Why the #*%$ is the Market Competitive Again?

Question: A friend of mine just lost an offer on a house and there were 7 other offers, is the market competitive again?

Answer: If you’re letting news outlets, national real estate pundits, and Twitter guide your real estate strategy in the DC Metro/Northern VA, you’re likely getting a very different perspective on the real estate market than what we’re seeing locally. Despite 6-8+ months of headwinds, the market did a 180 in the first few weeks of January, compared to the weeks prior (this is a common trend).

Multiple offers, escalations, and limited contingencies have returned to many parts of the market, so this week’s column is chart-heavy to show that the “crash” in the 2nd half of the year was all relative to the breakneck pace of the market in 2021 to mid 2022 and how natural supply/demand economics are keeping the market competitive and prices up, despite how much higher the monthly payments are.

Second Half 2022 was Relatively Bad, Historically Normal

Overall, across the DC Metro region, total sales transactions finished the year 3% above the 10-year average. Things seemed a lot worse than they were because of the massive number of sales we experienced in 2021 and 2020.

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While prices in most sub-markets did drop from the first to second half of ’22, real estate in the DC Metro still appreciated in 2022 above the 10-year average. Even condos, which struggled through the heart of the pandemic, appreciated nicely in 2022.

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In Northern VA, there’s a clear jump in average prices in Q1/Q2 2022, followed by a very normal drop in average prices for Q3/Q4 (this has more to do with more expensive homes being sold in the spring, not a seasonal drop in home values), but the Q3/Q4 average prices fit nicely within the normal trend line and do not suggest any sort of crash, just a jarring difference from what we experienced in the first half of the year.

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Average sale price to original asking price ratios, one of the best demand metrics, fell sharply through December, from all-time highs in the spring. While the speed of the drop shocked the market, it dropped to normal Q4 levels so the “crashing market” feeling was only relative to the extreme demand in early 2022, but not so when compared to historical norms.

A similar pattern can be seen in the second chart for median days on market. In fact, the 2nd half of 2022 was still a faster pace market than the 10-year average.

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Showing activity during the past week, as measured by Bright MLS, is 73.7% lower than it was in 2022, but 5.5% higher than it was during the same week in 2019.

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Interest Rates Are Lower, Relatively Speaking

The relative effect of interest rates plays a huge role in demand. For most of 2022, buyers felt like they were losing every week as rates climbed steadily from January through October. Conversely, rates have fallen since November and stimulating demand.

**It’s worth noting that there are Jumbo loan products currently available at rates ~.5% less than what the second chart shows.**

Just look at the difference between the mortgage rate trends from January ’22-October ’22…

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…compared to the mortgage rate trends since November ’22…

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Not Much Demand Needed to Make the Market Competitive

With supply this low, it doesn’t take historic demand to generate competition. Q4 2022 was by far the lowest quarter for new listing supply in over a decade and total active listings still trail well behind the 10-year average heading into a new year.

We’re currently see many more homes go under contract than what is being supplied to the market. For example, over the past seven days in Arlington, 48 properties went under contract compared to only 31 new listings.

The pace of new listings will continue to increase through the spring, peaking from roughly mid-March through May, so it will be interesting to see whether demand will keep pace with increased supply or whether supply will outpace demand and reduce the amount of competition that currently exists.

For now, the low inventory and current demand levels are enough to create competition in many sub-markets for good properties priced appropriately and thus putting upward pressure on prices at a time when many expected prices to fall or remain stable.

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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 Eli Residential channel.

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

Anonymous Lender Review of the “All-in-One” Mortgage

Question:   On social media, I have seen a new loan program advertised called the All in One mortgage.   Whom might this program benefit and are there any pitfalls to look out for?

Answer: With mortgage rates so high, we’re seeing new products or new angles on old products (like the 2-1 Buydown) and lots mixed information about why rates are high or where rates are likely heading in 2023 and beyond. So in keeping up with my promise to provide relevant, transparent information on the mortgage market, let’s talk about another buzzy product being discussed lately, the All-in-One Mortgage.

It’s a fairly simple product, but cutting through the marketing of it to know if it’s the right product for you isn’t easy.

The rest of this article is a guest column generously written anonymously by a lender at a local bank that offers this product, but wishes to remain anonymous so they could provide an honest review. So enjoy a brutally honest review of a mortgage product that isn’t as great as the marketing makes it seem…

The creators of the AiO claim in their marketing that this loan will pay off a homeowner’s mortgage faster than a traditional mortgage, but we have found this not to be the case and that the AiO may be more expensive than a traditional mortgage, on an apples-to-apples basis. 

