The Shifting Condo Market

Question: I’ve seen a lot more condos come to market and also some staying on market longer than before, is that part of a larger trend in the condo market?

Answer: In July, I predicted there would be a surge in housing inventory that was held off the market this spring because of COVID. That has proven to be moderately correct for single-family housing and very accurate for condos. The market has had no trouble absorbing the extra single-family housing, albeit with less competition than before, but the condo market has not absorbed the extra inventory and has undergone a significant shift in the last two months.

In short, listing volume for Arlington condos reached historically high levels in July and August, absorption (demand) is down, and months of supply is the highest it’s been since the fall of 2017.

Historically High Listing Volume

July (253 listings) and August (229 listings) had the 5th and 13th highest months for listing volume in the last ten years. Prior to this year, the top fifteen months for condo listing volume fell in April or May (peak demand offsets higher listing activity), with the exception of June 2015. This is the first time that the number of condos listed in July or August has ever exceeded 200.

Pre-Amazon HQ2 Demand

Since Amazon announced plans for HQ2 in November 2018, condo demand was through the roof with 15 straight months of more condos going under contract than listed for sale (over 1.0 in the chart below), beginning January 2019. Absorption levels, a strong indicator of demand, are now more reflective of 2016-2017 which brought very little real appreciation in the condo market.

Monitor Months of Supply

The Months of Supply metric combines inventory levels and rate of absorption (supply and demand). It measures how long it would take to sell out of existing inventory given the current pace of sales. Most housing economists say that ~6 months of supply is needed for a well-balanced housing market, a number we’ve never come close to in Arlington.

Given that it takes ~6 months of supply for a balanced market, Arlington is still very much a seller’s market, but nowhere close to what it’s been over the last two years. In August, Months of Supply exceeded 2.25, higher than it’s been since October 2017 (2.32). Compare that to December 2018 – March 2020 with an average of .67 (just over two weeks of supply) and high of .88, and it becomes clear why many buyers and sellers are experiencing a different market now than they were as recently as June.

Condo Market Stronger Across Northern VA

The rest of Northern VA also experienced an increase in condo supply in July and August, but not nearly to the extent of Arlington. Absorption (demand) has also remained pretty close to the strong numbers seen since January 2019. As a result, Months of Supply for the entire Northern VA condo market has increased slightly over the last two months and fits normal seasonal patterns.

What About Washington DC?

It’s worth noting that while the overall Northern VA condo market is performing well, the Washington DC condo market looks more like Arlington. In July and August, Month of Supply (2.73 and 2.80, respectively) reached the highest levels since October 2012 and were the first and third highest monthly listing volume over the last ten years. July (863 condo listings) is the first time in over a decade that more than 800 listings came to market. Previously, the record was 762 set in September 2019. There were 757 condos listed for sale in August.

What’s Next?

It’s still too early to know if/how prices will be affected, but it almost certainly means longer days on market and fewer multiple offer scenarios. The effect on pricing will likely depend on whether this is a short-term shift that will correct itself come Q1 2021 or a more long-term change in urban buying patterns. My money is on this being short-term and the market returning closer to its two-year averages by February or March 2021.

In the meantime, I think we’re in for a frustrating few months for many condo owners due to the combination of surging listing volume (increased supply), an upcoming Presidential election (fear of an unknown future), and uncertainty around the timing of a widely available COVID vaccine (less demand for multi-family/urban living).

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

Why Is My Neighbor Mowing My Lawn

Question: My neighbor is mowing a portion of the lawn I thought was mine, but my neighbor claims it is his. Is this something I can prove through my title work?

Answer: Clients often ask me whether or not they should purchase a property survey, which is optional, when they buy their home. I think that in almost every case it is worth the relatively small investment (usually about $300-$400 for a standard survey). I was chatting with the folks at Universal Title, my preferred title company in Northern Virginia (they also serve DC and MD), and heard a story about somebody who did not order a survey and ended up incorrectly assuming that a section of land was theirs. Given how frequently I am asked about ordering surveys, I thought it was a good opportunity to share the story and provide some reasons why it’s a good idea to order a survey when you buy a home. Take it away Universal Title…

A new homeowner noticed a neighbor mowing part of her front lawn. When she asked the neighbor why he was mowing her lawn, the neighbor replied the property he was mowing belonged to him, even though the line of trees separating the two houses looked as if the property belonged to the new homeowner. She called her title agent and found out the neighbor was correct. “How can that be? Didn’t you search my property?”

