Are Home Warranties Worth it?

Question: Do you think it’s worth it to buy a home warranty and, if so, is there a provider you recommend?

Answer: Last week I talked about mitigating the risk of not doing a home inspection and failed to mention that purchasing a home warranty can also help reduce the risk of buying a home, regardless of whether or not you do an inspection.

What Is a Home Warranty?

Home warranties protect many of the systems in your home including things like the HVAC (heating and cooling), appliances, and water heater. If one of those systems stops working while you’re covered, the warranty provider will repair or replace the system, or cut you a check to replace it yourself. One year of protection generally ranges from a few hundred dollars to one thousand dollars, depending on the scope of coverage.

Most home warranties are purchased by or for a homebuyer just before closing, but sellers can also purchase a warranty and benefit from protection during the sale period, or if something comes up on the home inspection, then transfer the protection on to the buyer. Homeowners can also buy a warranty at any time after buying a home, it doesn’t have to be associated with a sale. The provider usually requires a month or so between the time of purchase and coverage taking effect to prevent people from buying a warranty just when something goes wrong (pre-existing condition).

Are They Worth the Cost?

I generally find home warranties to be worth the cost for at least the first year of ownership. If the home you’re buying has old systems, consider buying multi-year coverage. Think of the expense like you would home or auto insurance. If you’re somebody who prefers to pay higher premiums for more coverage/peace of mind, a home warranty probably makes sense for you.

A common scenario I see where home warranties pay-off is with HVACs when a new owner transitions from heating to air conditioning in the spring. During the winter, it’s often to cold outside to test the air conditioning during the home inspection so AC issues may present themselves after closing. With a home warranty, those issues should be covered.

Recommendation: Super Home Warranty

Warranty companies tend have bad reputations with complaints ranging from difficulty filing claims, low quality contractors, and lengthy delays. There were a few years that I stopped recommending warranties to most clients because of all the issues people were experiencing.

For the last ~5 years I have been recommending Super Home Warranty and have their coverage on my personal home. They’re responsive, have a good user platform/app, use high quality contractors for repairs, and I’ve yet to run into an unreasonable claim denial.

They also have some valuable inclusions that other warranty companies don’t offer like a contractor concierge that gives you access to their vetted contractors and a bunch of add-on services for a small fee like re-keying locks, carpet cleaning, and HVAC cleaning.

It’s worth noting that I don’t get anything from Super for recommending them, just in case this seems like a sales pitch ☺

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

So, you’re not doing a home inspection?

Question: Do you have any advice to help reduce the risk of not doing a home inspection before buying a house?

Answer: The unfortunate reality of the current market (and the market of the last ~18 months) is that, in most cases, to make a competitive offer on a home, buyers are absorbing all the risks (financing, appraisal, inspection, etc). Understanding the risk/benefit trade-offs and the downside potential of these risks is critical in such a fast-paced, expensive real estate market.

Risk Management is Critical

If I had to guess, I would say that at least 75-80% of winning offers on local homes that go under contract within the first 1-2 weeks do not have a home inspection contingency, meaning they are either not doing a home inspection at all (unfortunately common) or doing a pre-offer home inspection. As with nearly every decision you make in real estate, this needs to be done with great consideration for the cost of the risk and the value of the upside to make sure it is the right decision for you on a specific property.

Part of that risk assessment is making a determination on the condition of the home – whether it has “good bones.” Having a home inspection done is the best way to reduce the risk of buying a home with condition/maintenance issues but is no guarantee that everything will be caught. If you can’t do a home inspection, seeing a home with a trusted, experienced real estate agent or somebody in the home building/improvement industry (contractor, builder, etc) is also a good way to reduce your risk.

Property condition/maintenance issues show up in a multitude of ways. Below I’ve summarized some tips on assessing a home’s condition from inspectors I work with, an article written by Stephanie Dickens of BOWA, a local design-build firm, and my personal experience.

