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.

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.

Assumable Low Interest Rate Loans

Question: Is it possible to take over a seller’s existing loan if they have a low interest rate?

Answer: Thank you to our Veterans and Active-Duty military for your service.

In keeping up with the theme of last week’s column, addressing popular mortgage product/strategies, and in honor of Veterans Day, this week I’ll cover assumable VA loans.

An assumable loan is a loan that can be transferred from a seller to a buyer, allowing the buyer to maintain the interest rate of the seller’s existing loan rather than accept a market-rate interest rate. This can be valuable in a high-interest rate environment like we’re in now when most homeowners have an interest rate well below current market rates.

To help me provide the best information about assumable VA loans, I reached out to Skip Clasper of Sandy Spring Bank (sclasper@sandyspringbank.com), who I highly recommend for a range of loan products including VA loans, construction/rehab loans, and jumbo loans.

Only Some Loans Are Assumable

VA loans (available to Veterans, service members and surviving spouses), FHA loans, and USDA loans are the only traditional loan products that are assumable. They make up a relatively small percentage of existing home loans in Arlington (likely single-digit percentage of total loans). I’m not aware of any conventional loans that can be assumed.

Key Details about Assuming a VA Loan

There are some important details and caveats to assuming a VA loan that both buyers and sellers need to understand prior to transferring a loan:

  1. Buyers do NOT have to be a Veteran or otherwise qualify for a VA loan to assume a VA Loan
  2. Sellers can NOT obtain a new VA loan until the previously assumed loan is paid off (or refinanced out of) unless the new buyer is a Veteran and uses their eligibility on the assumed loan
  3. It is less expensive (closing costs) to assume a loan than to originate a new loan.  The VA Funding fee is only 0.5% for assumable VA loans.
  4. You need a down payment that covers the gap between the assumable loan balance and the purchase price. For example, if the seller’s loan balance is $200,000 and the purchase price is $500,000, the buyer is assuming $200,000 is debt and will have to cover the remaining $300,000 via down payment or alternative debt such as a second trust.
  5. Buyers need to qualify for the loan using normal income, debt, and credit guidelines

As you can probably determine from the above details, there are only a limited number of scenarios where assuming a VA loan makes sense for both parties. The biggest hurdle to VA loan assumption is that the VA loan eligibility stays with the loan so if the buyer does not have their own VA loan eligibility, the seller must be sure they are okay giving up this very valuable benefit until the new buyer pays it off or refinances.

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.

How do you prefer your seller discount? 2-1 Buydown Review

Question: The seller of a home I’m interested in is offering a 2-1 Buydown incentive. Should I accept that or negotiate for something else?

Answer: Higher mortgage rates have re-opened conversations about creative ways to help buyers reduce their rates and monthly payments to incentivize demand: assumptions, seller-financing, buy-downs, adjustable mortgages, and more. Over the coming months, I’ll start covering some of these options to share pros and cons of each.

This week, we will look at the 2-1 Buydown, which has captured a lot of attention lately and is being marketed as a way for seller’s to draw buyer interest by helping them reduce their monthly payments during the first two years of their loan.

I’d like to thank Trey Reed of Intercoastal Mortgage (trey@icmtg.com) and Brad Pace of US Bank (brad.pace@usbank.com) for their contributions on this article.

POLL: How would you prefer to allocate a $10,000 benefit from the seller of a home you are buying?

Answer 1: $10,000 off interest payments spread over two years (2-1 Buydown)

Answer 2: $10,000 in points to permanently lower your interest rate (“lose” benefit if you sell or refi)

Answer 3: $10,000 off closing costs (up-front cash savings)

Answer 4: $10,000 reduction to the purchase price

What is a 2-1 Buydown?

A 2-1 Buydown is a seller-paid benefit to the borrower/buyer that reduces their mortgage rate by 2% in the first year and 1% in the second year. In the simplest terms, it allows the seller to pre-pay some of the buyer’s interest payments for the first two years of the loan to reduce their monthly payments.