Unfortunately, the new homeowner did not understand the difference between a title search and a survey and failed to purchase a survey. A title search confirms ownership of property, but it does not show the details of the property location.

A survey is a map of real property that shows where the property is located on the earth, the boundary lines of the property, the improvements on the land and access to the property.

FIVE GREAT REASONS TO PURCHASE A SURVEY
  1. Undisclosed Rights and Easements: You may own your new home and its surrounding land, but someone else might have a right to use a portion of your property. A survey will show physical evidence of the rights of others to use your property for access, parking, utilities, and other situations.
  2. Undiscovered Encroachments: A survey may be the only way to tell if a third party holds a claim to part of your property because their improvements such as a garage, fence, or swimming pool, are on your land.
  3. House Built on Incorrect Lot: It may seem impossible, but sometimes a house is built on the wrong lot. A survey provides peace of mind by showing the exact location of the house you are buying.
  4. Size of the Property: A survey shows the exact dimensions of the property’s boundary lines and how much land is included within those lines.
  5. Adding on in the Future: Many residential platted lots have building restrictions known as setbacks which prohibit building anything within a certain distance from the boundary lines. If you are thinking of adding on in the future, a survey will help you determine if the property is right for both your current and future plans.

Thank you for sharing the story and information Universal Title. I’d also like to add that you can order a survey at any time if you did not do so when you purchased. If you are in need of a survey, planning to sell or purchase a home and would like to work with a great Title company, or have title questions in general I highly recommend reaching out to Universal Title.

Arlington’s (Free) Green Home Choice Program

Question: Do you have any recommendations or resources to help us improve our home’s energy efficiency?

Answer: Last year, Arlington released its Community Energy Plan, setting forth the goal of becoming Carbon Neutral by 2050. To support that mission, Arlington offers the Green Home Choice Program (GHC), which is a free program that helps homeowners, builders, and designers create a more energy efficient and environmentally conscious home. I spoke with Helen Reinecke-Wilt, who manages and personally oversees each project, about the program and its benefits.

What You Get?

Helen and her team provide a free consultation/audit and a detailed, customized guide with the materials and construction requirements that will ensure your home is healthier and more efficient. After the work is complete, you are eligible for an official Green Home Certification from Arlington County, which is similar to LEED Certification common in many commercial buildings (offices and apartments).

Who Qualifies?

Small and big budgets alike! The program is available to everybody from homeowners interested in making small, energy-conscious improvements to builders designing a custom home. If you are building a home, it’s a great idea to have your builder work with Helen and her team! The earlier you involve the GHC program, the more they can do for you.

Benefits

  • New homes that are GHC-certified use 42% less energy than non-certified new homes, which equates to a savings of $1600 per year on utilities
  • Renovated homes that are GHC-certified use 55% less energy per square foot with an average utility savings of $600 per year
  • Studies have shown (and here) that 90% of home buyers consider a home’s energy efficiency “very important” in their search criteria and are willing to pay a premium for more efficient homes. The lack of certified green homes means that your new or renovated home will stand out in the market.
  • Healthier air, a more durable home, and lower utilities
  • Eligible for StormwaterWise grant money
  • Satisfaction of knowing that you are contributing positively to a healthier, more sustainable community

Cost

The consultation/audit and guidance come at no cost. Depending on the scope of the project, the upgraded construction materials and methods generally add an extra $10k-$20k to the project, however, in many cases builders or homeowners already plan to use similar materials so the added cost is less.

To receive the official Green Home Choice Certification, there’s a $1,500 fee to test your homes efficiency to make sure it meets the requirements to be certified. In my opinion, builders and homeowners will see a significant ROI on this investment, especially for new homes which currently have an average price of nearly $1.9M. Over 350 homes in Arlington have been certified, but many people use the GHC guidance and choose not to complete the certification.

Helen and her team understand that not everybody has the resources to invest tens of thousands of dollars into a GHC certified home and want to make smaller/cheaper, yet effective improvements to their home’s energy efficiency. She prides herself on being able to make these types of recommendations for homeowners after doing an audit of their existing home so don’t shy away from working with her just because you aren’t building a new house or undergoing major renovations!

Thank you Helen and the Green Home Choice team for your contributions to a cleaner, more sustainable community! If you’re interested in working with their team, you can get started by reaching out to them at energy@arlingtonva.us or 703-228-4792.

