I came very close to writing a completely different market update last week.
At the time, it looked like the conflict involving Iran was winding down, oil prices were falling, and the consensus seemed to be moving toward lower inflation. If lower energy prices worked their way through the economy, there was at least a reasonable argument that mortgage rates could finally begin moving in the right direction.
As it turns out, despite my confidence that lower oil prices would eventually lead to lower mortgage rates, that was not what happened.
The Federal Reserve met this week and delivered a much different message than many would-be homebuyers were hoping for. While the Fed left short-term rates unchanged, they signaled that inflation remains a concern and that rates could remain elevated longer than expected. In fact, they suggested rates could still move higher this year if inflation fails to cooperate. Markets reacted immediately. Bond yields moved higher, mortgage rates spiked higher, and the prospect of meaningful rate relief this year suddenly looks less likely.
At the same time, the spring market is ending, which makes this a good opportunity to step back and evaluate what actually happened over the last few months and what I expect to happen this summer.
One of the themes I have repeated throughout the past year is that there is no longer a single housing market.
Looking only at headline numbers, the spring market appears healthy. Home prices across the Washington region reached another record high, and detached homes posted nearly 6 percent annual appreciation. Homes in desirable neighborhoods with strong schools continued to attract multiple offers, often selling in less than a week.
Buyers looking for long-term family homes, particularly detached homes in established neighborhoods, remained remarkably resilient despite higher rates. The typical buyer in that segment is not purchasing a starter home or a speculative investment. They are buying a home they expect to own for the next ten or fifteen years. When the right property becomes available, they are still willing to compete aggressively.
The experience has been very different for condos, luxury condos, and many higher-end townhomes. Condo prices across much of the region were flat this spring, while some segments experienced price declines as inventory increased significantly. Buyers at these price points have more options and less urgency. When mortgage rates remain elevated, affordability becomes a larger issue and buyers become much more selective about what they are willing to pay for.
That is why describing today's market as either a buyer's market or a seller's market misses the point. Both can exist simultaneously depending on the property type, location, school district, and price range.
If there is one prediction I am comfortable making, it has nothing to do with interest rates. I think the housing market is about to behave exactly the way it usually does.
June is often the busiest month of the year for closed sales because it represents the culmination of the spring market. The contracts written in March, April, and May finally make it to the settlement table, creating a surge in transaction volume.
Once we move beyond the Fourth of July, however, activity tends to slow considerably, I describe it as "falling off a cliff."
Families travel. Kids are out of school. Buyers who were highly motivated in the spring often decide they can wait until the fall. Sellers who considered listing decide they would rather enjoy the summer than accommodate showings and open houses.
This year, I suspect that seasonal slowdown may feel even more pronounced because higher mortgage rates continue to keep buyers sidelined. Buyers who were already stretching their budgets are facing another reminder that relief is probably not arriving anytime soon.
That does not mean opportunities disappear. In many cases, buyers who remain active during July and August encounter less competition and more flexible sellers than they would have found during the spring frenzy.
While seasonal patterns will shape the next few months, there is another trend developing beneath the surface that could have a much longer-lasting impact on housing. Housing construction is slowing.
Many builders used to prefer building spec homes. They could move faster, maintain complete control, avoid endless buyer requests, and often earn higher profits. If they were going to take on a custom build, it had to be worth pulling resources away from their spec inventory.
National housing starts have fallen to their lowest level since 2020, driven largely by a slowdown in new construction. Builders are facing the same challenges as everyone else: higher borrowing costs, economic uncertainty, rising construction expenses, and concerns about future demand.
As a result, many builders now view custom-home buyers as the safer bet. A signed contract provides certainty. They know the buyer is committed, they know the expected profit margin, and they avoid the risk of completing a spec home only to face months of carrying costs and multiple price reductions.
This trend also has broader implications for the housing market. One reason home prices have remained surprisingly resilient is that we still aren't building enough homes. Higher interest rates reduce buyer demand, but they also reduce new construction. The same forces making homes harder to buy are making them harder to build.
I've been telling buyers for some time that builders are increasingly competing for custom-home clients rather than the other way around. The latest housing-start data doesn't change that view. It simply validates it.
That dynamic helps explain why inventory remains tight in some segments even as affordability has deteriorated.
As we head into the summer, I expect the market to become quieter. I expect buyers to gain a little more leverage in certain segments. I expect condos and luxury properties to remain challenging. I expect desirable detached homes in strong neighborhoods to continue attracting attention.
If I've learned anything over the past few weeks, it's that predicting mortgage rates is a lot harder than predicting buyer behavior. The good news is that housing markets still follow many of the same seasonal patterns they always have. Spring is ending, summer is beginning, and the opportunities available to buyers and sellers will depend far more on their timing, property type, and goals than on whatever headline comes out next week.