Real Estate Within Walking Distance of Metro

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

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

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

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

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

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

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

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

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

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

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

High Escalations, Fast-Paced Sales Across All Property Types

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

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

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

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What About Higher Interest Rates?

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

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

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Arlington In Three Charts

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

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

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

Home Design Trends From An Expert

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

Sherwin Williams Evergreen Fog
Pantone Very Peri

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

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

Take it away Caroline… 

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

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

Built to Last

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

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

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

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

Textures, Wovens and Rattans…Oh My!

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

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

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

Wallpaper is Officially Back!

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

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

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

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

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

Question: How has the Arlington housing market compared to the rest of the region?

Answer: The 2022 housing market reached a full sprint by the 2nd week of January and the question everybody is trying to answer is whether we’re in for yet another monstrous year or if the craziness will settle as interest rates climb and more inventory hits the market in the next 4-8 weeks. My personal prediction (and hope) is that January and February will be intense but once we start seeing more properties listed for sale (March-June), the market should gain some stability, albeit still very competitive.

Cause of the Craziness

If there’s one metric that best illustrates why the January market is already so brutal, it’s Months of Supply, a measure of current supply and the pace of demand. Housing economists say that ~6 months of supply is a balanced market, and the lower that number, the more favorable things are for sellers.

Nearly all local and regional markets including Arlington, Northern VA, and the DC Metro closed out December with the lowest Months of Supply for single-family detached homes ever with Northern VA and the DC Metro heading into January 2022 with less than two WEEKS of supply and Arlington coming in just a fraction over two weeks. Loudoun County entered the new year with ONE week of supply…

Even the condo market made significant improvements in the last quarter of 2021 after taking quite a beating during the first 12 months of the pandemic. On a quarterly basis, Months of Supply for the condo market in Northern VA, the DC Metro, and Arlington dropped significantly relative to the last 5-6 quarters. Months of Supply in Arlington’s condo market is now much closer to pre-pandemic levels than where it has been since the pandemic started.

The Problem is High Demand, Not Under-Supply

Months of Supply is affected by supply and demand, but the incredibly low readings for single-family detached homes are being driven almost completely by insanely high demand (see Absorption Rate chart below) because we have had a healthy/normal dose of inventory listed for sale over the last 18 months (see New Listings charts below).

Prices Have (Obviously) Responded Accordingly

No surprises here…the average price of single-family detached has quickly trended upwards while the condo market managed to hold on, despite a worrisome period from summer 2020 through spring 2021. The questions I’m looking to answer are whether there’s even more room for appreciation in the single-family market and if the uneven pace of appreciation between the single-family and condo market will cause a delayed upward price reaction in the condo market because single-family (and townhouse) has gotten too far out of reach for many buyers.

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

2021 Real Estate Market Review: Single-Family

Question: How did Arlington’s single-family home market perform in 2021?

Answer: Last week we reviewed the performance of the condo market so this week we will take a look at the market that has been a topic of conversation across the country for well over a year – the single-family (detached) housing market.

Appreciation Was Strong, Not Exceptional

The 2021 Arlington single-family market was fiercely competitive and experienced its highest appreciation in years. However, the shift in market conditions (demand and price appreciation) was not nearly as dramatic as other regional or national markets that have made headline news over the last 12+ months.

Why? Because thanks to strong market fundamentals and Amazon’s 2018 HQ2 announcement, the Arlington market was already exceptionally competitive and expensive, relative to most other regional and national markets, prior to the COVID-driven housing market mayhem.

Here are some highlights from the chart and table below (22206 and 22209 are not included due to lack of single-family homes sold):

  • The average and median price of a single-family home in Arlington increased in 2021 by 6.2% and 7.2%, respectively. Excellent appreciation for any homeowner, but not the double-digit appreciation other regional and national markets experienced last year.
  • Nearly 50% of homes sold for more than the asking price and didn’t last more than one week on market
  • More single-family homes were listed and sold in 2021 than any of the last five years. Had supply been closer to the ~1,000 homes sold in the previous three years, I suspect average and median prices may have climbed closer to double-digit year-over-year increases.
  • The median price of a house in Arlington exceeded $1M for the first time in 2021. The average price climbed above $1.2M in 2021 and has been above $1M since 2018.
  • The average buyer paid 1.1% over the asking price, which equates to about $13,000 over ask.
  • Of the homes that went under contract in one week or less (just under half), the average buyer paid 3.7% over the asking price
  • In 2017, the majority of homes (39%) sold for less than $800k, in 2021 just 15% of homes sold for less than $800k (this includes teardowns) and 19% sold for at least $1.6M.
  • In each of the last three years, over 40% of homes have sold for $800k-$1.2M

Shake-up at the Top of the Zip Code Rankings

We have a new club house leader in highest average sold price by zip code! With a 15% year-over-year increase in average price, 22213 (western Arlington) finished 2021 with the highest median and average sold price.

