Guess How Many Agents Transacted in Arlington

Question: How many real estate agents conducted business in Arlington last year?

Answer: There were 2,782 real estate transactions in Arlington that were recorded in the MLS in 2019, totaling $1.96B in sales volume. So how many different real estate agents do you think were involved in those transactions?

…2,217!!

Now keep in mind that there’s usually two agents on each side of a deal, but that’s still a ton of agents involved within a relatively small (26 square mile) community. Below are some interesting takeaways:

  • 59.4% (1,316) of agents did one transaction in Arlington and just .6% (14) agents handled 20 or more transactions
  • 1,496 different agents represented Arlington buyers with 1.1% (17) of them representing 10 or more buyers
  • 1,258 different agents represented Arlington homeowners on the sale of their home with 2.1% (26) representing 10 or more homeowners
  • Of agents who conducted two or more transactions in Arlington, the average agent conducted 4.5 transactions in Arlington
  • Keri Shull and her team once again lead Arlington in total transactions and volume by a wide margin, representing 119 buyers and 76 homeowners/builders, for a total of just over $133M in total volume
  • Other than Keri Shull’s team, no other agent/team represented more than 1% of the buyer or seller market in Arlington

Most studies suggest that consumers are less concerned with measures like sales volume and more focused on the strength of communication and trustworthiness of the agent they’re working with, but market expertise and experience are still important factors for most people.

While some may see the low barrier to entry to real estate licensing and high volume of agents as a negative, it also means that you have a lot of choices as a consumer and, with some effort, can make sure that you’re working with somebody who provides the type and style of service you’re looking for.

Question: Can you provide some clarity on how mortgage forbearance works and whether that will negatively affect my credit score?

Answer: I’ve received quite a few emails from folks considering mortgage forbearance or asking for clarification on (usually) incorrect information provided to them from friends or family about the process. We don’t have all of the answers yet, but enough information is available to help people make more educated decisions about forbearance.

To explain forbearance and some of the unintended consequences, I asked one of the top mortgage lenders in the DC Metro, Jake Ryon of First Home Mortgage, to join as a guest columnist. If you’d like to talk with Jake about a loan, refinance, or any other mortgage related question you can contact him at JRyon@firsthome.com.

Take it away Jake…

What is Mortgage Forbearance?

Congress passed the CARES Act, allowing those facing financial hardship due to COVID-19 to request a mortgage forbearance (pause in mortgage payments) for 180 days, with the option to extend for an additional 180 days.

The bill does not require you to provide proof that you’re suffering a hardship, but the CFPB makes it clear that if you can pay your mortgage, you should. However, not everyone is following that guidance and some borrowers who are able to pay are choosing not to and may suffer unintended consequences.

Mortgage forbearance is a temporary pause in payment; it is NOT forgiveness. All missed payments by the borrower must be paid back.

Repayment

Unfortunately, the repayment terms for a forbearance are vague. Statements from Fannie and Freddie indicate that you do not have to repay the missed payments all at once, but that it is for the borrower to work out with the servicer. If the payments are not paid back in a lump sum or over a designated period, but instead added to the end of the loan, the borrower is agreeing to a loan modification.

During a forbearance the servicer (the company you pay) is still advancing the monthly mortgage payments to the end investor. This has led to major issues for lenders, and as a response, tightened credit standards and made it more difficult to obtain a mortgage.

Unintended Consequences

While taking a forbearance is not supposed to negatively affect your credit, there are some unintended consequences I’d like to explain.

*Please note this is based on the most up to date information I could find and is subject to change as this is a fluid situation. Please reach out to your loan servicer directly for your options. *

Refinancing: This may vary by lender, but as I understand it, to be eligible to refinance, borrowers must be out of forbearance and current on their mortgage. This is a big concern if rates continue to fall throughout the year.

Repayment Terms: As mentioned earlier, there are options to repay the missed payments via a lump sum, over a repayment period, or modifying the term of the loan. Keep in mind the servicer must agree to the repayment plan.

I’m hearing that modifications are only being offered if there is documentation to show you’ve been adversely affected by COVID-19. This is going to be problematic for borrowers who didn’t lose their job and assumed their skipped payments would be tacked onto the end of their mortgage or forgiven.

Buying Your Next Home: Since this is so new, we haven’t seen any credit reports reflecting modifications as a result of COVID-19. It’s unclear how lenders and investors will treat these modifications when evaluating new loans.

For example, most investors want to see borrowers pay their mortgage on time for a minimum of 12 months after their modification begins. If someone takes the full 12 months of forbearance, they could be looking at a minimum waiting period of 2 years before obtaining a new loan.

Residual Effects to Your Credit: While the CARES Act says mortgage lenders won’t report you as delinquent during a forbearance, they can’t control how other lenders will view it. For example, if you’re a credit card company and you see a borrower is in forbearance, are you inclined to increase their credit limit or issue a new card? If your credit card debt is increasing and your available line of credit is staying the same or decreasing, it will most likely lower your score.

Weekly Arlington Market Snapshot

Thank you very much for your insights Jake!

Here’s a quick look at how the Arlington market performed over the past week, compared to the prior week. New inventory and the inventory pipeline dropped down to some of the lowest one-week levels we’ve seen this spring, while contract activity remained relatively strong.

Past Seven Days (Arlington) 
Seven Days Prior (Arlington)

If you’d like to discuss buying or selling strategies in this market, don’t hesitate to reach out to me at Eli@EliResidential.com.

April Real Estate Market Review

Question: How did the April real estate market compare to what you would have expected if we weren’t going through the COVID-19 pandemic?