The goal of this article is to provide a quick overview of this product, as well as discuss which situations the AiO may or may not be a good financial instrument for the purchase or refinance of a home.

Mortgage, Home Equity Line, and Checking Account “All in One”
The All in One (AiO) mortgage combines a mortgage, a home equity line of credit and a checking account, all in one financial instrument.   The AiO allows you to purchase a home just like any other mortgage, where you would apply for a pre-approval, shop for a home, and once a home is under contract, the AiO would fund the majority of the home’s purchase price.

In addition, you can deposit your pay into this account, and pay all your bills from this account, just like any other checking or savings account.   The account has an ATM card and allows automatic bill pay.    Finally, the AiO acts like a Home Equity Line of Credit (HELOC), allowing you to access your home’s equity should you have such life events as paying for a child’s wedding or building an addition to your home.

Whether this product is a good fit for you depends on your goals and priorities, so the following summarizes how the AiO fits with certain personal and financial goals.

AiO Recalculates Interest Daily, Not Monthly

A traditional mortgage charges interest on the outstanding balance as of the date of the last mortgage payment, and you pay interest on this balance for each day of the month until the next mortgage payment. In contrast, the AiO mortgage calculates interest daily, so if you deposit your paycheck in the account, this immediately reduces the balance on which interest is calculated.

Said differently, if you make an additional payment to principal mid-month, the AiO would calculate interest on the lower balance for the remainder of the month, whereas a traditional mortgage would not. The creators of the AiO mortgage share that this feature saves interest, which it does.

However, the AiO mortgage has a higher starting interest rate than a traditional 30-year fixed mortgage and the AiO does not have a permanently fixed rate of interest, so the interest rate on this product may be higher or lower in the future, as it is market-driven.

Hence, any interest savings due to the AiO paying interest daily can be lost due to the higher initial interest rate and / or increases in the program’s interest rate down the road.   This does not mean that the AiO would not save on interest; however, there are many instances when the amount of interest you pay may be higher despite the advantages of daily interest recalculations, so be sure to discuss interest rate risk with your financial advisor.

Early Mortgage Pay-Off, True or False?

The creators of the AiO mortgage claim that the AiO will pay off your mortgage far faster than a traditional mortgage. To evaluate this claim, we’ve employed the assistance of a technical financial expert, who has both 20 years of experience in the mortgage industry and, before joining the mortgage industry, a finance role for a Fortune 300 company. As this individual’s company also offers the AiO product, the individual wished to remain unnamed.

The findings were that, on an apples-to-apples basis, the AiO mortgage did not result in the mortgage being paid off materially faster than a traditional mortgage. We used the simulator on an AiO mortgage web site, and summarized the results below.

For our analysis, we assumed a purchase of a $1.0M home, a 25% down payment, making the loan principal $750,000.  We assumed a 6.5% interest rate on the 30-year fixed loan, the homeowner’s household has $15,000/month after tax income and that household had $4,200 remaining of their take home pay after payment of the mortgage and all other monthly expenses.

The AiO website automatically assumes the following:

  • All of the $4,200 remaining after paying expenses is used to reduce the loan’s principal
  • The AiO web site compares the above to a 30-year fixed mortgage with assumptions above, but does not assume any additional payments are made to principal
  • The AiO web site concludes that your mortgage would be paid down in 132 months (11.0 years), but the rapid payoff of the AiO mortgage is primarily a result of the assumption that extra payments are made in the AiO scenario and not the traditional

If the same extra principal payment of $4,200 per month was applied to a traditional mortgage, the 30-year fixed mortgage would be paid off in under ten years and have a lower amount of interest paid, as the AiO would have a longer pay down period and higher interest rate.

Alternatively, if we assume that neither the AiO or the 30-year fixed mortgage pay the extra $4,200 toward principal each month, the AiO would be paid down seven months faster than the 30 year fixed (353 months vs. 360 months); however, due to the higher interest rate for the AiO, the 30 year fixed is forecasted to pay –  by the AiO’s own calculator – over $490,000 less in interest than the AiO mortgage.

Ability to Borrow not Unique to AiOs

If one has an AiO mortgage, the amount of principal paid down is, at any time in the future, available to be taken back out in cash.  For example, ten years after you purchase your home, if you have a medical emergency, you can use the equity in your home to obtain cash almost as fast as one could take cash from a savings account.

The AiO is not the only mortgage product to offer this flexibility. Traditional mortgages (e.g. 30-year fixed loan) offer HELOCS that allow easy access to cash tied to your equity, once the line of credit is approved.

In both cases, you will be charged a market interest rate on funds borrowed against your home’s equity.

