Glover Park row house values rose again in 2020 to a new record of $1,080,000 on average, gaining another 5% over 2019. Astonishingly, the neighborhood saw a flood of homes on the market – 60 houses – which exceeded inventory in any of the past twenty years! See graph below. How do we get a tremendous surge in inventory (in Covid World no less) and record prices at the same time? Your college economics professor would argue this contradicts the law of supply and demand, unless dynamic forces are at work.
The surge in both prices and sales reflects parallel but differing supply and demand stories. If you have been in the market or were following it this past year, you probably have heard this: “There is no inventory!” Low supply with strong demand would explain a surge in prices, like what happened in 2017 when prices surged 19% while only 27 row houses came on the market, yet inventory was 122% higher than that in 2020!
A few significant factors drove the supply: 1) rising values resulted in owners having more equity giving them the flexibility to trade up, or out; 2) Covid and the riots did spark a bit of an exodus, though not as significant as the flight from large apartments in higher density areas. People felt they could get that house in the suburbs now and would not need to worry as much about the commute; 3) rentals were more difficult, with flat rents and longer periods on market, compelling some landlords to sell; and 4) rock bottom interest rates with relatively easy access to financing increased owners’ options and mobility.
The demand effect, though, was much more pronounced and resulted from a few factors: 1) rock bottom interest rates – the most significant factor. When a million-dollar house costs the consumer $3800 all-in (mortgage, taxes, insurance) and it is cheaper than rent - “we should buy now!!” has been the response. Historically this ‘cheaper-than-rent’ scenario has been an imbalance in the market which tends to correct one way or another (through interest rates, home values or rental prices); 2) Covid caused a fear of large buildings and higher density. The flight to the suburbs was more significant, though the flight to lower-priced DC homes (like Glover Park) was a factor. It’s still happening, though likely this effect is fleeting; 3) most Glover Park houses sold immediately and most with multiple offers. This caused an urgency and often a frenzy in buyers who felt they needed to get this one or the next one, and it also caused this perception of low inventory; and 4) Glover Park continues to be a very desirable place to live for a wide range of buyers, and compared to much of the rest of the city still is affordable. Believe it or not, finding a nice and comfortable house for $1 million is becoming scarce in most parts of the city. Stoddert Elementary (despite the online learning), the restaurants (despite the ban) and Whole Foods (despite the maddening three-year lawsuit) still attract the buyers who are hopeful for the future.
The extent of the demand in light of the record inventory was extraordinary. Of the 60 sales, only three stayed on the market longer than 30 days. In fact, 80% of the houses sold effectively immediately, and the majority of those with multiple offers. Will this trend continue? As long as interest rates stay low and we do not see a major economic shock or another black swan event, the answer is likely yes. There is some shadow inventory from mortgage forbearance, though not a significant factor most likely in Glover Park. Some assume the economy now is controlled by the central bank and fiscal policy so it is predictable. Many thought Wall Street controlled the stock market, until last week. The 10-year bond and inflation have been creeping slowly and stealthily upwards for a while now as market forces are under pressure. If that continues and interest rates pop, things could change. For example, if interest rates rise from the current 2.5% even to a still historically low 5%, this results in a 35% increase in the mortgage monthly payment. That will have an impact at these price levels. Is there an economist in the house?
By the way, condo sales in Glover Park were not too shabby either. The number of sales of one bedroom condos rose from 39 in 2019 to 45 in 2020. The average price rose 4% from $311,000 to $325,000 and the average time on market was 25 days. Two bedroom sales nearly doubled from 16 in 2019 to 31 in 2020! The average price rose 3.5% to $494,000 with average time on market dropping from 39 to 25 days. A good portion of the increase in sales for two bedrooms reflects new condos converted from apartments, and there will be more of those coming in 2021.
What is the Glover Park real estate trend for 2021? POP-UPS! They are here, they are becoming more popular, and at these home values and interest rates now they are economically feasible. Look at Burleith!
Call or email me if you have any questions. I do this for a living if you didn’t know:
Chris Jones, Long & Foster Real Estate, Christie’s International in Georgetown 202-441-7008