Question: I have heard mixed opinions on whether single-family homes appreciate faster than townhouses and condos. Do you have any data that addresses this?
Answer: On an aggregate level in Arlington, single-family detached homes appreciate faster than townhouses, which appreciate faster than condos. Over the last ten years, the median single-family home has increased from a median purchase price of $630,000 to $850,000 (35% increase), the median price of a townhouse has increased from $542,000 to $696,500 (28.5% increase) and, condos have increased from $350,000 to $392,000 (12% increase). Below is the chart for the median purchase price, broken out by housing type, in Arlington over the last ten years:
Key Takeaways
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One may assume that the appreciation of single-family homes over the last five years is mostly attributed to so many old, less expensive homes being replaced by expensive new homes. However, by using median price instead of averages, we know that the appreciation exists across the entire single-family market. The appreciation in average price is less than the median suggesting there’s stronger appreciation in the middle of the market than at the top or bottom.
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As with any asset class, growth is directly correlated to risk and the historical appreciation of each housing type is reflective of the risk of ownership. Condo owners benefit from much more predictable and relatively low repair/replacement costs (mostly bundled into condo fees) than single-family owners who are responsible for anything that happens on their property (e.g. basement springs a leak and water line breaks in 6 months, you’re on the hook for tens of thousands without notice). You also tend to find condos centered around metros and dense office/retail centers which stabilizes market value during down years.
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Scarcity also plays a role in the higher appreciation of single-family homes in that it is much easier to introduce a new supply of hundreds or thousands of condos (and rental apartments) into Arlington than it is to new single-family homes or townhouses.
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The above chart aggregates all homes in Arlington within each housing type, but it’s not hard to find sub-markets within each housing type that offer better or worse historical appreciation. For example, In December 2017 I ran an analysis on appreciation of condos built from 2000-2008 and found growth of 13% and 20% for one and two-bedroom units, respectively, from 2010-2017. The conclusion? There are good deals and bad deals all over the market, so don’t rely on a single chart or data point.
I hope everybody had a great Fourth of July!