Observe How Water Moves

Water is a home’s worst enemy and poor water management can lead to water pooling against a home and getting into the cracks of the foundation, which can lead to structural deterioration over time. A musty-smelling basement is a sign of poor water management. Look at where gutters drain – I often find that they’re dropping water right next to the house instead of sending it away. Look at the grading (slope of the yard) and if water is running towards the house, look for drainage systems. Sump pumps are nice, but they should be connected to a battery backup in case power goes out.

Good vs Bad Cracks

Cracks can be deceiving. Something as small as a crack in the drywall could be a sign of larger structural issues but are most likely cosmetic. Straight, hairline cracks above openings or at joints, like the one pictured below to the left, are nothing to be alarmed about.  If you see jagged, diagonal cracks that are wider than 1/8”, like the one below to the right, the house may have settlement issues or insufficient framing. A pattern of uneven floors and cracking around support (e.g. lintels) in one section of a home can be a sign of a bigger issue.

Level Floors Are a Good Sign

A nice, level floor indicates good structural support. If you look up to where the ceiling and the wall meet, the corner crease should be mostly straight. If the floor looks wavy or dips down in the middle, the floor joists may be sagging and need reinforcement. Uneven floors do not necessarily indicate a problem, rather is a justification for a harder look to see if there are other signs of active issues. We have plenty of well-built old homes with uneven floors around here that have been that way, without issues, for decades.

Jump Around

Stand on your tiptoes then drop down hard on your heels. Do this at various points in the house to test the deflection in different areas. All wood-framed floors are going to have some deflection, but you don’t want it to feel like you’re jumping on a trampoline. Too much bounce is an indicator of insufficient structural support.

Young At Heart

A house with newer core systems is not just a sign of good maintenance, but it’s a huge money-saver in renovations. Check on the age of the windows, roof, HVAC, water heater, plumbing, electrical, and main sewer/water lines. Any of these systems that are in the first half of their expected useful lifespan add tremendous value.

Permits Help, but Not the Whole Story

If a home has been updated or expanded, look for permits on the County permit status website, but remember that permits and quality work are not necessarily directly correlated. I’ve seen far too many permitted projects with quality issues and plenty of unpermitted projects done at a high level. Permits are a good sign, but not the entire story.

Look for Signs of Cover-up

Don’t be afraid to ask questions if you see recently painted foundation walls, patched ceilings, or brand-new flooring in the basement. They may be perfectly innocent attempts at improving the aesthetics of an ugly basement wall or old carpet, but they are also signs of covering up moisture or cracking issues. Sellers in Virginia do not have to disclose defects, but they cannot actively hide, mislead, or lie about them.

Quality Care and Repair

One of the most important judgments I try to make when looking at a home is how attentive a homeowner was to issues as they came up and how likely it was that they addressed them with quality service and solutions instead of cheap patches. There’s no specific formula for this, but there are usually signs throughout a home that suggest solid long-term maintenance vs one-time, cost-conscious listing prep. I look for the quality of materials and craftsmanship in work that was done while the owner was living in the home. For example, the choice in appliances, windows, shingles, and plumbing fixtures. Signs of attentiveness and quality in the things you can see are often suggestive of the same care in the things you can’t see.

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Has Your Condo/POA Banned Smoking?

Question: Do you know if Associations in Virginia have begun banning smoking using the new law?

Answer: Last year, I wrote an article about Virginia’s new law that allows Condo and Property Owners Associations to easily ban smoking inside units/homes via a new resolution to the rules and regulation, which generally requires a simple majority vote by the Board. Prior to this, Boards could ban smoking in common areas this way, but smoking bans within units/homes required a lengthy (multiple years), costly, and resource intensive effort to get a 2/3+ vote from owners to change the by-laws.

I have heard from a couple of Condo Associations that have implemented this new law to ban smoking and I would love to hear from other readers, in the comments section or in email, who have either passed a new smoking ban resolution, are in the process of doing so, or have run into challenges trying.

