Last week, we shared with you insights from Gary Scott and Larry “Boomer” Foster, presidents of Long & Foster Real Estate, on inventory challenges, millennials in the housing market and our country’s homeownership rates. This week, Foster and Scott talk about luxury and affordability, and how local market conditions affect everything.
Demand for luxury is softening, while affordability challenges continue
At the high end of the market, luxury home prices dropped 15% in 2018 compared to 2017 globally, according to Christie’s International Real Estate. However, the luxury market is also hyperlocal. Luxury prices have remained steady or appreciated in many markets, such as the D.C. metro area.
“The trends in the luxury market show that demand is highest for locations close to a city and for smaller homes,” said Foster. “The demand just isn’t there for 9,000 to 10,000 square foot homes. In the D.C. area, there’s a big difference in demand and price appreciation for homes located close to the city in Chevy Chase or Arlington, compared to larger homes in Potomac and Great Falls.”
The luxury market in particular can be affected by stock market gains and home price appreciation, said Scott.
“People are fundamentally doing better when they have more home equity and when the stock market does well,” he said. “That encourages people who already own homes to invest in rental housing and we are seeing a high demand among investors for rental apartments and single-family homes.”
An ongoing issue nationwide, particularly in high-cost housing markets, is affordability. This year, price appreciation is anticipated to moderate a little in some markets. Lower interest rates also contribute to higher levels of affordability.
“Demand for homes is always good, but lower mortgage rates help fuel demand because they increase people’s buying power and help affordability,” said Foster. “This is especially true for millennial first-time buyers who may have more difficulty saving money for a bigger down payment. Lower mortgage rates help them even more.”
Hyperlocal market dynamics to consider
While Foster anticipates slight fluctuations in mortgage rates, moderate price appreciation for homes and a bit of leveling off for luxury home prices, he said everything is location specific.
The D.C. metro, for example, is facing the “Amazon effect,” a tightening of inventory and spike in home values in the area surrounding the new Amazon HQ2 in National Landing, primarily in Arlington County and the City of Alexandria.
“Inventory is down almost 50% in Arlington and over 60% in Alexandria City because people bought property immediately after the news that HQ2 was headed to the D.C. area,” said Foster. “At the same time, homeowners appear to be waiting for hyper-appreciation when employees arrive or to hold onto their property as a rental investment.”
Another possible result of the Amazon effect could be increased spending on transportation solutions that might make it easier for people to live in more affordable neighborhoods and still commute to employment centers in Arlington and elsewhere.
“Under every circumstance, real estate is hyperlocal by area and by price range,” said Scott. “General statements about market trends don’t count, and that’s why, it’s even more important than ever for any home buyer or seller to work with a hyperlocal professional.”