5 BOLD Predictions for the Washington DC

It was a tough year for real estate. The past year of 2024 saw higher mortgage interest rates and in many U.S. markets, less buyers. We experienced a shift here in DC metro as well. What’s going to happen now that the new year is here? Will there be more for sale? Here are Melissa’s 5 bold predictions for DC area real estate in 2025.

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The Buyers are Coming Back

I knew this was going to happen. I had been telling clients all last year – this is the time to buy. It’s hard to convince people of this though because I’ve learned some things during my two+ decades in real estate (and in life.) People generally operate with a “today” mindset. They hyperfocus on the present almost to the exclusion of the future.

Here’s why I knew it was time for buyers to return. First, there are always soft spots in the real estate market in the DC area. Those soft spots are August and December. The market resets after those two months. Since we didn’t see much of a recovery in September after everyone finished their summer vacations, I expected that it would come for us in “spring,” i.e. after the new year.

Second, every time there’s a giant thud that stops the velocity of the real estate market – think Sept 11th, 2008 housing crash, or covid, things stop. But they never stop for long. The sharp rise in interest rates has had time to set a “new normal,” and it was time for the buyers to get back out there.

When people ask what I think the spring market will be like, I tell them I’ll know on January 2nd. Why is January 2nd so magical? I know people. And like clockwork, people who want to buy homes all decide to reach out to an agent on January 2nd. I got several calls from potential new clients on January 2nd this year, and a   call or two each subsequent day into the first week of January. That’s my barometer. It’s going to be a busy season.

DC Real Estate Will Bounce Back

We all use the term “DC” when we mean the entire metro area. But in this case, DC actually means DC. The city. Inside the DC City limits.

What do I mean that it will bounce back? We saw a drastic reduction in buyer interest in DC properties in the past year.

The neighborhoods that were “up and coming” had slowed due to increased crime. As I heard from another agent recently who brought a buyer to one of my listings, “The third time her car got stolen she knew it was time to move.”

Well. There was that.

In 2023, homicides in the city hit a 20 year high, at 274. But in 2024, crime was down in all categories. Homicides were down over 30%, Robbery down 40% and Assault with a Dangerous Weapon down 27%.

How did the people of DC respond?

In late 2024, the Mayor’s office released data that DC had the biggest single-year population gain since 2013. The District added 15,000 residents from July 2023 to July 2024. That’s pretty good considering it put the city over the 700,000 mark for population.

Administration Changes Will Change Nothing in Real Estate

Everyone believes that there’s this huge exodus of people who leave DC when the administration changes. That’s not true. Here’s a chart to prove this. These are close sales, by month, going back a decade. Look at the election years – 2016, 2020 – do you see any outliers in those years? No. They look like all the other years. So why do people believe this? The short answer is “I don’t know.”

When a new administration comes in with all new people, yes, some of them buy homes. But often, the homes you hear about them buying are the high dollar homes. It makes a great headline, right? But, for every $2M+ home that is purchased by some high-ranking official in the new administration, there are probably 25 homes that aren’t purchased that you won’t hear about.

Incoming people often leave a family behind in another state and commute back and forth. They may purchase a small pied a terre or they may rent. Those in the administration that is leaving office find jobs elsewhere. They don’t just pick up and leave DC because the administration changed. There are plenty of jobs here and they have plenty of connections to secure one of those jobs. Leaving DC would accomplish nothing for them really. They would have fewer job prospects in most other cities. Thus, administration changes really don’t change anything.

Back to the Office

All those empty office buildings eventually had to come back to life. Some have been turned into residential buildings, but other companies have said, “It’s time to come back.”

Trump has made no secret of the fact that he’s going to get people back to the office. Every day. He’s also enlisted Elon Musk to head up Government Efficiency so that should be interesting. I love that name; it’s the world’s best oxymoron. Initial reports stated that they were going to eliminate 100,000 jobs. Will this actually happen? No one knows. Election promises, as we all know, operate in a vacuum. These two can’t unilaterally cut 100,000 jobs, but yes, there will probably be shakeups.

What happens if 100,000 jobs are actually cut? Many of those people will go on to find employment elsewhere. I don’t worry about things until they happen and if they do, the metro area has enough opportunity to absorb those employees into other agencies or the private sector.

Different Price Points, Different Realities

I’ve had this conversation with probably a dozen different buyers over the past six months. When interest rates were low, every price point was affected. Buyers for the $200,000 homes and buyers for the $2M homes were all rushing to snap something up to get the low interest rate locked in for 30 years. When the mortgage rates went up above 7% this past year, most people thought that buying activity would soften across the board. But, surprisingly, it didn’t.

Those in the luxury price points were unaffected. Luxury in the DC Area used to mean $1M or more, but now $1M for a house can be a starting price for many first-time buyers. The buyers in that $1M – $1.4/$1.5M price point were also mostly unaffected. There was slightly less competition. Instead of 5 buyers per home, maybe it was 2-3 buyers.

The biggest changes happened in the sub $600,000 price point. When rates were 3%, there were 10 or 15 buyers for the $500,000 and $600,000 homes. That’s a first-time buyer price point for many buyers. When the rates went up, the number of buyers at those price points, and lower, went from maybe 10 buyers per home down to no buyers or just one buyer. Interesting, right? Why though?

If you think about it, these are entry level price points in this area. You can find homes in some areas for $300,000 and it’s the same story there as it is in the $500,000 to $600,000 price point. The buyer for these homes has a tighter budget, less in savings usually and something like a point or two in an interest rate increase can take them right out of the market.

The good news though is that for those who are left, this is a sweet spot right now! Will it remain this way? I expect the luxury market to continue full steam ahead, business as usual in 2025. I expect more buyers in the sub $600,000 price point to start returning back into the market, but I don’t know that we’ll see them back in full force until 2026 when mortgage rates are expected to come down once again.