If you’d like a question answered in my weekly column or to set-up an in-person meeting to discuss local Real Estate, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at www.EliResidential.com. Call me directly at (703) 539-2529.

Arlington Condo Mid-Year Real Estate Review

Question: How did Arlington’s real estate market perform in the first half of 2020?

Answer: What a wild year it’s been for real estate. After a huge 2019 (SFH/TH review, Condo review), the 2020 market took off in January with prices and competition up sharply. When Coronavirus hit, that momentum tapered off for a couple of months but prices remained steady because of low interest rates and low supply. The Arlington housing supply was down about 400 listings from March-June, but listing activity is surging to historically high levels in July and August, which is traditionally when we see the spring market momentum slow down.

Let’s take a look at how the condo market performed in the first half of 2020 using some awesome charts developed by my new partner, the wonderful Alli Torban. We took a similar look at single-family detached and townhouses last week.

Note that all of the data used in these charts is based on sales that went under contract from January-June in order to provide the most accurate reflection of the market during the first 6 months. I don’t like using the date a home sold/closed for analysis like this because closing date often lags 30-60 days behind agreement of sale (contract). I also removed sales of condos in 900 N Taylor St (The Jefferson), an age-restricted community.

Average and median price continued to rise, but not by nearly as much as last year. The total condos transacted in the first six months of 2020 dropped significantly to 484 from a previous 5-year low of 614, established in 2019.

The Rosslyn-Ballston Corridor, made up of 2201, 22203, and 22209 is by far the busiest condo market in Arlington and 22204 offers the most affordable options, by a significant margin.

The volume of one- and two-bedroom condo sales was nearly equal during the first six months, but I’ve seen a shift over the last few years in buyer demand over the last few years towards two-bedrooms.

Studios/efficiencies (no separate bedroom) are very difficult to come by in Arlington with very few being delivered over the last 20 years. The Eclipse in Crystal City and Trafalgar Flats along Columbia Pike were notable for delivering an unusually high number of studios in the last 20 years.

The demand for larger condos with three-bedrooms has increased significantly over the last 3-5 years as owners of large homes have looked to downsize. However, the market is severely undersupplied with units that meet the needs of these buyers, with just 18 three-bedroom condos selling in the first half of the year.

One of the measures I like taking to gauge market competition is the percentage of condos going under contract within the first week and how much buyers are paying relative to the asking price within that window. An incredible 36% of condo contracts were accepted within the first week this year and the average buyer paid 1.5% more than the asking price to secure a home that just hit the market.

The key takeaways are that good condos sell very quickly and if you love a unit that has just hit the market, be prepared to pay the asking price or more to secure it because if you don’t, there’s a good chance somebody else will.

As the chart above showed, this is a fast-paced market and it got even faster in 2020 with the median days on market for condos remaining at six days and the average dropping to just two weeks.

I took a similar look at single-family detached and townhouses last week. If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com.

Arlington Single-Family & Townhouse Mid-Year Real Estate Review

Answer: What a wild year it’s been for real estate. After a huge 2019 (SFH/TH review, Condo review), the 2020 market took off in January with prices and competition up sharply. When Coronavirus hit, that momentum tapered off for a couple of months but prices remained steady because of low interest rates and low supply. The Arlington housing supply was down about 400 listings from March-June, but listing activity is surging to historically high levels in July and August, which is traditionally when we see the spring market momentum slow down.

Let’s take a look at how the single-family detached (SFD) and townhouse (TH) market performed in the first half of 2020 using some awesome charts developed by my new partner, the wonderful Alli Torban. We will take a similar look at condos next week.

Note that all of the data used in these charts is based on sales that went under contract from January-June in order to provide the most accurate reflection of the market during the first 6 months. I don’t like using the date a home sold/closed for analysis like this because closing date often lags 30-60 days behind agreement of sale (contract).

Average and median price continued to rise, but not by nearly as much as last year. The total homes transacted in the first six months dropped significantly to 710 from a previous 5-year low of 838, established in 2019.

22207 (most of North Arlington) remains the most expensive place to buy a SFD or TH and 22204 and 22206 (most of South Arlington) remain the most affordable, although we’ve seen strong appreciation in those markets over the last three years.

For new Amazon HQ2 employees hoping to find a SFD or TH to buy within walking distance of your office, your 22202 zip code offers some of the fewest purchase opportunities in the County, so you’ll want to act quickly if you find something you like.