We do want to share a word of caution that the largest risk to any form of a HELOC is that one may spend money on goods and services that would not have been purchased if funds from the HELOC were not easily available.

A Worthwhile Option for Investment Properties

The AiO mortgage is the only product I know that will allow one to have a HELOC secured against one’s investment / rental property, as most HELOCs are for primary residences or (sometimes) second homes.   In addition, the AiO allows one to borrow up to 70% of the value of the home, with a limit of $1.0M. Any current mortgages must be closed with the balance rolled into the AiO, and cash back is limited to $250,000.

While an investment property HELOC is not an advertised use for this product, in our opinion, this is one of the best uses of the AiO mortgage.

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 @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

So You Want a Big Yard in Arlington?

Question: We’re moving to Arlington from out of state and have always had at least an acre of land. We’d like at least ½ acre in Arlington, but can’t find much. How big are most lots in Arlington?

Answer: I talk a lot about making sure the home you want exists before setting your hopes and dreams on finding it. Understanding what lot sizes you can expect to find in Arlington is a great example of that, so this week I’ll share data on lot sizes from homes sales going back to 2019.

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The data is based on total square footage of a lot, including the land the home sites on. Most people think about lots in terms of acres, so here’s a quick conversion key:

Square FeetAcres
5,4451/8
10,8901/4
21,7801/2
32,6703/4
43,5601

Arlington Lot Size Highlights (sales since 2019):

  • Average lot = 8,479 SqFt
  • Median lot = 7,277 SqFt
  • Lot with ¼ acre or more is in the top 83% largest lots
  • 1.4% with ½ acre or more
  • Just six of 4,355 were 1+ acre, none were 2+ acres
  • More homes sold on 1/10th acre or less than ½ acre or more

The chart below shows the percentage of homes sold in Arlington within five different ranges. 69% of homes sit on lots with 5,000-9,999 SqFt.

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Drilling down even further, we see that 1,672 of 4,355 lots (38%) were between 6,000 and 7,999 SqFt

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Lot sizes are not evenly distributed across the County. The smallest lots are found in South Arlington and along the Rosslyn-Ballston corridor with larger lots found further norther. The large lot sizes are one reason why 22207 has so much tear down-new build activity.

Below you can see a distribution of lot sizes by zip code, first as a percentage of sales in each zip code and then by number of sales in each zip code.

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If any readers would like to see pricing data for certain lot sizes, I’m happy to pull that for you, just send me an email.

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 | @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Interest Rate Forecasts and New Loan Limits

Question: What are current forecasts for mortgage rates in 2023 and beyond?

Answer: Happy New Year everybody!

A few weeks ago, I posted a “Beyond the Headlines” deep dive with James Baublitz, VP of Capital Markets at First Home Mortgage, into why interest rates have increased so much.

As the calendar turns, many of you will be kicking off your home search and asking about current and forecasted interest rates, so I’ll cover that today, plus a quick note on recent loan limit increases for down payments as low as 3%.

What is a “Normal” Mortgage Rate?

The first thing to understand about mortgage interest rates is that they are market-driven and forecasting comes with the same amount of unpredictability as any other economic/market-based forecasting (GDP, Unemployment, Stocks, etc). Take predictions/forecasts with a grain of salt.

The other truth that is best illustrated by the chart below, which shows the average 30yr fixed mortgage rate since 1971, is that there really is no established “normal” interest rate that we can point to and say “this is what you can expect when markets stabilize.” So, use caution when relying on assumptions about future rates (e.g. for a refi).

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Forecasting Future Rates

Most major forecasting organizations including Mortgage Bankers Association, Freddie Mac, and National Association of Realtors (NAR) believe rates will steadily decrease through 2023 and that trend will continue into 2024.

Mortgage Bankers Association expects rates to fall faster than Freddie Mac and NAR, with average 30yr fixed rates hitting mid 5s by the 2nd quarter and low 5s by the end of 2023. They forecast that rates will be in the 4s by Q1/Q2 2024 and believe the long-term stable rate to average 4.4%.

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Freddie Mac sees rates remaining in the mid 6s for most of 2023 and closing out the year at an average of 6.2%.

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NAR expects the average 30yr fixed rate will hover just above 6% in the first half of 2023 and then settle into the upper 5s in the second half of the year:

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Higher Loan Limits for Lower Down Payments

The Federal Housing Finance Agency (FHFA) just released new conforming loan limits for 2023, with significant increases to reflect recent price growth. The jurisdictions in the greater DC Metro area were given the maximum loan ceiling of $1,089,300.