Answer:

Expectations vs Reality

The 2018 Amazon HQ2 announcement sent demand up and supply down, creating a frenetic real estate market across Arlington and Northern VA in 2019 (2019 Review One and Two). The party continued into 2020, with rapid price growth and intense competition amongst buyers, setting the stage for the market to establish new highs. It also seemed that the volume of new listings would finally go up, after YoY increases in December and January, the first YoY gains since October 2018.

All of those expectations were put on hold when the Coronavirus outbreak shut down the economy two months ago. For the first 4-5 weeks, the market froze up, with buyers and sellers unsure if we were on the verge of a market collapse and how to safely navigate critical real estate activities. Over the last few weeks, demand seems to be coming back and there are signs that sellers are more confident in listing their homes, which should lead to more supply.

April 2020 Market Report

April was our first full month living with Stay-At-Home orders, so let’s take a look at how last month compared to April 2018/2019 and February 2020 (last full month of normalcy).

Extremely Low Supply

Low supply was part of every Arlington real estate conversation in 2018. Then Amazon came and supply got so bad that the County Board launched Housing Arlington, but 2019 felt like the trough. Then COVID-19 hit and April 2020 produced 18% fewer homes for sale than April 2019.

The condo market has been hit the hardest by low supply with an unfathomable 55% decline in condo listings in April 2020 compared to April 2018.

For additional context, new listings in April are usually 25-40% higher than in February, but this year they were only 10% higher and actually lower in the condo market.

Sharp Decline in Demand

Given the on-going competition and mostly stable housing prices, it may come as a surprise to those actively searching for a home that demand has dropped off significantly.

The rate of properties going under contract compared to the new supply dropped to pre-Amazon levels and the number of homes selling within one week of being on market dropped significantly. Condo demand suffered the most which I think is due to a combination of health concern about being in common areas and because it’s easy to delay a condo purchase with an extra 6-12 months of renting a comparable apartment.

While many homes are still getting great offers, sometimes multiples, I do see more homes sitting on the market that probably wouldn’t have in a non-COVID market. Homes with large buyer pools had so much demand before the virus that they can afford to lose a chunk of the buyer market and still generate strong interest. Homes with a more niche buyer market have had their smaller buyer pool evaporate in many cases and should prepare for a longer sales timeline.

Prices Seem Stable

The Coronavirus’ impact on pricing is still to be determined because it’ll take a while to build up enough data points to draw a reliable conclusion. Based on my experiences and those of my colleagues, it seems that there has been little or no impact on prices for most properties (with the exception of niche home, mentioned above), which can be attributed to relatively parallel declines in supply and demand.

Looking Forward

As society adjusts to new norms and the science community continues to bring us promising news on treatments and a vaccine, I think that we’re likely to see more confident buyers and sellers over the next couple of months, which will translate into higher demand and more supply. The impact on competition and prices will depend on which moves faster, but I expect demand growth to outpace supply, at least in the next 4-6 weeks.

The big unknown is if/when there will be another seismic jolt to our health and job security that will send sellers and buyers out of the market. It seems this fall is the most likely window for a second shockwave, but this summer is shaping up to be a strong real estate market locally.

If you’d like to discuss buying or selling strategies in this market, don’t hesitate to reach out to me at Eli@EliResidential.com.

Past Seven Days (Arlington) 
Seven Days Prior (Arlington)
Technology and Innovation in Real Estate

Question: How well prepared is the real estate industry to use technology and innovation to adapt to social distancing?

Answer: With around $2.3T in new and existing home sales in the US in 2019, you would think that the real estate industry would be a catalyst for technology development and innovation to support the purchase and sale of the most valuable asset most people will ever transact. Unfortunately, that’s not the case and the real estate industry often lags well behind other industries in technology adoption, innovation, and consumer experience. Why is that?

Role of Tech/Innovation in Real Estate

The conversation starts with one critical question – what is the role of technology and innovation in residential real estate? I’ve noticed two schools of thought amongst start-ups and innovators. One is that technology should reduce or eliminate the role of professionals (broker/agent, title attorney, lender) in the transaction and the other is that technology should improve the quality of service and efficiency of those professionals.

I’ll save a lengthy discussion on the value of (professional) real estate agents for another day, but history and many failed start-ups have shown that most consumers want professionals advising them during a home sale or purchase, despite numerous DIY options. I’ll also save commentary on people hiring non-professionals for 6 or 7-figure transactions J

It’s my opinion that the prevailing goal of technology and disruption in residential real estate is to help professionals deliver higher quality service more efficiently, which will in turn improve the experience and reduce cost (commissions/fees) for the consumer. I think it’s important to also improve technology that allows buyers and sellers who prefer a DIY approach, but that isn’t where the lion’s share of investment should be.

#1 Challenge: Fragmented Buying Power

The biggest challenge start-ups face in residential real estate is the fragmentation of the industry’s buying power, which makes widespread adoption difficult and expensive. Most real estate agents are independent contractors who make their own decisions about what systems and technology to pay for so a start-up/entrepreneur with a great idea has to convert tens of thousands (or more) of individuals instead of just a handful of decision-makers with large spending power.

Most agents are loosely organized into offices, brokerages, and brokerage franchises that theoretically have stronger buying power to support start-ups, but it can be difficult to find technology that will be useful for, or adopted by, enough agents and their clients to justify the cost of organization-wide implementation because of so many niche practices and the independent nature of agents. As they say: technology made for everybody, is good for nobody.

Some brokerages implement top-down in-house technology development and have produced great platforms/systems as a result, but even those technologies lack the disruptive innovation industries need from start-ups because they can’t risk their core business on failed technology development.