The cost of going from a 4BR homes to a 5BR home is significant in Arlington. This is because most new (read: expensive) homes being built have at least five bedrooms and Arlington’s older housing stock mostly floats between two and four bedrooms. Finding a house with five or more bedrooms under $1M in Arlington is a difficult task.

One of the measures I like taking to gauge market competition is the percentage of homes going under contract within the first week and how much buyers are paying relative to the asking price within that window. An incredible 41% of SFD/TH contracts were accepted within the first week this year and the average buyer paid 2% more than the asking price to secure a home that just hit the market.

The key takeaways are that good homes sell very quickly and if you love a house that has just hit the market, be prepared to pay the asking price or more to secure it because if you don’t, there’s a good chance somebody else will.

As the chart above showed, this is a fast-paced market and it got even faster in 2020 with the median days on market for SFD/TH remaining at seven days and the average dropping below three weeks.

Next week I will have condo data for you. If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com.

Real Estate Customs & Contracts Vary Significantly by Market

Question: Is it normal for sellers to leave appliances behind for the next owner?

Answer: A friend of mine is moving in Southern California and mentioned having to move his refrigerator to the new house, which I found odd, but apparently, it’s common in California and other parts of the country. My theory is that one day somebody decided to take their coveted refrigerator with them and it created a chain reaction of everybody having to take their appliances with them after that!

Over the years, I’ve picked up on customs and contract terms that differ significantly here from other markets. I thought I’d come up with a list of standard customs and contract terms in Northern VA that often come as a surprise to buyers and homeowners who have transacted in other markets.

I’d love to hear from readers in the comments about other local practices that surprised you if you were used to real estate customs and contracts in another market.

  1. Appliances Convey: All of the appliances, including washer/dryer, have conveyed (transferred to the next owner) in every transaction I’ve been part of. Buyers and sellers have to agree during negotiations what appliances and other items do or do not convey.
  2. No Individual Attorneys: It’s rare for an attorney outside of the Title Company to be involved in a transaction. The same Title Company almost always works on behalf of both parties (without bias).
  3. (Lack of) Seller Disclosures: Virginia is one of the few “Buyer Beware” (Caveat Emptor) states in the country; which essentially means that sellers in Virginia do not have to disclose any property defects, but they can’t hide them or lie about them either. For homes built before 1978, there’s a one-page lead disclosure form for a seller to note if they’re aware of the existence of lead paint on the property. Most states, including DC and MD, have lengthy seller-disclosure forms.
  4. Dual Agency Allowed, Not Common: Dual Agency, as defined in Virginia, is when one agent represents the buyer and seller on the same transaction. While allowed, if both parties sign-off, it is pretty uncommon.
  5. No Response/Counter Deadline: The contract does not require either party to respond to an offer or counter within a certain period of time unless one party writes in their own deadline
  6. Earnest Money Deposits/Escrows: It is customary for the deposit (EMD/Escrow) buyers make to secure the contract to be due within 3-5 days of ratification (terms accepted by both parties) and the deposit is usually 1-5% of the purchase price
  7. Days: Contractual obligations are usually measured in days from ratification. A “day” in Northern VA contracts is any calendar day, no skipping weekends or holidays, and ends at 9PM.

What’s the takeaway here? Even if you have real estate experience in other markets or past experience in our local market, it’s always good to refresh yourself on local customs and contracts.

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

Buying or Selling a House with a Pool

Question: We have made a backyard pool a higher priority on our housing criteria, but finding very few homes for sale that have one. How difficult is it going to be to find a house with a pool already built?

Answer: A few years ago I wrote a column about whether or not having a pool helps or hurts when selling your home. The short version is that, historically, homes with pools take longer to sell and sell at a deeper discount from the original asking price than homes without pools.

It makes sense because most local buyers don’t value having an in-ground pool – they’re costly to maintain, parents of young children see them as a safety hazard, they often take up most/all of the backyard lawn space, and it’s useful less than half of the year.

However, things have changed this year with buyer and homeowner demand for backyard pools increasing. Let’s take a look at some of the numbers behind finding and selling homes with pools in Arlington and Fairfax County. The data below is based on sales of single-family detached (SFD) homes sold since 2015.