It generally equates to a savings on total interest payments equal to ~2.35% of the loan amount, over the two-year period. The seller pays that amount to the bank at closing, which shows up as an additional cost to the seller on their settlement statement. The 2-1 Buydown is something sellers may offer up-front or that buyers can negotiate for.

Ultimately, the question (which is reflected in the above poll) is whether or not the dollars allocated by the seller to a 2-1 Buydown are best used there versus towards buyer closing costs (reduces buyers out-of-pocket), lowering the purchase price (reduces interest/payments over the life of the loan and loan payoff amount), or points (a permanent reduction in interest rate rather than pre-paying some interest for two years).

It’s important to note that the 2-1 Buydown doesn’t change the qualification requirements (e.g. Debt to Income ratio limits) for the borrower (buyer). They must qualify for the loan at the full mortgage rate, not the discounted rate.

There is also a less commonly used 3-2-1 product that lasts three years and reduces the rate by 3%, 2%, and 1% in years 1-3 of the loan.

Example of a 2-1 Buydown

Here’s an example from Brad Pace at US Bank of a 2-1 Buydown, compared to using the same dollars to reduce the purchase price:

Standard Deal w/o Any Negotiated Discount:

  • Purchase Price: $1,500,000
  • Loan Amount: $1,200,000 (20% down)
  • Interest Rate (7yr ARM): 5.75%
  • Principle & Interest (P&I) Payment: $7,002

Deal w/ 2-1 Buydown:

  • First Year P&I Savings: $17,345.85 ($5,557 P&I payment)
  • Second Year P&I Savings: $8,917.27 ($6,259 P&I payment)
  • Buyer Savings in First Two Years (also the cost to seller): $26,263.12

Deal w/ Cost of 2-1 Buydown Applied to Price:

  • Purchase Price: $1,500,000 – $26,263 = $1,473,737
  • Loan Amount: $1,178,989 (20% down)
  • P&I: $6,880
  • Buyer pays $23,328 more in first two years compared to the 2-1 Buydown and will take ~16 years for the lower ($122/mon P&I) payment on the price reduction to breakeven with the cost savings of the 2-1 Buydown. However, buyers also benefit from a lower loan balance which means more equity and more proceeds when they sell.

Pros and Cons of the 2-1 Buydown

While the 2-1 Buydown may be considered a helpful marketing tool for sellers to draw interest in their home, buyers ultimately need to decide whether they feel it’s the right allocation of dollars being offered by the seller compared to alternatives like closing costs, price reduction, or points.

For me, I think it’s worth considering if you’ve already negotiated for the seller to pay 100% of closing costs and there’s still enough negotiation room to cover the cost of a 2-1 Buydown and the savings in the first two years is more valuable to you then longer-term payment reduction and loan balance reduction you get by lowering the purchase price.

Pros of a 2-1 Buydown:

  • Will reduce your payments significantly more during the first two years than an equivalent reduction in the purchase price
  • If the buyer refinances their loan or sells before the two years of the 2-1 Buydown is complete, the bank will credit any remaining balance on the 2-1 Buydown against the payoff of the loan. This makes it different (and potentially more valuable) than buying down a rate permanently with points because you lose that benefit upon refi or resale.
  • Gives buyer more time to adjust to their full mortgage payment if they expect a raise or additional source of income within 2-3 years from their purchase
  • Gives buyer extra cashflow in first two years to help with moving expenses including buying furniture

Cons of a 2-1 Buydown:

  • If the 2-1 Buydown is in lieu of seller paying buyer closing costs, buyer may benefit more by having those funds used to reduce their closing costs which results in an up-front cash savings instead of receiving that same dollar amount spread over two years (money now vs over time)
  • Many banks do not carry a 2-1 Buydown option so the “natural” interest rate on a 2-1 Buydown can be higher and some banks only offer it on their 30yr fixed rate loans, not ARMs or Jumbo loans
  • Over the long run, a reduction in purchase price (loan amount) might save you more money than the up-front savings of a 2-1 Buydown. Discuss this trade-off with your loan advisor.

Trey Reed of Intercoastal Mortgage shared his thoughts on the 2-1 Buydown program in this short three minute video.

Let me know what you think about the 2-1 Buydown in the poll and/or comments section!

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.