Many of the large brokerages that practice top-down technology development suffer from common ailments like expensive systems becoming legacy systems before they generate enough value to justify the cost. The cost of in-house development is too high in many cases, which is why many of the technology/disruptor-branded companies announced the first and largest furloughs/layoffs in the industry just a few weeks into the COVID-19 pandemic.

There is a massive opportunity for disruptive technology in residential real estate, but the fragmented nature of the industry makes it difficult for great start-ups to get off the ground and reach profitability fast enough to survive. This is one reason why VC money has poured into the PropTech (Property Technology, which also includes commercial real estate) industry over the last few years, with investments increasing from $491M in 2013 to $12.9B in the first half of 2019.

Widespread Technology Adoption

Let’s take a look at some of the few real estate innovations that have been implemented on a broad scale to improve the consumer experience and transaction efficiency, that are also supporting social distancing:

  • Search: When Zillow brought search to the consumer in 2006, it changed the game by empowering consumers with valuable listing information. As an agent, I appreciate having informed clients because it means I don’t have to deflate dreams of buying a $400,000 six-bedroom mansion in Arlington, Zillow does it for me! I don’t think there’s been a more disruptive and valuable technology in real estate than consumer search.
  • Digital Signature: It wasn’t long ago that every offer, counter offer, and correction required a printer, pen, and scanner/fax but with the widespread implementation of digital signatures contract work has gone from taking hours to minutes and accommodates social distancing.
  • 3D Tours: Lightly used prior to the Coronavirus pandemic, 3D tours have become a critical marketing tool during social distancing. It allows interested buyers to explore most nooks and crannies of a home from their phone or computer, limiting the need for physical access (presumably) to only the most interested/motivated buyers.
  • Live Virtual Tours: FaceTime, Facebook Live, and other live video applications aren’t unique to real estate but have become popular for virtual Open Houses and showings for buyers who cannot leave their home during quarantine.
Next Generation Technology/Innovation

It’s hard to know what the next true breakthrough in real estate technology will be (or maybe I do!), but I’ll highlight a few things that I’d like to see or expect to see developed in the next decade to improve the consumer experience and transaction efficiency:

  • Dynamic/Predictive Search: Home-buying decisions aren’t binary, they’re weighted/sliding scale decisions, yet search is relatively binary and close-ended. Meaning you either want a pool or you don’t. You want 3-4BR and to spend $X-$Y. Current search options don’t consider the weighted value of different criteria and if/then nature of trade-offs people make, so I’d like to see search become more dynamic and help people search the way they think.
  • Immersive Virtual/3D Tours: Most people are doing 3D tours from their phone or computer screen, but the technology is mostly there to allow those tours to become more immersive through Virtual Reality headsets. I envision a day when buyers do 15 showings in three hours with their agent from their respective living rooms, using shared immersive virtual technology to tour the properties together. Once they narrow down the best options, they’ll go to see only the top choice(s) in person.
  • Augmented Reality: We’ll likely see this coupled with more immersive virtual reality but soon you’ll be able to rapidly redecorate and remodel virtually
  • Blockchain: This one warrants more than a few sentences of discussion, so I’ll let this article from the National Association of Realtors do the talking for me.
  • Virtual Closings: While many states, including Virginia, allow virtual closings using an e-notary (no in-person signing required) banks have yet to get on-board so, in most cases, the only transactions that can close virtually are cash deals. There’s no doubt that COVID-19 will accelerate banks’ acceptance of virtual closings and eliminate the need for both parties to meet with a title attorney or notary to sign documents in person to consummate the sale.
Arlington Market Update

I don’t want to miss my check-in on the Arlington market during this critical time, so here’s a look at the last seven days of market activity compared to the previous seven days.

We took a huge hit in total inventory over the past week with a decrease in new listings, but a sharp increase in contract activity. This reflects what I’ve personally experienced in the market over the last few weeks which seems to be increasing demand with very little new inventory.

As of 7:30AM April 28, we only have 231 homes for sale. We averaged 245 for sale in April 2019, which was a historical year for low inventory. Of the 260 homes currently under contract, 134 (51.5%) went under contract within one week.

Past Seven Days (Arlington) 
Seven Days Prior (Arlington)

If you’d like to discuss buying or selling strategies in this market, don’t hesitate to reach out to me at Eli@EliResidential.com.

Landscaping To Improve At-Home Living

Question: We want to make our time at home more enjoyable by improving our outdoor space. What are some of the most common landscape/hardscape improvements you see in Arlington?

Answer: After six weeks in a row of Coronavirus market analysis/updates, I thought it would be a nice change of pace to talk about some ways you can improve your outdoor space to make staying at home more enjoyable. A nicely landscaped yard can also provide a strong return on resale, especially while stay-at-home orders are fresh in buyers’ minds.

To provide the best perspective on popular landscaping projects around Arlington, I asked Robert Groff of Groff Landscape Design, an Arlington-based landscape and hardscape firm, to share some of the most popular projects they do.

Thank you for sharing your insights Robert, take it away…

Thank you Eli and hello ARLnow. If all of this time at home has inspired you to invest in your outdoor space, I hope some of these projects are an inspiration.

April Showers Bring…Wet Basements and Mosquitos

We’ve all been reminded lately to be prepared for possible threats.  Now is the time to make sure rainwater is directed away from your home foundation and mosquito breeding grounds (standing water) are minimized.