Data Highlights
  • It is REALLY hard to find a home in Arlington with a pool. Only 1.4% of SFD sales in 5+ years have included a pool.
  • The average price of a home with a pool in Arlington is artificially inflated by a $45M sale earlier this year. Without that sale, the average price of a home with a pool in Arlington drops to $1,352,000 and $1,423,000 in the 22207 zip code.
  • 70% of homes sold with a pool are in 22207 and 22205
  • The highest percentage of homes sold with a pool in the area is in Great Falls, with just over ¼ of the sales including a pool
  • In Arlington, you’re most likely to find that pools take up most/all of the usable backyard space, but lot sizes in Fairfax County are big enough to accommodate a pool and a lawn
LocationTotal Sales (since 2015)Avg Sold PriceAvg Lot SizeAvg House SqftAvg Sold $ to Original Ask $Avg Days on Market
Arlington County83 (1.4%)$1,825,9630.354,27197.2%58
2220746$2,376,2100.454,65597.1%64
2220512$1,423,8450.313,98998.8%34
Fairfax County2,571 (5.9%)$1,139,9981.364,58795.7%58
Alexandria (not city)309$730,0480.442,99396.8%44
Annandale75$719,3200.553,19697.2%33
Centreville73$778,0601.404,33597.5%45
Chantilly40$685,7210.323,49898.1%34
Clifton113$1,061,8814.315,76293.5%96
Fairfax Station153$971,8774.075,07095.7%54
Great Falls345 (25.3%)$1,480,8292.356,04993.9%81
Herndon152$715,3520.533,37998.1%30
Mclean373$2,258,2931.146,31492.9%94
Oakton123$1,191,3011.305,31394.1%64
Reston55$848,9440.634,27696.3%39
Vienna240$1,043,7590.994,46895.8%48
Building Your Own Pool

Most people are shocked when they find out what it costs to build a gunite (concrete) in-ground pool around here, which usually runs $150k-$200k+ before additional patio and landscaping work.

I linked up with local Arlington landscape designer/expert Rob Groff, of Groff Landscape Design, to find out why it’s so much more expensive to build a pool here than elsewhere in the region/country and ask about a common strategy I’ve heard from homeowners to hire an out-of-town company to build a pool for less and pay for their travel/lodging during the project to save some money.

Q: Why is it so expensive to build a pool here?

A: It’s so much more expensive to build a pool here because permitting is more time consuming and expensive, materials and labor are more expensive, average lot size is smaller which oftentimes causes for problems, engineering, municipal related site preparation such as construction entrances, super silt fence, site restoration, drainage, etc are all a factor.

Q: Is it more cost effective for homeowners to hire an out-of-town pool company who builds pools for less money and pay for their travel/lodging?

A: A lot of pool companies don’t include all expenses up front and therefore there are a ton of surprise costs on the back-end of the pool project.  I’ve seen this a lot especially from out of area pool companies.  We actually setup a spreadsheet and accompany some of our clients in the vetting process.  We had a local company at 205k for a pool that a Fredericksburg based company had at 145k.  By the time the meeting was over and we corrected the Fredericksburg company to make sure they didn’t leave anything off, they were up at 215k. 

Q: Are there more affordable options for in-ground pools that you recommend?

A: In Northern Virginia, a gunite (concrete) pool has been the standard for a long time.  On average, we see these coming in at $150k-$200k in Northern Virginia (not including the pool patio and other surrounding elements like landscaping, lighting, etc).  Fiberglass pools are growing in popularity and their base price is closer to $55k-$65k (River Pools and Spa). These fiberglass pools don’t feel the same to many homeowners as a true gunite pool, but they save enough money to make people consider them. There are a ton of good videos on their website that explains the differences between gunite and fiberglass, etc.

Thank you very much Rob! For anybody interested in excellent landscaping design consultation and work, I highly recommend Rob and his team at Groff Landscape Design. Pool design, layout, and project management is part of their service package for those interested in building a pool. They even have a great financing program available to help spread the cost of what is often $100k+ landscaping projects.

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

The Return of Arlington’s Housing Supply

Question: Will housing inventory come back to the market after this spring’s big drop?

Answer: If you’re tired of seeing me write about the low housing supply, I don’t blame you, but it’s the most important factor in our housing market and will likely continue to be for the foreseeable future. This week’s analysis digs into just how big the gap in expected vs actual housing inventory was this spring (Coronavirus) and what the future might look like as that inventory (hopefully) rolls back into the market.

20 Years of (mostly) Consistent Housing Inventory

The pace and distribution of new inventory in Arlington has been pretty consistent over the last 20 years. Inventory peaks in the spring, with about 1/3 of new listings hitting the market from March-May and then steadily declines to annual lows during the holidays, with a slight “fall bump.”