Last year I spoke with attorney Michael C. Gartner (703.280.9267 or mgartner@wtplaw.com), a Partner at Whiteford, Taylor, & Preston LLP and current President of the Community Associations Institute (CAI) Washington Metro Chapter, about the new law to make sure I was clear on the implications this has for Virginia condos and POA communities.

Mr. Gartner confirmed that the new law, effective July 1 2021, does in fact allow condo and POA Boards to ban smoking inside private residences with a simple majority vote of the Board. He also offered some helpful advice and caveats for any Boards/communities who plan to move forward with in-unit smoking bans:

  • In rare cases, some by-laws may specifically restrict a Board’s ability to make certain rule changes or require something other than a simple majority, so Boards should have an attorney review their by-laws prior to proceeding with a smoking ban
  • Smoking bans should be written as a compliant resolution through legal counsel, not as a simple motion
  • Enforcement is always a challenge for Boards (noise, trash, and other common rules always present enforcement challenges) and Boards may want to work with their legal counsel to establish compliant enforcement protocol
  • The new law includes a provision that allows owners to call a special meeting to vote and repeal a change in the smoking policy
  • Smoking ban policies might flip back-and-forth as new Boards are elected and the majority votes for a new/different smoking policy than the previous Board

Last week, I followed up with Mr. Gartner on the new law and he said that he has several clients (condo buildings) considering implementing a smoking ban and so far is not aware of any legal challenges or considerations that would change the opinions he shared last year when the bill was approved.

Please use the comments section or email me if you are in an Association who has taken advantage of this new law or is planning to!

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Real Estate Within Walking Distance of Metro

Question: I’m beginning my home search and want to be within walking distance of Metro. What do my options looks like?

Answer: It’ll be interesting to see if buyers value Metro proximity differently long-term because of lifestyle and professional changes brought about by COVID. I’ve certainly noticed a reduction in the number of buyers I meet with who include being walking distance to Metro as a core requirement, but it seems that we’re quickly returning to previous buying habits so I think preferences for Metro will mostly return to pre-COVID patterns.

If you’re searching for a home in Arlington within walking distance to a Metro, it’s helpful to go into your search understanding what type of inventory you’ll find. Unsurprisingly, condo buildings dominate the market within walking distance of Metro stations, making up over 69% of total sales over the last two years.

The following table summarizes sales over the last two years within 2/3 of a mile of each Arlington Metro station. I left out the Arlington Cemetery and Pentagon Metro stops.

  • The Metro with the highest average sale price is East Falls Church, but that is because it’s the only Metro station where the majority of sales within walking distance are detached homes
  • Pentagon City and Crystal City, the Metro stations that make up National landing, are the most difficult locations to find homes to purchase because so much of the surrounding housing is rental apartments
  • Virginia Square has had the most homes for sale within walking distance
  • Clarendon and Virginia Square are surrounded by the most expensive detached. Rosslyn and Clarendon boast the most expensive townhouse/duplex homes.
  • Rosslyn’s luxury condo buildings make it the most expensive condo market by average sold price, price per bedroom, and price per square foot
  • On average it costs $552 per SqFt and over $368,000 per bedroom to live within walking distance of a Metro in Arlington
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If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

And We Thought Last Year’s Housing Market Was Crazy…

Question: The market seems even more intense this year than last, is that accurate?

Answer: I didn’t think the market had much more room to absorb higher prices and intense competition again this year, but that has proven to be wildly untrue. From single-family homes to condos, the first ten weeks of 2022 has given us even more competition and price escalation than last year, all while interest rates have spiked.

High Escalations, Fast-Paced Sales Across All Property Types

I compared sales of Arlington properties that were listed and under contract in the first ten weeks from the last five years to measure how the start of 2022 has compared to previous years.

Detached/townhouse properties are selling for an average of 4.9% over asking price with 85% selling within seven days on market and 92% going for at or above the asking price. These numbers dwarf what had been historically competitive first quarter markets in the previous four years.