Create Family Experiences

Patios – Patios are not only for dining and grilling anymore.  Patio activities can include yoga, outdoor office, study space, play space or even an outdoor movie theatre! With infinite amounts of material options here are our top recommendations:

  • Least Expensive:  Concrete Slab – In our region, concrete cracks but when necessary it absolutely has its place. 
  • Most Dynamic & Most Popular: Concrete Pavers.  We highly recommend Techo-bloc manufactured materials because of their lifetime warranty, density rating and wide range of colors, textures and styles https://www.techo-bloc.com/.
  • Favorite for Contemporary Style:  Porcelain Tile for Exterior Use https://www.architecturalceramics.com/portfolio/exterior.html.
  • Natural Stone: Flagstone is still extremely popular especially for our traditionalists!

Fire Pits – Fire pits can be wonderful, and they come in all shapes and sizes.  Consider if you want gas or wood burning.  How many times per year will you use it?  Would an outdoor heater be more beneficial to you? 

Vegetable Gardens – These can be excellent teaching tools for your children, and they can let you skip a trip to the produce aisle. They don’t have to be A LOT of work!

Playsets – With the public parks closed, maybe it’s time to get that playset for the kids.  Conversely, maybe it’s time to finally get rid of your playset to make space for a larger entertainment area or more usable yard space?

Lawn Space You Can Use – Many of us have muddy or sloped back yards. Grading, drainage solutions and tree trimming may all be pre-requisites before you add new grass seed or sod.

Fencing – Struggling to keep your eyes on the kids and work all day?  A fence could bring comfort that your kids are safe and sound.  Is it time for that puppy you have been considering?

Outdoor Kitchens –  Although popular, these can cost a pretty penny and sometimes quite frankly aren’t worth the investment.  Specifically, utility needs, countertops and custom appliances elevate costs quickly. Alternatively consider a “grilling nook” to re-locate your grill or smoker. This may increase counter space while creating a more aesthetically pleasing grilling station.

Grilling Nook
Outdoor Kitchen

Health & Wellness Space – If you need a clean and green place to get your yoga time in, consider synthetic turf. Benefits to turf also include no more muddy paw prints.  No more watering.   Plus, it’s easy to clean and dog friendly. 

Relaxation – With everybody home you may want to design a small get-a-way in a corner of the yard to go read a book, sip a glass of wine or simply phone a friend.

Replace your Vacation with Staycation

If you had to cancel your vacation plans this year, maybe it’s time to create a “staycation” in the back yard with any of the above elements.  Consider creating more privacy from neighbors, outdoor lighting for ambiance, an audio system so you can hear the waves crashing on the beach or perhaps a pool!  We don’t know when we’ll be able to travel safely again so perhaps vacation just needs to be at home for a while.

With so many options, let us help you pick & choose and make them a reality!  For outdoor living ideas you can also follow us on social media:   https://www.grofflandscapedesign.com/social-media/.

Arlington/Local Market Update

Thank you very much Robert! Before we wrap up this week’s column, I wanted to include a quick overview of Arlington market activity over the last week.

My colleagues and I are actually seeing more competition over the last couple of weeks both within Arlington and around the DC Metro. It seems like the decline in supply is outpacing the decline in demand and that buyers are starting to come back to the market who had taken a pause through the first few weeks of the COVID-19 outbreak.

There was a slight increase in the amount of new inventory coming to market in Arlington over the last seven days, but that was offset by an almost equal increase in properties going under contract.

Past Seven Days (Arlington) 
Seven Days Prior (Arlington)

If you’d like to discuss buying or selling strategies in this market, don’t hesitate to reach out to me at Eli@EliResidential.com. Be smart, be careful, be strategic. And stay home!

Impact of Coronavirus on the Real Estate Market, Pt 6

Question: What has been the impact of the Coronavirus/COVID-19 on the real estate market?

Answer: In this week’s review of how the COVID-19 pandemic is impacting real estate, we’ll take a look at how Arlingtonians think Coronavirus will change their personal finances, how the Arlington market performed over the last seven days, and how the virus is changing the mortgage industry.

Arlingtonians Still Confident

Thank you to everybody who participated in the poll last week, we collected some really valuable information about how Arlingtonians think the virus will impact their personal finances.

Out of 1,055 respondents, 50% feel that their personal finances will either not be negatively impacted or that the impact won’t last more than six months. Over 70% of respondents don’t expect the negative effects to last more than 12 months.

These results reflect a strong local consumer (buyer) confidence and would suggest that local buyers still have enough confidence in their finances/income to make a long-term investment, like buying a home. When you consider the recent McKinsey study (below) on the most vulnerable jobs, you can see why Arlingtonians, many of whom make over $70k/year, remain confident in the face of a global economic crisis. Income/job security is likely the most important consideration for people determining what the negative impact of COVID-19 will be on their personal finances.

Arlington Market Update

New inventory tanked over the past week and we saw the largest week-to-week drop in the number of properties that went under contract. It’s hard to say for sure whether the decline in contract activity is demand-based on a result of less inventory, but it’s likely a combination of the two.

With very little new inventory coming to market and the Coming Soon pipeline drying up, total inventory is dropping quickly, which should keep home values relatively protected, despite declining demand.

Past Seven Days (Arlington)
Seven Days Prior (Arlington)

Showing activity is down significantly compared to a normal spring market, but it seems to be stabilizing at an average of 4-5 scheduled showings per week on properties listed in Arlington. I think that significant increases/decreases in showing activity will be a leading indicator of how the market feels about the risk of Coronavirus to public health and the local economy.

Major Changes To Mortgages

The mortgage industry has experienced rapid and impactful changes over the last month that will surely change demand for months or years to come. I checked in with Jake Ryon of First Home Mortgage (JRyon@firsthome.com) on the top three ways Coronavirus is impacting the mortgage business.