Beginning this year, Fannie/Freddie will insure loans up to $1,089,300 with as little as 5% down, or the equivalent of a purchase price just under $1,115,000 with 5% down. The new conforming limits increase the maximum loan amount with 3% down to $726,200, or the equivalent of a purchase price just under $749,000 with 3% down.

For any conforming loan (or any loan for that matter), borrowers must also qualify on several factors including credit score, debt-to-income ratio, first-time buyer status, and more. Feel free to reach out to me for lender recommendations if you’d like to explore your mortgage options.

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 @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Most Expensive Homes Sold in the DMV in 2022

Question: What were some of the most expensive homes sold this year in the DMV?

Answer: Happy holidays and new year everybody!

It’s always fun to look back at the most expensive homes sold in our nook of the world, so without further ado, let’s take a look at the most expensive homes sold this year in DC, Maryland, and Virginia. Note: this includes what is entered into the MLS, it’s certainly possible (likely) that expensive homes have traded hands privately outside of the MLS.

The most expensive home sold this year in all three DMV states is a beautiful 550-acre estate, with a private 18-hole golf course, in Upperville VA that sold for $23.5M! Despite the hefty price tag, it falls well short of the record sales from 2018, 2020, and 2021 that all cleared $40M.

Listing by John Coles, Thomas and Talbot Estate Properties, Inc (1584 Rokeby Rd, Upperville, VA)

Top 5 Most Expensive Sales in Arlington

Listing by Robert Hryniewicki, Washington Fine Properties (3433 N Albemarle St, Arlington, VA)

Arlington’s average and median prices are sky-high, but the area generally likes ultra high-end properties we see elsewhere in the region. Arlington’s most expensive sale this year is a new build in Country Club Hills clocking in at 7,450 SqFt, seven bedrooms, seven full bathrooms, and two half baths. The property sits on an unusually large (for Arlington) .39-acre lot.

Top 5 Most Expensive Sales in Alexandria

Listing by Preston Innerst, EYA Marketing (5 Pioneer Mill #502, Alexandria, VA)

The most expensive sale in Alexandria is a townhouse built in 1800 in Old Town that sits on nearly ¼ acre with over 6,000 SqFt and seven bedrooms. Pictured above is the second priciest sale in Alexandria, a waterfront penthouse condo in Robinson Landing with nearly 2,800 SqFt for $4,509,000.

Top 5 Most Expensive Sales in Fairfax County

Sold by Daniel Heider, TTR Sotheby’s International Realty (576 Innsbruck Ave, Great Falls, VA)

The most expensive sale in Fairfax County comes in at $11M for a 20,000 SqFt home recently built one block from Langley High School. Pictured above is the second most expensive sale in Fairfax County of a sprawling Great Falls residence on five acres, built in 2007, sold for $10.5M.

Top 5 Most Expensive Sales in Loudoun County

Listing by Cricket Bedford, Thomas and Talbot Estate Properties (21827 Quaker Ln, Middleburg, VA)

The most expensive sale in Loudoun County for $4,950,000 of nearly 190 acres with an active Angus cattle operation.

Top 5 Most Expensive Sales in Washington DC

Listing by Michael Rankin, TTR Sotheby’s International Realty (3017 O St NW, Washington, DC)

3017 O St NW in Georgetown is Washington DC’s most expensive sale, at $11.5M, for nearly 8,000 SqFt on over ¼ acre.

Top 5 Most Expensive Sales in Maryland

Listing by Brad Kappel, TTR Sotheby’s International Realty (3235 Harness Creek Rd, Annapolis, MD)

The most expensive sale in Maryland is a beautiful waterfront home in Annapolis with over 3.5 acres and nearly 12,000 SqFt, built in 2014 for $12,000,000.

I hope this makes for some fun conversation during the holidays about what type of ultra high-end home you would buy if you win the lottery! But I’ll be honest, the most expensive homes this year aren’t nearly as impressive as last year’s (link if you want it).

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.

My Best Advice to Start Your Home Search

Question: We are looking forward to buying a home next year. Do you have any recommendations on how we should start the home buying process?

Answer: If you Google “home buyer tips” or “what to know before buying a home” and you’ll find plenty of advice on the topic, so I’ll include some suggestions I don’t usually see online and put my own spin on some of the more common advice. 

Weighted Criteria

It’s easy to come up with 3-5 things that are most important to you, so challenge yourself early to come up with a list of 10-15 must-haves and wants. Then, starting with 100 points, allocate points to each criteria based on how important it is to you and you’ll end up with a weighted criteria list to help you focus your search and objectively compare properties.

