URBAN PACE 2022 OUTLOOK
Our study of 2020–2021 data indicates consumers have adapted to a “new normal” insofar as the residential market’s sales activity and pricing have resumed the seasonal patterns and annual growth rates they had leading up to the pandemic. Urban Pace believes that, barring extreme circumstances beyond what we have seen to date, these general patterns will remain in place. Given some permanent new changes, some ongoing effects of the market’s adjustment, and other factors unrelated to the pandemic, we can project some of the trends and challenges to expect in 2022 and beyond.
PRICE GROWTH & LOW INVENTORY
Low interest rates and low inventory drove year-over-year price growth in the DC region in 2021. Sales volume was up across the board, reflecting strong demand that drove prices highest where inventory was lowest. While we expect to see interest rates continue to rise in 2022, they are still at historic lows and we do not anticipate a major impact on pricing in 2022 due to rising interest rates. Increased pricing in 2022 will continue due to the ongoing lack of supply.
CONSTRUCTION COSTS
Construction costs climbed during the height of the pandemic and continued to rise in 2021. Supply chain issues for appliances and essential materials such as lumber have inflated their prices and delayed construction timelines. These have in turn made project financing more difficult. It remains to be seen when relief will arrive, so Urban Pace forecasts continued high costs for new construction projects through 2022 which will also push pricing.
FIRST-TIME HOMEBUYERS
Many individuals that moved home or out of the area for lower rent were able to save money during the pandemic. They are better prepared to have a down payment for a new home. As renters start to see rental increases of 20-30% over the previous year, we predict that a significant number will pursue homeownership options over leasing an apartment in 2022. The larger challenge will be inventory shortages versus lack of demand.
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SALES PACE
The pandemic’s disruption of the rental market was likely a factor in the slowed sales pace of new construction condominiums in 2021. Class A renters are one of the primary buyer demographics for new construction condos in our region. These consumers have already embraced the dense urban lifestyle and demonstrated a willingness to pay a premium for their living experience. From 2020 to mid-2021, massive concessions improved the value of renting compared to buying and served as a strong rationale to delay making a purchase. As concessions burn off and rental rates continue to rise, we expect many of these renters to enter the market for condominiums in 2022.
RETURN TO PRESALES
Like seasonality, other consumer behaviors will return to their typical patterns. During the pandemic many buyers were reticent to purchase homes that they couldn’t see in person or move into soon because they were motivated by new, longer hours at home and understandably unsure what the market would look like in the future. With the severe inventory shortage in the region, we expect to see buyers willing to commit 6 to 12 months ahead of delivery, as was common before the pandemic. With interest rates trending upward, we expect to see an increase in long-term rate options offered by developers as well.
THE AMAZON EFFECT
While the long-term impact of Amazon’s second headquarters in Northern Virginia remains speculative, we are already beginning to see accelerated development in the area. National Landing currently has more than 1,453 rental units scheduled to deliver in the next 24 months and nearly 7,000 more units in the pipeline. Surrounding submarkets like Alexandria, the Rosslyn-Ballston Corridor, Navy Yard, and DC’s Southwest Waterfront have substantial pipelines as well. In October 2021, despite industry-wide concerns about the future of the office market, Amazon announced that they were increasing their planned office space by nearly 20% to 4.9 million square feet. This expansion bodes well for the region’s housing market, which will benefit from increased high-paying jobs and new residents coming to the city.