Elimination of Products/Tightening of Requirements

Mortgage products are designed around a bank’s ability to accurately predict a borrower’s ability to repay their loan, so as economic uncertainty rises, a bank’s ability to forecast borrower risk decreases and banks become more risk averse.

As a result many loan products not backed by the Federal Government are being eliminated including loans like sub-20% down payment jumbo loans without Mortgage Insurance (a popular mortgage product locally), Non-Qualified Mortgages (borrowers with lower credit scores or high debt-to-income ratios), and mortgages for investment properties. I’ve also heard that Second Trust loans, a popular product that allows you to purchase your next home without making it contingent on the sale of your current home, may be up next for elimination.

In cases where products aren’t being eliminated, some products have tighter borrowing standards like higher reserves or credit scores.

I suspect that changes to jumbo loan programs and a potential elimination of Second Trust loans will have a material impact on the DC Metro’s ~$1M-$1.5M market.

If you’re currently searching for a home, you should regularly check-in with your Loan Officer, especially before making an offer, to confirm that the loan product you plan to use still exists and the requirements haven’t changed.

Interest Rate Volatility

Interest rates hit all-time lows in the beginning of March, but a week later spiked in response to an overwhelming rush of refinances. The first half of March was one of the most volatile periods for mortgage rates ever, including the most volatile day ever. Since the Fed stepped in with liquidity, rates have stabilized, but are still relatively volatile.

Rate volatility is generally bad for demand because buyers take comfort in certainty. Here’s a chart showing rate movement over the last six months to highlight how crazy the last six weeks have been:

Increased Loan Forbearance

Loan forbearance (temporary pause on mortgage payments) is skyrocketing in the US, and will likely be another exponential chart to watch over the next few weeks/months. Borrowers pay a Servicer (lender) and the Servicer pays investors, who are guaranteed to receive their payments from Servicers even if borrowers stop paying. This has led to a massive liquidity crunch for many lenders and put their businesses in jeopardy of failing, despite efforts by the Government to relieve the pressure.

https://ci5.googleusercontent.com/proxy/MibKUDdVZ2qrv2k_GJPswXrC-P3vbvz-A_LZLUpCKDDaA0YonxXQX0jLflPyBmyetHNa2IhYnfVtGIP4SeOwEg_4h_Ti7UPfLayIMuGS7A=s0-d-e1-ft#https://mba-erm.informz.net/mba-erm/data/images/04102020.jpg

If you’d like to discuss buying or selling strategies in this market, don’t hesitate to reach out to me at Eli@EliResidential.com.

Be smart, be careful, be strategic. And stay home!

Impact of Coronavirus on the Real Estate Market, Part 5

Question: What has been the impact of the Coronavirus/COVID-19 on the real estate market?

Answer: I hope this column finds everybody in good health. If you need to replenish your cooking oils and haven’t tried The Olive Oil Boom before, I highly recommend it. It’s a local shop in Courthouse that my wife and I love. My personal favorite is the Harissa olive oil.

If you have some local favorites that you’d like to help stay in business during tough times, please give them a shout-out in the comments section and note a personal favorite product/dish!

Financial Confidence Poll

Buyer confidence drives real estate demand, so I’d like to do a reader poll this week to measure the confidence of Arlingtonians. Thanks for participating!

Question: How long do you expect the effects of the Coronavirus pandemic to negatively impact your personal finances?

Arlington/Regional Market Update

Regionally and locally we’re seeing the pipeline of new inventory dry up and sellers lose confidence. The two charts below reflect market activity in Arlington over the past seven days (left) and seven days prior to that (right). While the total Coming Soon and New Active for each seven-day period is almost identical, the Coming Soon pipeline was cut in half. You’ll also note huge increases in the number of price reductions and properties pulled off market (Temp Off, Withdrawn, Canceled, and Expired).

Demand is dropping, but homeowners are experiencing it in different ways. For example, the markets that were hyper-competitive prior to the COVID-19 crisis, such as the $600k-$900k single-family starter home market that was seeing double digit offers, are still getting strong offers, and in some cases, multiple offers. For those homes, even a 60-70% decline in demand means a few offers instead of 10+.

I inquired on five homes this weekend for two separate clients. Each was a move-in-ready detached single-family home in Arlington, Falls Church, or Alexandria priced from $695k-$875k. All five had at least one strong offer, four were expecting multiples, one had two pre-inspections scheduled and one got seven offers.

However, the number of price drops and listings being pulled from the market shows that many homeowners are experiencing something different. If your home was likely to get one strong offer before the Coronavirus lockdown, a significant drop in demand can easily mean no offers and a longer wait for the right buyer to materialize.

To gauge the odds of a successful sale (quick sale, at/near asking price), homeowners should be conscious of the profile of the buyer(s) most likely to purchase their home and try to understand how their motivation and financial security has been impacted by COVID-19. For example, dual-income families are likely feeling more financial security than single-income buyers. Buyers with kids are often more motivated because they likely have fewer alternatives than somebody buying a 1-2-bedroom condo who can more easily find a comparable rental apartment until the economy is back in order. Further, families with kids are generally buying with a longer ownership horizon and thus able to outlast whatever economic recession/depression is brought on by the virus.

Past Sever Days (Arlington)

Seven Days Prior (Arlington)

Are Prices Dropping?

Although some homes are still selling for their pre-COVID prices (which shouldn’t be happening, in my opinion, given the amount of uncertainty/risk in the market), I suspect that most homeowners are settling for a few percent less than what they would have pre-Coronavirus. You can also argue that they’re taking an even greater loss than what they would have gotten in the peak spring market (right now) had Coronavirus never been a factor.