I encourage couples to complete this exercise individually first, then work together on a combined list. This will put even the best relationships to the test!

If you want to take it to the next level, bring your weighted criteria list with you on showings and score each house based on the points you allocated to it and score each home on a 100-point scale. I often find that buyers who have taken this exercise seriously and are working within a budget are hitting scores in the 70s-80s on their top choice homes.

Length of Ownership

How long you expect to live in your home is one of the most important factors in defining what you prioritize and how you use your budget. You should focus on the following:

  1. Likely length of ownership
  2. Difference in criteria for a 3-5 year house vs a 10-12+ year house
  3. Difference in budget requirements for a 3-5 year house vs a 10-12+ year house

Appreciation is not guaranteed and difficult to predict, but the value of longer ownership periods is undisputed. One way longer ownership adds value is the potential for eliminating one or more real estate transactions over your lifetime, thus the associated costs (fees, taxes, moving expenses, new furniture, etc) and stress that comes with moving.

If you have an opportunity to significantly increase your length of ownership by stretching your budget, you generally should. On the other hand, if your budget or future (e.g. job will move you in a few years) restrict you to housing that’s likely to be suitable for just 3-4 years, it’s generally better to stay under budget.

Influencers (not the Instagram ones)

Family, friends, colleagues…they’re all happy to offer opinions and contribute to your home buying process, but the input can be overwhelming and unproductive if you don’t set boundaries. Try to determine up-front who you want involved in the process and how you’d like them to be involved.

Think about how you’ve made other major decisions in life – what college to attend, what car to buy, where to get married, whether to change jobs – and if you’re the type of person who likes input from your friends and family, you’ll likely do the same when buying a house. Plan ahead with those influencers so their input is productive and comes at the right time (e.g. not when you’re already two weeks into a contract).

Does Your House Exist?

Before jumping too far into the search process, spend a little bit of time searching For Sale and Sold homes on your favorite real estate search website/app to see if the homes selling in the area(s) you want to live in and that are within 10% of your budget are at least close to what you’re looking for. If not, spend some time adjusting price, location, and non-critical criteria to figure out what compromises you’ll need to make and then compare those compromises to your current living situation and/or alternatives like renting.

Know Your Market

We’re transitioning from the most intense housing market ever into a much more moderate environment, but what you see and read about the housing market may not be accurate in the sub-market you’re looking in.

Each sub-market behaves a bit differently and comes with its own unique set of challenges and opportunities, so take time early on to understand the sub-market(s) you’ll be involved in and what you’re likely to experience. This is something your agent should be able to assist with.

Pre-Approval & Budget

There is a lot of value in working with a lender early in the search process. For starters, you’ll have somebody who can provide real rates and advice based on your specific financial situation/needs. A lender can only do this if they’ve reviewed your financial documents and credit. The more you put in, the more you get out.

You’ll need to have a lender pre-approval to submit an offer (the seller has to know you qualify for the purchase you’re offering to make) so if you have to do it anyway, do it early on so you get the most value out of your lender. It also means that you’ll be prepared to make an offer if you find the right home earlier than you expect.

Despite the market slowing down, the quality of your pre-approval can make a big difference when you make an offer. Quality means a lender who has taken the time to fully review your documents and credit, will speak on your behalf to the listing agent, and is a bank/mortgage broker with a good local reputation.

You should strongly consider having a pre-approval from a reputable local lender to give yourself an advantage when making an offer. Pre-approval letters from big banks and online lenders don’t go over as well in our market. If you’re looking for a recommendation, consider Jake Ryon of First Home Mortgage (JRyon@firsthome.com).

Find an Agent

Agents come in many different forms and finding somebody who suits your personality and goals is important. Ask friends, colleagues, and family for referrals or spend time talking with different agents at Open Houses until you find somebody you like.

The worst thing you can do is choose your agent based on whoever responds to an online showing request faster. A good agent can provide a lot of value getting involved in your buying process 2-4+ months before you’re ready to buy.

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 @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

High Mortgage Rates, Beyond the Headlines

Question: Is there anything other than the increasing Fed Funds Rate that is driving mortgage rates higher?

Answer: This week we continue the effort to get educated on mortgage rates and products so you can be smarter, more informed consumers. Higher mortgage rates are being driven by the increases in the Fed Funds Rate, which is the storyline that commands news headlines, but that’s not the only thing driving your interest rate up.

To learn more about what’s happening beyond the headline news, I interviewed First Home Mortgage’s “market maker” James Baublitz (official title, VP of Capital Markets). Let’s jump right in….

ET: What is your role at First Home Mortgage?