The condo market, which suffered through much of the pandemic, is officially back with competition and escalations picking back up to levels close to what we saw during the post-Amazon HQ2/pre-pandemic market. We’re still seeing above an above-average volume of condos being listed for sale (based on 5yr averages), which is keeping the condo market somewhat in-check, but I expect the intensity of this market to increase through the spring and deep into the year.

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What About Higher Interest Rates?

Thus far, the market has mostly shrugged off intense headwinds created by rapidly increasing interest rates (see chart below), plummeting stock prices, and the war in Ukraine. Just yesterday rates jumped another .125-.25%.

There must be an inflection point somewhere, but so far hyper-low inventory, rising incomes, and high demand have kept us from it.

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Arlington In Three Charts

There are three charts that clearly illustrate why competition is so fierce across all property types in Arlington right now:

  1. Months of Supply (MoS): A measure of supply and demand calculated by how long existing supply can last based on current demand (lower = seller’s market). The detached market reached all-time lows in November 2021 and has decreased each month since, falling to just 1.5 weeks of supply in February. The condo market hovered around two weeks of supply post-Amazon HQ2 and spiked during the summer of 2020 to around three months of supply. Since December, supply dropped to roughly one month and is poised to drop below the one month mark this spring.
  2. Active Listings: The number of active detached and condo listings is down 40% year-over-year in each of the last two months. Reminder that last year I was also writing about historically low detached/townhouse inventory.
  3. New Listings: The volume of new detached and condo listings is down year-over-year each month since July 2021. This pattern will have to quickly reverse this spring if we want any sort of balance to the 2022 market.
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If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.

Reviewing Arlington’s Housing Inventory Mix

Question: Can you summarize the type of housing inventory one can expect to find in Arlington?

Answer: One of the most beneficial things you can do when starting your home search is to understand if the type of property you want exists in the market you’re looking and, if so, how likely it is you’ll find it. The best way to do that is looking at sales over the past year or so to identify how many properties have the specifications you want, and what type of budget it’ll take to secure it.

For example, if you have your heart set on a lot with at least ½ acre in Arlington, you should know going into your search that just 1% of single-family homes that sold last year sat on ½ acre or more, so you need both patience and a substantial budget.

Condos Nearly Half of All Sales

Properties in multi-family buildings represented nearly half of all sales in Arlington last year, followed by single-family homes, and then townhouse/duplex properties. I broke down the data a bit further by bedroom count and pulled out some interesting details about each property type:

  • 92.5% of condos sold had one or two bedrooms, 4% had three bedrooms (none had more than three)
  • 84% of single-family homes had 3-5 bedrooms – 29% with 3BR, 34% with 4BR, and 22% with 5BR
  • The median price for a home with at least four bedrooms and at least three full bathrooms in North Arlington was $1,455,000 and $1,030,000 in South Arlington
  • 40% of townhouse/duplex properties had just two bedrooms and only 14% had four or more bedrooms
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Arlington by Decades

Arlington’s single-family home problem is very much a decade problem. 66% of single-family homes last year were built prior to 1960 (mostly small and expensive to expand) and 14% were built since 2010 (large and expensive). Only 7% of homes sold last year were built from 1970-1999.

Why is this relevant? Because those decades (70s-90s) offer a middle-ground for many buyers – floor plans and square footage that meet the functional priorities of many of today’s buyers but old enough to sell at a steep discount from newer homes. So, we are faced with single-family inventory in Arlington that is either too small or too expensive for many buyers (this is not a comment on Arlington’s Missing Middle Study!).

The age of Arlington’s condo and townhouse/duplex properties is much more evenly distributed by decade, which is generally a good thing for a marketplace.

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If You’re Looking for Square Footage…

I broke down last year’s sales by finished square footage (includes finished basements) and the results are in line with what one would expect from an urban/suburban community adjacent to a major city. 87% of properties sold last year had less than 3,000 finished square feet and just 4% had more than 5,000 finished square feet.

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If You’re Looking for a Big Yard…

What constitutes a big yard is subjective, but by most standards, Arlington has small yards that lack privacy. For reference, ¼ acre is just under 11,000 SqFt. 86% of single-family homes sold last year had lots with less than 12,000 SqFt and 58% has lots with less than 8,000 SqFt.