Where It All Went Wrong

Like everything else in 2020, housing inventory suffered tremendously during the COVID-19 outbreak and associated lockdowns. In the months prior to COVID-19 (December-February) the number of new listings seemed to be on track to return to, or close to, our 20-year average after a down year in 2019 (due to the Amazon HQ2 announcement). However, from March-June 2020 we ended up down 232 single-family/townhouse listings and 163 condo listings compared to the 20-year average.

My Hypothesis: Hope is on the Horizon

As shown in the first charts, there is a downward trajectory in new listings after new inventory peaks in April and May. We’re seeing drastically different market behavior this year, with a sharp positive trajectory in new listings in June (continuing in July, but not charted due to incomplete data at time of publishing).

My hypothesis is that the majority of homeowners who planned to sell this spring and held off due to Coronavirus still have every intention of selling and will likely do so between this summer and spring 2021, resulting in an above-average rate of new listings per month over the next 9 months, barring any major shifts in Coronavirus related market behavior.

I also think that more of the pent-up inventory will be released this summer/early fall because of how strong the market currently is (low interest rates, high demand) and homeowners who were prepared/preparing to sell this spring won’t want to risk the uncertainty of how Coronavirus and the election might change the market 3+ months from now.

The charts below illustrate what new listing volume might look like if half of the homes that were held back from the spring market are released onto the market from July-September and the other half is distributed in-line with the historical monthly distribution through spring 2021.

The Effect of More Inventory

At the end of the day, what everybody wants to know is how changes in market conditions will affect housing prices and buyers’/sellers’ experience in the marketplace.

Right now, prices are appreciating quickly across many sub-markets. An interesting pattern I’ve noticed over the last ~6 weeks is that there seems to be strong market support for modest price appreciation (1-3% over previous market value), but a thin layer of desperate buyers willing to pay significantly more to lock-in a home purchase.

I’ve seen this pattern show up in Arlington in about a dozen multiple offer situations where most offers center around a similar price range (modest appreciation) and one buyer blows everybody out of the water with an escalation that essentially cannot be beaten (with all contingencies waived). I recently had a listing agent inform me that the winning offer included an escalation that “pretty much didn’t end” on a single-family home listed for around $900,000.

This is great for homeowners on the receiving end of this market behavior, but incredibly frustrating for buyers. I think that one benefit of a spike in summer/early fall listings will be the satisfaction of this presumably thin layer of desperate buyers and prices will become more predictable.

Looking further down the road at the end of 2020 and into 2021, the key metric that will determine how prices react is the absorption rate – the rate of homes sold vs the number of homes being listed for sale. A rate above 1.0 means that demand is outpacing new inventory and there is significant upward pressure on prices. Economists look for an absorption rate of ~0.2 for a balanced market, and the higher the rate, the more favorable the market is for sellers.

Below is the monthly absorption rate for single-family detached homes (red) and condos (yellow) in Arlington and the DC Metro. Note that Arlington’s detached absorption rate is a bit higher if you remove new construction (unfortunately I can’t customize it in this case) and that the Northern VA market is very similar to the DC Metro market.

I expect the absorption rate and demand to remain strong through an increase in new listings which will likely mean continued support for the price growth we’ve experienced so far in 2020.

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

Impact of New Homes on Housing Prices

Question: How much of Arlington’s high housing prices are attributed to new homes?

Answer: So far this year, the average sold price of a single-family detached (SFD) home in Arlington is $1,146,000, but if you remove the sales of new homes, which are averaging $1,810,000 in 2020, the average price for a SFD home in Arlington drops 7.4% to $1,060,000. Since 2015, the average price of a new SFD home in Arlington has increased by 21.6%, while the average price of resale homes has increase 25.3%.

Important note: I removed one sale from the 2015-2020 sales data; a January 2020 sale of 409/411 Chain Bridge Rd for $45M, because it is such an extreme anomaly in Arlington real estate data that it skews everything else too high. This is important to understand because most likely in other assessments of Arlington real estate data you see, this data point will be included and it will make it seem like the average sale price in Arlington, especially 22207, has increased much more than it actually has.

New Home Prices vs Resale Prices

The charts below compare the annual change in the average price of a new SFD home and a resale SFD home. The first chart shows all Arlington SFD sales and the second chart is just for the 22207 zip code which accounts for 54% of all new SFD home sales since 2015.