JB: I work as Vice President of Capital Markets for First Home Mortgage Corporation. In this role I oversee the different loan programs we offer to borrowers, the mortgage rates we offer daily and the trading strategy we use to manage risk for the organization. This involves frequent communication with broker/dealers and monitoring market developments both intraday and throughout the year.

ET: Other than the highly covered Fed interest rate increases that have increased the cost of borrowing for everything, what else has caused actual mortgage rates to increase so much?

JB: The Federal Reserve lowered the Fed Funds Rate all the way to a range of 0.00% – 0.25% to defend the economy in the wake of the COVID-19 pandemic. Since rates were effectively at 0.00% they couldn’t go lower, but the Fed wanted to stabilize the economy further given the unprecedented macroeconomic uncertainty the pandemic caused. So, the Fed reinstated the so-called Quantitative Easing program where the Fed began buying mortgage-backed securities, the bonds backed by the mortgages many of us hold.

Supply and demand – the Fed materially increased demand for mortgage assets so prices went higher which meant rates (which move inverse to price) went much lower. Fast forward to today, the Fed never intended to remain a buyer of MBS in perpetuity and earlier this year they announced they would stop their purchases. As a result, demand decreased significantly and the rates they helped drive dramatically lower increased.

ET: Do you expect the Fed to return to buying mortgages to help bring mortgage rates down and prevent a housing crisis?

JB: It’s important to note that the Fed views their purchases of mortgage assets as an extraordinary measure done in the wake of only the most concerning economic environments. The Fed seeks to implement policies that foster full employment in the economy and a modest rate of inflation – 2% – over the long haul. The Fed does not try to ensure mortgage rates are at a certain threshold, however.

It’s also worth noting that extraordinarily low mortgage rates contribute to inflation in the form of much higher home price appreciation – the general idea being that a buyer might be willing to stretch to pay more than asking prices if their financing costs are low enough. We all certainly saw that in the bidding wars in our local markets the past couple years! With this in mind, Fed officials have previously pointed to very hot housing markets as a cause for concern and see more normalized housing markets as a good thing. Remember, their concern is price stability, not dramatic increases in home prices.

ET: Mortgage rates generally follow a predictable spread above the 10yr treasury bond, but we’ve seen this spread increase significantly over the last 6 months of rapidly increasing rates, why is that?

JB: Markets don’t like uncertainty, and mortgage markets especially don’t like volatility. Big picture, we’re phasing out of a paradigm where the Fed was the main buyer for mortgage assets to a situation where they are on the sideline. The traditional buyers of mortgage assets – commercial banks, money managers and foreign investors have big shoes to fill when it comes to replacing Federal Reserve buying activity.

The multi-billion-dollar question here is – why? There is no shortage of answers ranging from volatility resulting from the war in Ukraine, to leverage and margin concerns from US money managers, to currency fluctuations in markets like Japan. My two cents, however, is that big changes take time. We’re moving from an environment where the Fed provided clear signals to market participants that rates were going lower. In the face of all this uncertainty following the Fed’s exit and the macroeconomic events I mentioned the traditional buyers of mortgage assets are being selective and waiting until they have more certainly to buy in bulk.

It’s the same as any of us when we think about investing personally: the wider the range of potential outcomes, the more potential that our return will vary, the higher overall return we will require. In the mortgage market that means rates need to be higher. They have big shoes to fill – depending how you define it; the Fed was buying something on the order of 30-40% of newly issued mortgages. The Fed exiting the mortgage-purchasing business is a big change and like I said, big changes take time.

ET: Major organizations like the Mortgage Bankers Association, Freddie/Fannie, and National Association of Realtors have recently issues revised interest rate forecasts that vary widely. How should consumers look at these forecasts and use them for planning purposes?

JB:  Each of these groups put a great deal of time into the projections, but they are just that, projections. My advice to prospective borrowers is to use these projections as loose inputs in your planning process, but remember to focus on the house and make sure you’re comfortable with the major decision that is homeownership as a whole.

It’s no secret rates are higher today than they have been in the past few years but they remain low by nearly any historical standard. If rates decline, refinancing is certainly easier today it has been in years past. If rates remain the same or move higher in the future, today’s rates will naturally look better. Either way, take the time to find the right home for you and your family.

ET: Thank you very much for your time and thoughtful answers James. We appreciate the expertise you and First Home Mortgage have provided today!

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 @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Arlington Condo Market Performance Metrics

Question: How has Arlington’s condo market reacted to higher interest rates?

Answer: In last week’s column, I looked at performance metrics for detached homes in Arlington, shared my thoughts on local pricing behavior, and discussed news about the national vs local real estate market. This week we will look at the underlying performance metrics in Arlington’s robust condo market.