I think that for most of the DC Metro, that’s the appropriate discount at this time, considering what we do and do not know about the future of the national/regional economy.

The price drop that most people are worried about or looking forward to, depending on which side of the transaction you’re on, is a double-digit drop like we saw during the Great Recession 12 years ago. There are myriad inputs that factor into real estate prices, but the simplest is supply and demand. If you’ve been paying attention to real estate in Arlington or the DC Metro, you know that we’ve suffered from a historically low supply of homes for sale, driven by both a lack of new inventory and high demand.

Econ101 tells us that in order for there to be a significant price drop, demand will have to recede substantially more than supply. There’s no doubt that an on-going economic shutdown will significantly reduce demand, but if changes to lending practices over the last decade and financial support from the government allow people to keep their homes, inventory will likely plunge as well. So long as inventory and demand are dropping by somewhat similar amounts, we may not see the type of dramatic price drops we saw in 2008.

To highlight just how bad the supply is around here, I pulled charts showing the months of supply in Arlington, Northern VA, and the DC Metro over the last 10 years. Note that most economists agree that a market is fairly balanced for buyers and sellers when there’s ~6 months of supply.

I also added a chart showing the corresponding change in median sold price for Arlington during that same 10 year period.

https://cpp1.getsmartcharts.com/chart/mls/1/getreport.php?rid=60&ftid=2&fid=1000&gty=120&ltid=4&lid=51013&gid=2&cc=0000dd&sid=0&mid=0&tt=2&mode=4
Months of Supply for Arlington County
https://cpp1.getsmartcharts.com/chart/mls/1/getreport.php?rid=6&ftid=2&fid=1000&gty=120&ltid=4&lid=51013&gid=2&cc=0000dd&sid=0&mid=0&tt=2&mode=4
Median Sale for Arlington County
https://cpp1.getsmartcharts.com/chart/mls/1/getreport.php?rid=60&ftid=2&fid=1000&gty=120&ltid=2&lid=1006&gid=2&cc=0000dd&sid=0&mid=0&tt=2&mode=4
Months of Supply for Northern Virginia
https://cpp1.getsmartcharts.com/chart/mls/1/getreport.php?rid=60&ftid=2&fid=1000&gty=120&ltid=2&lid=1034&gid=2&cc=0000dd&sid=0&mid=0&tt=2&mode=4
Months of Supply for The DC Metro

If you’d like to discuss buying or selling strategies in this market, don’t hesitate to reach out to me at Eli@EliResidential.com. Be smart, be careful, be strategic. And stay home!

Ask Eli: Impact of Coronavirus on the Real Estate Market, Part 4

Question: What has been the impact of the Coronavirus/COVID-19 on the real estate market?

Answer: I hope you and your families are healthy and finding some productive ways to remain safely at home. It’s been great to see so much carryout and delivery activity at local restaurants, I hope we can keep our favorite establishments in business.

I want to shout out the Sunday evening manager at the South Arlington Ledo Pizza for the way he was expressing constant, sincere appreciation to every employee hard at work and each customer who came in. It was refreshing to hear such positivity.

This week I’ll cover some real-time market updates and take a look at how past recessions have impacted real estate.

March 30 Stay At Home Order — Executive Order 55

Yesterday afternoon, Governor Northam announced EO 55, at Temporary Stay At Home Order due to COVID-19 to further discourage gatherings and personal contact.

There was an immediate concern across the real estate community that the new order effectively shut down all real estate operations, but soon after Northam’s announcement, the Northern Virginia Association of Realtors (NVAR) and the Virginia Association of Realtors (VAR) announced that under EO 55, real estate business may continue to operate using best practices for social distancing and other measures recommended by the CDC, as well as avoiding any gatherings of 10+ people. Here is a link to the official NVAR comments.

That means that as of this morning showings, inspections, appraisals, closings, lending and other activities critical to a real estate transaction are all still allowed in Virginia/Northern Virginia. Public Open Houses are strongly discouraged and many companies have suspended them.

Personally, I think showings are the most questionable activity because you can make a strong case in both directions. If somebody needs to find a home, it’s fair to say that they need to see the home in person before making an offer. On the flip side, somebody seeing five properties on a Saturday afternoon to prepare for a purchase 6 months from now should not be out on showings. There’s certainly a level of personal responsibility required here.

Arlington Market Update

It seems that much of the Arlington and Northern Virginia market has softened in the past week. This is based on further decreases in showing activity and the negotiations I’ve been directly involved in or aware of via colleagues. We won’t have actual price data available for another 3-4+ weeks when homes start closing that were placed under contract during the COVD-19 lockdown period.

New inventory continued to flow into the market, but was down from the previous week. A healthy 63 homes went under contract, showing that there are still buyers out there, but many of them are likely securing better terms than they would have a month ago, and facing much less competition.

Arlington market activity over the last week

Showing activity is unsurprisingly very low, with the average showings per listing dropping to 2.25 over the past week. With an average of about 15 showings before a ratified contract, expect average days on market to start increasing. However, the showings that are taking place tend to be to ready-buyers so it should take fewer showings than it used to for the right buyer to surface.

Average showings per listing in Arlington last week
Real Estate During a Recession

The economy is in bad shape and it could get a lot worse. It’s way too early to make any predictions about the real estate market 6-24 months from now until we know just how long Coronavirus will keep businesses closed and consumers at home.

What we can do is look at the real-time/near-term impact (what I’m trying to cover every week) and what’s happened in past recessions. The 2008 crisis crushed real estate across the country (Northern Virginia/D.C. Metro fared relatively well) and is fresh on everybody’s minds, but it’s important to note some key differences between the Great Recession and other down markets.

