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Ask Andrew: 2014 Outlook

By Aaron Kraut

Tuesday - 12/10/2013, 10:40am  ET

Ask Andrew

This sponsored, biweekly Q&A column is written by Andrew Goodman, Associate Broker and top producing agent with Gallagher & Co. Real Estate, Inc. Based in Bethesda, Andrew serves clients in Maryland, D.C., and Northern Virginia. Please submit comments, questions, and opinions in the comments section or via email.

Question: The 2013 real estate boom came out of nowhere. How long do you think this is going to last and where do you think we are headed in 2014?

The 2013 real estate market caught many by surprise. The market actually started to pick up at the end of 2012 and continued through this year. A lot of this has to do with our current mortgage lending rates. The market’s future will be dictated by when and by how much the mortgage rates increase. I can give you only my opinion on the subject based on my professional opinion as I am not an economist nor can I tell the future.

The current Bethesda market has improved over the last year and we have been stable over the past several months, which is a great sign considering real estate transactions tend to slow down as we move closer to the holiday months.

According to the statistical data in the local MLS (MRIS) system, in 2012 we saw an average sales price in Bethesda of $743,745.67 during the months of September through November with an average of about 78 transactions a month.

In 2013, we have seen an average sales price of $854,545.67 during the months of September through November with an average of about 86 transactions a month.

During the course of 2013, you have heard agents, the media and more talk about the lack of homes on the market. The price increase could simply be due to the supply and demand concept. But, why is supply low?

I tend to believe sellers who once would have put their home on the market have since refinanced their homes, which have made their homes more affordable for them. Instead of selling their home, potentially having to bring money to the table to sell it, they have decided to stay put and pay the current loan down to sell when its is more feasible.

The buyer who bought at the height of the 2004-2006 bubble may be able to sell now, but may see a very little return on their investment, if any return at all. So by refinancing, those buyers can now stay in their current home with a cheaper monthly obligation and slowly pay down their loan balance in hopes to allow their home to become more sellable.

This year also brought new construction projects. Developers are back at it and they have put their shovels to work. They are putting up projects all over Montgomery County, in Bethesda especially. However, developers are still hesitant to go full tilt.

Buyers in new construction communities tend to have to wait three, four, maybe even six months for their homes to be built because developers can’t build homes as fast the buyers want to purchase them. Developers do not want to enlarge their construction crews and be overstaffed in the event the market slows down. This could lead to bigger issues down the line if mortgage rates increase and those buyers are no longer qualified to purchase the home they are waiting to be built.

On the other side of the coin, buyers have been able to obtain mortgages at considerably lower rates. Unlike mortgage programs from 2004-2006, buyers today have to go through a rigorous process in order to obtain a mortgage, which hopes to eliminate the opportunity of another bubble.

With that being said, most buyers are locking in for 30-year fixed mortgages instead of interest-only adjustable rate mortgage programs, which helps these buyers withstand any future fluctuation in the market. It also hopefully decreases the potential for future foreclosures and or short sales.

Over the next few months, I do expect the Bethesda real estate market to cool off a bit due to the holidays. January and February are typically slower months, with March being the start to the spring market.

Depending on what happens to interest rates, buyers may also be hesitant to purchase. If prices and interest rates continue to rise, buyers are going to be reluctant to purchase and the ones who still want to purchase may not qualify for as much as they could have earlier in 2013.

That being said, Bethesda has always had a strong market and I do believe that even if interest rates do increase a bit, the market will continue to be strong with little to no fluctuation in the near future.