I was a little surprised by how uncorrelated average prices were between new and resale homes some years, I would have expected a strong linkage.

One data point that stands out is the huge jump in new home prices from 2017 to 2018, which seems to be tied to a significant drop in the number of transactions (lower supply) in 2018. It highlights just how sensitive the new home market is to supply swings and I wonder if that forecasts less growth in the future as more homes built in the last 5-8 years come up for resale, competing with similar new homes. I also wonder if a pause in buying by builders in the first half of this year may lead to a material shortage of new homes in 2021 and drive prices up for new homes selling next year.

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

New Construction Tips and Learning Opportunity

Question: What recommendations do you have for somebody just beginning to consider building a home?

Answer: If you’re considering building a home and looking for a great educational opportunity, I’d like to invite you to a walk-through with the builder of a home that’s currently under construction (3196 N Pollard St). The builder, James McMullin, is a 3rd generation Arlington home builder. At the end of July, he’s offering two educational walk-throughs for small groups during the framing stage of construction to provide a peek behind the walls.

If you’re interested in attending, please email me at Eli@EliResidential.com (I promise you won’t get spammed with marketing!).

I sat down with James McMullin to outline the key phases of building a new home from acquisition through post-completion, along with some helpful tips at each stage.

Lot Acquisition
  • You can do this yourself or through a builder. A key competitive advantage for builders is a pipeline of quality lots.
  • If you acquire your own lot and find yourself in competition, it’s important to understand what type of offer terms you’re up against. Builders frequently offer existing homeowners months of free rent-back.
  • If you acquire a lot, make sure you establish a relationship with a builder before making an offer so they can provide necessary feedback on the feasibility of building the home you want either before making an offer or after (Study/Feasibility Study)
  • There are special loan programs available if you plan on acquiring your own lot. Troy Toureau (ttoureau@mcleanmortgage.com) of Mclean Mortgage is an excellent resource for construction loans
  • Cost: Lots in Arlington are currently selling from $500,000 for less desirable lots/locations to well over $1,000,000
Planning/Design
  • Designing the floor plan and elevations (exterior design) can be fun for some, but it’s easy for people to let this process drag on for months if they’re indecisive or unprepared
  • Having a great architect who understands your vision and current home design trends is critical
  • Full custom vs semi-custom: A fully custom home is designed from scratch to suit your tastes and will take much longer and cost much more in design fees. A semi-custom home uses a pre-designed floor plan and elevation template and you make small adjustments to suit your taste.
  • Cost: Semi-custom homes often range from zero design cost to a few thousand dollars, while fully custom homes usually cost tens of thousands in design fees.
Permitting
  • In Arlington, you will submit plans for County review/approval including demolition, building (architectural), and civil (engineering) before any work can begin
  • It usually takes four months for permits to be approved by the County, assuming everything is submitted correctly
  • Cost: Permit fees vary based on a number of factors but will generally be $25,000 + for new construction.
Demolition/Construction
  • Common pitfalls:  If you are selecting fixtures and finishes, meeting timelines is often a challenge. Most people struggle to make finish decisions and the ordering process often takes longer than expected (months) with buffer needed to shipping issues or incorrect shipments. Having an experienced interior designer on-board can be helpful.
  • Demolition and construction often take 4-8 months and can be delayed due to weather, material shipping/availability issues, and an assortment of other factors
  • Cost: The cost of demolition and site prep, including utilities, generally costs about $100,000. Construction costs, including materials and finishes, generally ranges from $400,000-$700,000+ in this area
Completion/Post-Move
  • Throughout construction the County will conduct inspections of the home, but you cannot move in until the County has issued a Certificate of Occupancy (final permit approval)
  • You may also consider hiring a 3rd party inspector with home building experience to inspect the property through each stage of construction including the foundation, pre-drywall, and the finished home
  • It’s common for there to be a (long) list of punch-out items for the builder to complete after the County has issued a Certificate of Occupancy (paint touch-ups, a chipped cabinet, missing light fixture, etc). Most builder contracts require you to close on the new home within a certain number of days of the Certificate of Occupancy and allow the builder access to the home after closing to complete the punch-out list.
  • Minor issues, especially cosmetic ones like settlement cracks in the drywall, are common after closing and will require maintenance for the first 6-18 months. Many builders offer post-settlement touch-ups/maintenance as a courtesy.

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