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If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.

How Much Commission Do Buyer-Side Agents Make in Arlington?

Question: What is the normal commission rate for buyer-side real estate agents?

Answer: There has been a long-held belief that real estate agents should avoid any public discussion of commissions to avoid antitrust laws and ethics violations, but now that many popular public-facing real estate websites (e.g. Zillow and Redfin) are publishing buyer-side commissions, not to mention recent efforts by the National Association of Realtors to open-up transparency, I don’t see any reason why I can’t share that data the same way I do other relevant stats throughout the year.

The data and charts below represent the buyer-side commission published in the MLS for transactions in Arlington, sans any subjective commentary that could get me in trouble ☺

How Are Commissions Determined?

In most cases, commissions are set in the Listing Agreement between the seller and the seller’s real estate agent. A total commission fee is established, with a disclosed amount going towards the agent/broker representing the buyer of the home. That buyer-side commission is published in the MLS. The other portion of the commission/fees (that going to the listing agent/broker) is not and I do not have any broad-market insight into those numbers.

Buyer agents may establish minimum commissions or other fees in the Representation Agreement between the buyer-side agent/broker and the buyer, but this article/data is specific to the buyer-side commission, offered by the seller/listing broker, published in the MLS.

Buyer-side Commissions Down 11.4% Since 2014/2015

In 2014 and 2015, buyer-side commissions averaged 2.9% across all transactions in Arlington. As of 2021, the average buyer-side commission in Arlington dropped by 11.4%, to 2.57%. The biggest one-year drop occurred between 2018 (2.75% average) and 2019 (2.65% average).

Setting aside the historically high volume of real estate transacted in 2021, gross revenue (calculated by real estate sales volume multiplied by the average buyer-side commission percentage) to brokerages covering buyer-side transactions in Arlington remained fairly consistent year-to-year from 2014-2020 because lower buyer-side commissions were offset by rising real estate values.

So, for everybody out there with a dislike for us real estate agents, you can raise a glass and toast to the industry (at least the buyer-side of Arlington transactions) getting little-to-no raise in the seven years from 2014-2020! 

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3% Buyer-Side Commission, It Was Nice Knowing You!

In 2014 and 2015, just under 80% of buyer-side commissions in Arlington were 3% (blue bars in chart below) and ~17% were offered at 2.5% (orange bars in chart below). Fast-forward to 2021 and the numbers are almost perfectly reversed with 15% of sales offered at 3% buyer-side commission and 79% offered at 2.5%.

Since 2014, buyer-side commission was offered at 2.5% or 3% in nearly every Arlington transaction, making up 93.4%-96.5% of all transactions over each of the last eight years. After that, the next most common buyer-side commission offered was 2.75%, except in 2021 when 2% offerings overtook 2.75% offerings for third place for the first time, representing 2.5% of total transactions.

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I could write pages on the structure of real estate commissions, the value of real estate agents, and the make-up of our industry but that’s for another day!

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.

How Many Agents Worked in Arlington Last Year?

Question: How many different real estate agents do business in Arlington in a typical year?

Answer: There were 3,535 real estate transactions in Arlington in 2021, well above the 2,770 and 2,782 in the previous two years, totaling over $2.786B in total sales volume, up from $2.16B and $1.96B in 2020 and 2019, respectively.

Most people would probably assume a few hundred different real estate agents worked on those 3,535 transactions, but in fact there were 2,799 different agents who were involved at least one transaction in Arlington last year (remember, most transactions have two agents involved).

I looked over the 2021 Arlington transaction data and pulled out some interesting highlights below. Of note, there are real estate teams that enter all sales under one agent’s name, so in these cases, individual numbers represent the production of multiple agents rolled into one agent’s name (I don’t have transparency into that data). Here’s a link to an article I wrote in 2019 explaining how different agents/teams are structured.