First, that was a mortgage-based crisis so the real estate industry was hit directly. Second, prices were up despite high supply because demand was artificially high due to absurdly irresponsible lending practices that allowed people to buy much more than they could afford via low/easy entry into loans.

Mortgages over the last decade are much more conservative than the mortgages that led to the Great Recession. There are strict debt-to-income and credit limits, and predatory products/practices like zero interest balloon loans are all but eliminated from the market.

So the recent price appreciation is driven by a more natural supply/demand curve. Low supply because we’ve run out of land to build on and strong demand from much more qualified borrowers.

In three of the last five recessions, housing prices actually increased, as illustrated by the chart below from Attom Data Solutions and in a similar study by First American of the last three recessions, showing the dramatically different impact the 2008 crisis had on housing prices compared to other recessions.

Conclusion

I want to be absolutely clear that I’m not suggesting everything is going to be fine or that the real estate market won’t take a significant hit. That type of messaging from real estate “professionals” irks me almost as much as the idea that a market can simultaneously be great for buyers and sellers… that’s not how markets work (can’t help myself from the Esurance meme)!

It seems almost certain that negotiation leverage will favor buyers over the next 4-6 weeks. The critical question is whether or not buyers will have even more leverage months from now or whether markets will begin stabilizing, then return to the hyper-competitive market we had just a month ago.

The fact is that we have never experienced a complete economic shut-down like this, nor do we know how long it will last, and economic/real estate forecasting models aren’t tuned for this. It’s still too early to say with any level of certainty right now what the mid/long-term fallout will be for real estate or any other industry.

Be smart, be careful, be strategic. And stay home!

Impact of Coronavirus on the Real Estate Market, Part 3

Question: What has been the impact of the Coronavirus/COVID-19 on the real estate market?

Answer: I hope you are all staying healthy and sane(ish). My wife and I are trying to wrap our heads around school being canceled through the end of the academic year…yay!

Over the last two weeks, my Coronavirus columns (one and two) have included mostly anecdotal evidence on the impact of COVID-19 on the real estate market, but now we’ve been in this for long enough that I can start using market data to measure the true effects. It will be at least a few more weeks before we can measure the effect on prices, but we can look at things like supply, showing activity, and contract activity now.

What I’m Seeing/Hearing

This past weekend, most Open Houses were canceled and over the last week showing activity has dropped off dramatically. However, there are still plenty of active, motivated buyers making offers. What I’m seeing/hearing right now in the DC Metro market is that competition is down, prices haven’t taken much of a hit (yet), and new listings are still coming onto the market.

Mortgage rates had their most volatile week ever last week as investors basically stopped buying mortgages on the secondary market, but the Fed stepped in and has promised to stabilize the market until our economy [hopefully] returns to normal. Here are two (one and two) good reads on what happened last week to mortgages.

Impact On The DC-Area Economy

While not real estate specific, I want to share the excellent work of Jeannette Chapman, Director of the Stephen S. Fuller Institute at our very own George Mason University, which takes an in-depth look at how Coronavirus is likely going to impact the DC-area economy, based on current projections. Notably, they determine that the DC-area will not be as insulated from this recession as the 2008 financial crisis. Be smart, be careful with your money folks.

While I’m slightly off the topic of real estate, I wanted to share a great website for tracking global and domestic COVID-19 data in real time, with helpful visuals. This website was shared with me by Arlington resident/Mom Elissa David, who owns the Unbroken Body to help Moms heal their bodies after pregnancy. She has temporarily turned her website into a resource for all of us parents who have suddenly become home school teachers!

Now let’s jump into some relevant real estate market data.

Market Data
SUPPLY

The number of new listings this past week in Arlington jumped 27% over the same week last year and 6% over two weeks ago. The DC Metro experienced less dramatic increases in new listings, but increases nonetheless.

Anecdotally, it seems many homeowners who were planning to sell in the next 4-8 weeks are accelerating their timeline, fearing the uncertainty of the future economy. A boost in inventory from motivated sellers while demand continues to fall (see below) could lead to a drop in prices in the near future.

Nationwide, the number of listings pulled off the market spiked over the past week.

Time PeriodArlington New ListingsArlCo+FfxCo+DC+MoCo New Listings
Past Week841,311
3rd Wk March ’19661,253
Two Weeks Ago791,280
Three Weeks Ago861,315
SHOWINGS

The average number of showings per listing in Arlington (first chart) have dropped each of the last four weeks from 10.44 showings four weeks ago to 2.91 showings this past week.

Showings in Washington DC have dropped by 41.4% compared to this time last year. The tool I have to generate this data only offers statewide info, so I chose to use Washington DC (yes, I know it’s not a state) instead of Virginia because the Washington DC market is much more reflective of Northern VA than the Virginia market. Showings are down 32.9% across North America.

Arlington Data
CONTRACTS

While some buyers still find themselves competing with other offers, the amount of competition in the market is down significantly. From the first week of February through the first week of March (five weeks), 61% of homes listed for sale in Arlington went under contract within seven days. Two weeks ago (first full week of our daily lives being disrupted by COVID-19), that dropped to 52%, and this past week only 33% of homes listed went under contract within seven days (that number will likely increase into the 40s over the next 2-3 days).

It’s worth noting that the market would normally be selling even faster this past week than it did the previous 5-6 weeks as we move into peak buyer demand season.