Underlying Arlington Market Performance Data for Condos

Here’s how I approached the data used in this week’s analysis:

  • Low-, mid-, and high-rise condos only
  • Resale data only, no new construction
  • All data is presented by the month a home was listed in so we can measure how home sales performed based on the month they came to market
  • Net Sold = Sold Price less Seller Credits
  • I used data from 2017, 2019, 2021, and 2022 because I think it offers a helpful snapshot of recent Arlington markets to compare 2022 to. 2017 was our last “normal” market because Amazon HQ2 was announced Nov 2018 and that kicked off a condo craze. 2019 was the first full year with the Amazon bump, but pre-COVID market, and 2021 was a full year of the COVID-driven shift in condo demand.

I either did not use or must caution your interpretation of this year’s August-November data because it is incomplete for purposes of this analysis. There are 13, 26, 39, and 42 condos actively for sale that were listed in August, September, October, and November, respectively, which will influence the performance metrics for those months when they do contract/close and most likely will result in worse performance metrics than those months currently show.

There are only 10 condos still for sale listed January-July that will likely pull down the performance metrics for those months once they contract/close, but not enough for me to be concerned about the resulting data being presented in this analysis.

Business as Usual for Condos

While the detached market was on fire in 2021 and early 2022, the condo market performed mostly along the lines of historical metrics, except for one month, February 2022, when average sold prices climbed slightly above the original asking price. As a result, high interest rates have led to a more modest reversal in pricing behavior over the last six months, compared to the detached market.

The only time in the last 15 years that we’ve seen a real acceleration in condo prices was during 2019 (and pre-COVID 2020) as a result of Amazon’s HQ2 announcement.

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Pace of the Condo Market Slightly Below Normal

We had a few months during the peak of the 2022 market where the pace of sales came close to the craziness we experienced in 2019, after Amazon announced HQ2, but average days on market has returned to its normal seasonal trends. As more data rolls in for closings in August-December, I expect the average days on market for the last 3-4 months of 2022 to exceed historical averages, but not by much.

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One of my favorite performance metrics is the percentage of homes that sell within 10/30 days. I think it beats average and median days on market for a true understanding of the pace of a market.

As opposed to average days on market, these charts indicate that high interest rates have slowed the pace of the condo market beyond the usual seasonal slowdown, with a notably slow October where just 38% of condos listed sold within 30 days. Expect to see these metrics fall even further as more condos listed after July contract and close.

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Looking Forward

Condo pricing tends to be pretty stable and movements up or down are relatively small, with the exception of major events like Amazon HQ2 (rapid appreciation) and COVID (rapid, temporary depreciation), so expect a return to stable and predictable pricing in our condo market where we’re used to seeing 0-2% appreciation year-over-year.

The effect of high interest rates will likely be felt most in the slow pace of the market. The pace will almost certainly increase in Q1 2023, which means we can expect about 1/3 of condos to sell within the first 10 days and about 2/3 to sell within the first 30 days during the spring selling season. 

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 @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Arlington Housing Market Performance Metrics

Question: How have you seen the Arlington housing market react to higher interest rates?

Answer: I hope everybody had a fantastic Thanksgiving. The results of last week’s Dark Meat vs White Meat poll were impressive. With 559 votes in as of this morning, only three votes separated white meat as the preferred part of the turkey over dark meat! We may have found the only vote closer than a Georgia Senate Race!

National vs Local Market Expectations

With daily news about the nationwide (and global) housing collapse resulting from parabolic price appreciation followed by parabolic interest rates, I want to use this week’s column to check-in on what we’re seeing locally and remind everybody that what you read in the news is generally going to be the most attention-grabbing data points and that our market is likely to experience a much more modest correction than many other markets nationwide, as we saw during the Great Recession.

My Take on Local Pricing Behavior

I shared some detailed thoughts and observations last month in a column addressing price drops in Arlington and the TL;DR version is that 1) yes prices have dropped relative to their peak this spring, 2) there’s not nearly enough data available locally to say with any statistical confidence how much that drop has been, and 3) my observation was/is that market-wide in Arlington we’ve lost most/all of the appreciation we saw in the first 4-5 months of 2022 ,but 2021 prices are still mostly holding up. Keep in mind that in a volatile, low inventory market (current state) pricing is more randomized and case-by-case than it usually is, so you’ll see plenty of individual examples that buck the aggregated trends/assumptions.

