to today’s buyers and also are unable to locate homes on the market that match their preferences. These homeowners are more likely to keep their homes than sell, which limits the number of properties available to first-time or move-up buyers.
“Baby boomers are not downsizing as expected because they find out that they can’t downsize their cost of living,” Galanti says. “If they try to sell their 5,000-square-foot home and buy a 2,000-square-foot condo of similar quality, they face a price jump and have to pay a high condo fee. So they just delay selling and stay in place, which reduces inventory.”
In addition, the extremely low mortgage rates that many homeowners have hold them back from selling. A homeowner with a mortgage rate of 2.75 percent is less likely to want a new 30-year mortgage at 5 percent, agents say.
“Now that interest rates are on the rise, the cost of moving has become far more expensive, as move-up buyers have to face the prospect of abandoning their low rate on their existing home and taking on more debt at a higher rate to buy the next one,” says Hans Wydler, an associate broker at Wydler Brothers with Compass. “The double whammy is more than many families are willing to take on, which is one of the main drivers of the 2018 drop in sales.”
Another reason for low inventory in the county is that new construction, particularly of single-family homes, has not kept up with demand—as is the trend nationwide, Sheehan says. The number of new home starts, which refers to developments where construction has begun, declined from 2017 to 2018 in Montgomery County by about 13 percent, from 1,245 to 1,079, according to Metrostudy, a residential construction research firm with offices nationwide.
Much of the active new construction is in high-density areas like downtown Bethesda and North Bethesda’s Pike & Rose, as well as Crown in Gaithersburg and downtown Silver Spring, where construction cranes at high-rise rental developments dot the skyline.
…But Prices Are Up
Low inventory has been driving prices higher for several years, which could be contributing to the slower pace of sales.
“For the past several years, homebuyers have become more price sensitive,” Sheehan says. “They’re more discerning and don’t want to overpay.”
The median sale price in Montgomery County increased 4.8 percent from 2017 ($420,000) to 2018 ($440,000), according to Bright MLS. In Potomac, the median sale price rose 1.8 percent, from $889,259 to $905,000. In Silver Spring, the median sale price was up 5.2 percent, from $380,000 to $399,600. In Bethesda, the median sale price rose 0.9 percent, from $857,000 to $865,000. And in Chevy Chase, the median sale price was essentially unchanged at $950,000.