  • 57.9% of the agents who did business in Arlington last year were involved in just one Arlington transaction (many did other business outside of Arlington)
  • Just 3.5% of agents handled 10 or more transactions in Arlington and .6% handled 20 or more transactions
  •  1,894 different agents represented buyers in Arlington and 25 of them (1.3%) worked with 10 or more buyers in Arlington
  • 1,639 different agents represented sellers in Arlington and 42 of them (2.6%) worked with 10 or more sellers in Arlington
  • Of the 1,178 agents who handled 2 or more transactions in Arlington, they averaged 4.5 transactions each
  • Keri Shull and her team once again led Arlington in transactions and sales volume, by a wide margin, participating in roughly 7.9% of the transactions in Arlington and handling just under $160M in Arlington sales volume.

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.

Many people see the low barrier to entry for real estate licensing, and the resulting high volume of agents, as a negative, but 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 service you’re looking for and the experience to match.

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.

Increasing Interest Rates and What It Means for the Market

Question: How are you seeing recent interest rate increases effect the real estate market?

Answer: Real estate has become significantly more expensive in the last 6 weeks due to a combination of another round of strong price growth and rapidly increasing interest rates.

Figure 1: Average interest rates over the past year

Interest Rates Up, Prices…Up?

Theoretically, higher interest rates should put downward pressure on home prices, but over the last 4-5 weeks, as rates have been climbing, I’m seeing winning offers on single-family homes coming in 10-15% or more above the asking price (and prices justified by 2021 sales). I’ve also seen price increases and competition, to a lesser extent, in the condo market.

Why is this happening? Early rate increases seem to have had the opposite effect on prices than you’d expect because some buyers are choosing to pay more now rather than wait and risk higher rates (most projections show rates increasing through 2022). Time will tell if this gamble pays off or not.

How is this possible? We live in an area where incomes often support higher borrowing limits than buyers choose for their own budgets, especially dual-income households, so for many buyers, especially those with the means to purchase single-family homes, they have the borrowing capacity to pay more and some are choosing to do so.

At some point, higher interest rates should cool the market, but we’ve yet to reach that point locally.

The Effect Higher Rates Have on Payments

I mentioned earlier that to this point, higher rates, and the threat of more increases in the future, have caused prices to increase. In general, a .5% increase in interest rate has a similar effect on the monthly payment as a 6.5% increase in purchase price, so if a buyer expects interest rates to be .5% higher in a few months, they can claim a victory on their mortgage payments by paying 3-4% more now before the rate hike.

The table below is a simple reference point on how much a .5% increase in interest rate effects monthly payments at different loan amounts. Is the threat of those changes in payment enough to cause you to pay more now or make a purchase decision that you otherwise may not have?

Consider an Adjustable Rate Mortgage (ARM)

Adjustable Rate Mortgages (ARMs) got a bad reputation during the Great Recession, but are worth considering for many buyers, especially those who are likely to sell within 5-10 years (that’s most buyers). For much of the past two years, the spread between ARM products and 30yr Fixed rates has been such that ARMs didn’t make sense (especially when they were more expensive than 30yr Fixed), but it’s now worth considering given the pricing of each product.

The discount of an ARM product makes sense for so many buyers because they’ll most likely sell before they reach the adjustment period (5, 7, or 10 years for most ARM products). If you think you might stay in your home beyond the adjustment period, you can also make a bet that we will re-enter a low interest rate environment before your rate adjusts and refinance into a 30yr Fixed loan when that happens.

Figure 2: Average 30yr Fixed vs 7/1 ARM Rates, Courtesy of Zillow

What Should You Do?

Interest rates should a factor, not THE factor, in making a housing decision. Interest rates are market-driven, and markets are volatile and unpredictable. I can’t recall a time that Fannie/Freddie, the National Association of  Realtors, and the Mortgage Bankers Association have not predicted that rates would increase in the next 12-24+ months and look at the chart below, we’ve had sustained rate decreases since the 1980s!