Underlying Arlington Market Performance Data for Detached Homes

This week, I thought I’d share some charts of underlying market performance metrics to help illustrate what our market is experiencing. Here’s how I approached the data this week:

  • Detached (single-family) homes only. I’ll probably look at condos next week.
  • Resale data only aka no new construction because performance metrics used in this column for new construction aren’t usually representative of the market
  • I used data from 2017, 2019, 2021, and 2022 because I think it offers a helpful snapshot of recent Arlington markets to compare 2022 to. 2017 was our last “normal” market because Amazon HQ2 was announced Nov 2018 and that sent data in unusual directions. 2019 was the first full year with the Amazon bump, but pre-COVID market, and 2021 was a full year of COVID frenzy buying with normal seasonal behavior (2020 was totally out of whack on seasonality).
  • All data is presented by the month a home was listed in so we can measure how home sales performed based on the month they came to market instead of the month they closed (closed data is a lagging performance indicator)
  • Net Sold = Sold Price less Seller Credits

**An important caveat to this data is that I either did not use or must caution your interpretation of this year’s September, October, and November data because it is incomplete for purposes of this analysis. There are 15, 22, and 19 homes actively for sale that were listed in September, October, and November, respectively, which will have a significant influence on the performance metrics for those months when they do contract/close and most likely will result in worse performance metrics than those months currently show.

Note there are 2 homes for sale listed in each month May-July and 7 for sale from August that will likely pull down the performance metrics for those months once they contract/close, but not enough for me to be concerned about the resulting data being presented for those months

Net Sold Price to Original Ask down 9.3% in 6 Months

The average net sold to original ask dropped from a March peak of 105.9% to 96.6% in August. I suspect that once September-November listings close and we can start filling in those fields, we’ll see that number fall further but maybe not significantly because asking prices have started to react to weaker market conditions and many sellers are coming off their expectations for spring 2022 prices.

Of note, this performance metric is coming more in-line with 2017 metrics. I’ll be interested to see if performance metrics stabilize around 2017 numbers, pre-Amazon HQ2, or if they worsen. My guess is that they’ll worsen slightly compared to 2017 through the end of the year and come more into balance in 2023 (pending interest rate movements).

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Average Days on Market 4.8x Higher in August than February ‘22

Unsurprisingly, the average days on market has skyrocketed relative to earlier this year from 9 days in February to 43 days in August. August ’22 is still lower than August ’17, but the August average will increase once the 7 properties still for sale from August contract/close. 

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Homes Selling Within 10/30 Days Go from Record High to Low

One of my favorite performance metrics is the percentage of homes that sell within 10/30 days. I think it beats average and median days on market for a true understanding of the pace of a market. As opposed to average days on market, these charts indicate that our market pace is slower than 2017, on a seasonal basis.

We’ve gone from 82% of homes listed in March selling within 10 days to just 27% in October. Similarly, at least 90% of homes listed February-April sold within 30 days compared to 45% and 44% selling within 30 days in August and October, respectively. That is a massive change in market pace within 4 months!

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Looking Ahead

I expect the performance metrics of August-October to worsen as more of those listings contract/close and November-December to come in below 2017 numbers. It’ll be a bit difficult to truly understand the aggregate effect on pricing because Arlington is a relatively small housing market, but I’ll do my best to come up with some accurate measures once we’re far enough into 2023 and enough 2022 listings have sold. Ultimately, the tale of local home values will be told in how long it takes interest rates to settle back down into the expected 4.5-5.5% range (don’t hold out for sub-4% rates again).

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 @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Important Poll and Data Analysis: White Meat vs Dark Meat?

Answer: Happy Thanksgiving ARLnow!

On behalf of all ARLnow readers, the Eli Residential Group has donated to the wonderful Arlington Food Assistance Center (AFAC) whose mission is to feed our neighbors in need by providing dignified access to nutritious supplemental groceries. AFAC is a 4-star, top-rated charity on Charity Navigator and is a worthy organization for your holiday giving.

I spend a lot of time on housing data every week, but this week I’d like to address the important question – do ARLnow readers prefer white meat or dark meat turkey on their Thanksgiving plate?? AND do you know the data behind your decision?

I’m all dark meat on my Thanksgiving plate, but now that we’ve started to dabble in smoking our turkey, I’ve found white meat slightly more edible. Nevertheless, my vote is firmly dark meat! What say you, ARLnow?

Participate in the poll here!

What’s an Ask Eli column without a data table to help us make our decisions? Here are the results of many minutes of research on white meat vs dark meat:

White MeatDark Meat
Fewer caloriesTastes much better ☺
Less fatMore economical
DrierMore nutrients

I hope everybody has a wonderful and safe Thanksgiving with family and friends!

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 @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.