What Other Industry Service Providers Are Seeing

I spoke with some other industry service providers to see how their numbers looked over the past week. The title attorney and lender I spoke with saw a significant spike in the number of ratified purchase contracts they received. On the other hand, the inspector I work with saw their numbers drop dramatically.

INSPECTIONS

I spoke with Ken Humphreys, the Area Manager of Virginia and Maryland for BPG Inspections, one of the largest inspection companies in the country, and their total inspection in Virginia and Maryland were down 37% last week. They’re currently on pace to be down 45-50% this week.

TITLE

Sarah Anderson, Managing Attorney for Universal Title’s Arlington Office, shared with me that they received 35 contracts last week. They had received 75 contracts over the previous three weeks combined.

MORTGAGE

Jake Ryon, a Loan Officer with First Home Mortgage, told me that he’s been averaging 2.2 purchase contracts per week this year, and last week he received eight (crazy!).

A local lender I spoke with surveyed their appraisers on COVID-19 related questions and learned the following from 272 respondents:

  • 7.35% are no longer performing interior inspections
  • 47.43% are performing interior inspections but will likely stop if the situation deteriorates
  • 45.22% anticipate being able to perform interior inspections with precautions for the duration of the situation
  • 22.06% have heard from at least 1 borrower, Realtor, or entry contact who will not permit the property to be inspected
Guidance?

While the future of public health and our economy are still extremely uncertain, the best anybody in the real estate industry can/should offer is a pulse on the current market with a very short-term outlook. Be wary of any advice you receive about what markets/life look like 3, 8, or 20+ weeks from now because nobody knows. Be especially wary of anybody promising that this will be a blip in the market and we’ll be back to normal come late summer (I’ve heard a lot of this talk).

In times like these, buying and investment decisions should be made based on long (5+ year) time horizons and you have to plan for best- and worst-case scenarios. If you’re considering selling your home, you have to acknowledge the massive amount of uncertainty even just a few weeks from now.

Be smart, be careful, be strategic. And stay home!

Impact of Coronavirus on the Real Estate Market, Part 2

Question: What has been the impact of the Coronavirus/COVID-19 on the real estate market?

Answer: What a difference a week makes. Last Tuesday I started off semi-apologetic for writing what felt like a click-bait article at the time and this week it feels like writing about anything else would be absurd.

Last week I wrote that the impact of COVID-19 on real estate thus far was business as usual with a few big “What Ifs.” Those What Ifs came to fruition within 24-72 hours of Tuesday’s column – major changes to our daily routines (school closures, work closures) and significant changes in the global/domestic economy.

It is no longer business as usual in real estate, but the show still goes on for most buyers and some sellers…for now.

This week and in the following weeks I will do my best to communicate the impact of the Coronavirus on the local real estate market through my experiences, experiences shared by my colleagues/industry partners (inspectors, lenders, etc), and market data.

What I’m Seeing/Hearing

Combining the reactions of my clients and clients of the 15-20 agents I’ve spoken with over the last few days to gauge shifts in supply (sellers) and demand (buyers), it seems that many/most buyers are staying the course with their purchase but the jitters seem to be setting in more over the last couple of days, especially for those who also need to sell a home. Sellers are much more nervous, understandably so, and many are questioning their need/plans to sell their home.

Most agents experienced noticeable drops in Open House and showing traffic over the weekend, although I spoke with a few agents who hosted 20+ groups during an Open House. My guess is that there are fewer people visiting homes who aren’t serious/ready buyers and that usually makes up a large percentage of total foot traffic.

Many of the agents I spoke with who submitted an offer this weekend still found themselves competing against multiple offers with strong terms, but the number of competing offers seemed less than what they would have expected a few weeks ago. I experienced this on a house in South Arlington that 2-3 weeks ago would have probably gotten 5-10 offers, but my client was up against just one or two, albeit strong, offers (they won!).

I think one of the best measures of buyer demand/activity is home inspection bookings. I spoke with Ken Humphreys, the Area Manager of Virginia and Maryland for BPG Inspections, one of the largest inspection companies in the country, and he shared some valuable insights on his activity, as well as regional and national activity.

Almost all of Ken’s business is in Northern VA and during a hot market (like the last 8 weeks) he’s often booked out for 5-7 days. His schedule is full this week Monday-Wednesday but wide-open starting Thursday, which never happens.

In Virginia and Maryland, their bookings are down 15% from where they were last week and they were projecting a 10% increase in bookings this week over last, given the time of year. Bookings are down about 20% nationally.

Transactions Still Going

There was some concern that transactions would be halted due to courts, appraisers, and loan underwriters shutting down due to Coronavirus but so far everybody is operational, with some adjustments to adhere to social distancing practices.

Arlington County courts, like many others, have restricted walk-in business but essential services are still available which includes e-recording of deeds (allows property ownership to officially transfer). Lenders and appraisers are still operational, but people should prepare for longer turn-around times. The slowdown on appraisals is actually due to the massive spike in refinancing over the last few weeks when mortgage rates dropped to all-time lows (spiked back up last week due to heavy volume).

Unfortunately, virtual closings aren’t widely accepted yet so buyers and sellers do need to sign in-person in the presence of a notary, so somebody in quarantine or older buyers/sellers who don’t want to mix with the rest of the population will need to take steps to ensure safe distance and cleanliness in order to sign paperwork.

What To Expect

Nobody knows what life and the economy will look like 4-8 weeks from now, but at this point in time, it’s my takeaway that supply is likely to take a bigger hit than demand, but both will have a noticeable drop-off.

It’s still a little too early for me to use listing and contract activity data to see how the market is reacting, but I’ll have enough to work with by next week’s column to present actual market data.

Stay healthy everybody!