Interest rates influence buying decisions differently for each buyer, but remember that nothing will outweigh the importance of making the right housing decision and being in a home long-term so don’t let interest rate volatility change the fundamentals of your home buying (or renting) decisions.

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

Home Design Trends From An Expert

The 2022 Colors of the Year were recently released and this year we have Sherwin Williams Evergreen Fog, a subdued green, and Pantone Very Peri, a bold purple.

Sherwin Williams Evergreen Fog
Pantone Very Peri

…And announcing colors of the year is about as far as I should take my commentary on interior design, so I’d like to re-introduce Caroline Goree (caroline@madiganschuler.com, (703) 994 5921), a fantastic Designer with a boutique Residential Interior Design Firm, Madigan Schuler, located in Alexandria Virginia, to provide insight into what trends she’s seeing in local home design.

In 2018, Caroline introduced us to one of my favorite design quotes from Matthew Frederick’s book 101 Things I Learned in Architecture School, “Being nonspecific in an effort to appeal to everyone usually results in reaching no one.”

Take it away Caroline… 

As I began to brainstorm the trends of 2022, it made me reflect on the 2020 design trends column I wrote for you just a month before the pandemic started. While many of the décor aspects are still quite relevant, so much of the residential design world has not only been impacted (thank you supply chain issues) but also influenced by the pandemic.

Although I would love to design with the sole purpose of creating a beautiful, aesthetically pleasing room, the functionality of spaces, furniture and fabrics has become more important than ever.

Built to Last

Between remote working, virtual learning and cancelled day care, our homes are being used hard, or as I say, being “loved” more than years prior. With this additional love comes lots of spills, crumbs, and crushed cushions in the coveted corners of furniture for prime movie watching.

The additional wear on soft goods has created a spike in the “performance” product world (think indoor/outdoor rugs, fabric, etc). Instead of a beautiful natural fiber rug, we replaced these selections with polypropylene carpets that mimic the look and patterns of the sisal and seagrass products but are much more durable and easier to clean.

When reflecting on my business last year, 100% of my clients chose an indoor/outdoor material (Sunbrella), performance fabric (Crypton), or had their goods treated with a spill repellant technology (Fiber-Seal) for any furniture in the main spaces of their home. Furthermore, people quickly saw the downside of “disposable” furniture and were more open to investing in pieces built to last against the hours of lounging.

Pro Tip: When purchasing a new sofa, do your research. Ask if it is built with an “8-way hand tied coil” where craftsman tie springs eight ways from side to side, front to back and diagonally. This helps build furniture that is soft, flexible, comfortable and long lasting.

Textures, Wovens and Rattans…Oh My!

A trend we are seeing across the board is the use of texture within design. This could be a fabulous set of caned antique dining chairs to go around a fresh new table or a fun rattan accent chair to sit in the corner of an inviting family room. Even a piece as simple as woven framed mirror or foot stool can add that pop in a space that felt dull and tired.

Fabric like as Boucle’s (think fuzzy /curly multi-dimensional material) is not only used in the custom furnishings world but now a standard offering in many retail stores on their soft goods. I recently used a plush emerald green cable knit fabric for pillows on a simple white sofa to add depth and a punch of color (also a 2022 trend…)!

Pro Tip: A little rattan goes a long way. Although it is one of my favorite trends, just a sprinkle throughout a room does the trick. No need to make your family room feel like a Palm Beach sun porch!

Wallpaper is Officially Back!

For decades, designers have loved using wallpaper to add pattern and color to a space. While there was a period wallpaper felt fussy, dated, and stale, it has made a strong comeback.

A bold, colorful wallpaper is the perfect addition to a small space such as a powder room or laundry room (let’s be real, nobody enjoys laundry so you might as well give yourself something fun to look at).  In more formal spaces like the dining room or living room, a sophisticated grasscloth is a great way to make an impact and elevate the overall design. As a wallpaper lover myself, I am so glad this trend is back, and I think it is here to stay.

Pro Tip: When selecting a paper, I believe you should go big or go home. A safe choice will fall flat and not have the same effect on a room.

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.