Fed Meeting This Week

Also published on the Huffington Post

It’s been the busiest December I’ve experienced. Typically, after Thanksgiving, the entire real estate industry packs it in for the season. Sellers are holding out to list until spring. Some buyers stick their toe back in the water after New Year’s, some holdout until Superbowl is over, and some wait for the winter to break. I fully expected to have the slowdown this year, but it has not let up. The calls and emails from new clients come in to our office daily. I still have a few closings before the year ends. And, well, it actually feels as busy as any spring might feel.

My assumption is that this is all tied interest rates. Many people who follow what the Federal Reserve does know two things at all times: When their next meeting is and that rates can go up at any point in time. That meeting? It’s December 16th.

What happens to DC’s market if rates begin their ascent upward this week? I answered that question in September for BBC, so if you want to take a look at that, it’s here.

Since the time of that interview, I’ve attended a few different industry meetings where this topic has been discussed. I still maintain what I said a few months ago - in competitive seller’s markets like DC, buyers may fear the interest rate hike, but it may be the best thing to happen to real estate in DC in a while. Hopefully that whole business of waiving contingencies like home inspections, appraisals and financing will become a thing of the past. A good home inspection may not reveal all of a property’s deficiencies, but it’s an excellent start and no one should have to give up that right.

If rates go up, prices should eventually stabilize a bit, at least if you believe in basic economics. It won’t be instant, but, perhaps then, we will move toward something resembling a balance.

So what about the people who recently purchased. This is always concerning because the fallout from 10 years ago where people paid top dollar just before the market turned, helped enable a serious lack of inventory for many years to follow. Sellers couldn’t sell because they had no equity in their homes. I’m fearful that 2007 could happen again, but, we do have several factors today that don’t resemble that time period.

  1. DC is hot. I’ve lived here 11 years and only in the last two years have friends from other parts of the country wanted to vacation here. This is pretty telling to me - we were uncool prior to all this radical development, and are bordering on something, well, maybe not necessarily cool but definitely exciting. We aren’t only about politics anymore.
  2. Money isn’t as easy to obtain as it was in the heyday of lending. I can recall hearing many stories of buyers earning low 5 figure salaries buying half million dollar houses - and walking away from the settlement table with cash! Lending is totally different now, and none of that occurs anymore. Unless you have a VA loan, you are required to have some sort of skin in the game. Whether that’s 5% or 20%, there will always be that much of a cushion for a price fluctuation before a buyer is underwater.
  3. Strollers! If you haven’t been mowed down by a stroller on a sidewalk, then you need to come out of your cave. There are more families staying in the city than ever before. The schools are better, some so improved they have massive waiting lists. When I moved into Dupont Circle 11 years ago, the neighborhood elementary school was in danger of being closed down. The other day, DC released a report that the city’s highest math scores came from that very school. That is improvement that community and parental involvement helped achieve. Schools don’t improve when caring parents jet out to the suburbs. They improve when parents pitch in and get involved - which is exactly what is happening in many schools in the city.

Because of the transient nature of some of the employment in this city, there will always be a contingent of people coming and going from DC. This will keep the market moving. But the factors mentioned above seem to point to less reason for people to leave unless transferred by their job. I realize this is uncharacteristically optimistic of me, but DC is probably enjoying a renaissance never seen before. People are more invested in this city than ever, and if they are well invested financially and don’t feel compelled to leave because of lackluster schools or amenities, but actually want to stay - hopefully this will be a market correction we can sail through.