But wait, it gets even more interesting! Despite boasting the highest median and average price, the 22213 zip code actually has the lowest average $/SqFt, 4th lowest cost per bedroom, highest average year built by 10+ years, and tied for largest average lot size. So depending on how you look at it, 22213 is the most expensive or best value!

It’s also worth noting that 22213 has the fewest sales of the zip codes I included, with barely enough total sales for me to be comfortable using it here.

The 22201 zip code, which surrounds the Rosslyn (well, Courthouse)-Ballston Corridor, commands the most money for the least house and yard with by far the highest $/SqFt, $/Acre, and $/Bedroom.

Something I would like to highlight with the data below is that change in average price is not necessarily reflective of actual appreciation of individual homes. For example, while 22201 and 22202 show 1% and 3% year-over-year price change, homeowners in those neighborhoods can rest assured that their home almost certainly appreciated more than that in 2021. The uncomfortably low change in average price can likely be attributed to the property mix that was sold in 2021 rather than actual appreciation. Real estate data can be difficult and full of caveats when you’re dealing with relatively small sample sizes.

New Construction, Expensive Homes Lead the Market

The average price of a new home increased 13.1% in 2021and exceeded $2M for the first time ever. New homes are bigger than ever, with the average total finished square footage coming in at just under 5,300 SqFt and averaged 5.5 bedrooms with 5.1 full bathrooms (nearly one full bathroom for each bedroom).

In the last table, I broke the market in each year down by price range (lower 25%, middle 50%, and upper 25%) to see how each cross-section of the market performed year-over-year. The 8.1% jump in average price of the lower 25% in 2020 was likely due to the wave of people leaving shared living (apartments/condos) and the 8.4% increase of the upper 25% in 2021 is likely due to the increased demand of larger, new homes that offer more work-from-home and at-home schooling space for families and low interest rates allowing buyers to increase their budgets.

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.

2021 Real Estate Market Review: Condos

Question: How did the Arlington condo market perform in 2021?

Answer: Happy New Year everybody! I hope you’re all enjoying the beautiful snow.

We’ve reached a clear market stabilization point in Arlington’s condo market after an up-and-down 2-3 years. The condo market surged from the 2nd half of 2018 through pre-COVID 2020, led by the announcement of Amazon HQ2 in November 2018, then was hit hard by COVID with many owners and investors flooding the market with supply while demand dropped. This downward pressure lasted from the Summer of 2020 through Q1 2021 and has since stabilized.

Note: The statements and data below are for apartment-style condos (buildings/shared entry) and does not include townhouse-style condos (direct entry) or senior living.

Amazon HQ2 and COVID Were (Mostly) Offsetting Forces

The pricing and demand data are such that the upward pressure from Amazon HQ2 and the downward pressure from COVID seem to have mostly offset each other resulting is modest-to-moderate annual price appreciation over the last 5+ years in the Arlington condo market.

Prices from the 2019 market surge have stuck, with the average price of a one-bedroom in 2021 being 1.5% higher than in 2019 and the average two-bedroom in 2021 being 5.6% higher than in 2019. For the entire Arlington condo market, the average cost of a condo in 2021 rose 2.9% over 2019 values.

If you remove new construction condo sales, the average one-bedroom in 2021 is just 1% higher than in 2019 and the average two-bedroom in 2021 is only .9% higher than in 2019. For the entire Arlington condo market, the average cost of a condo in 2021 rose just .3% over 2019 values.

The other interesting takeaway from the data below is that key demand metrics like average sold price to original asking price, percentage of homes selling within 10 days on market, and average days on market have all settled back to what we saw before the Amazon HQ2 surge (and had been for a while before that).

I think that we are positioned for moderate condo appreciation in the coming years, unless we undergo a significant restructuring of office usage. This is based on a few key points:

  • Condo values have held on, and even appreciated slightly since 2019, despite the massive supply hitting the market over the last 18 months. Historically low interest rates and rising single-family/townhouse prices certainly helped drive that.
  • Amazon HQ2 will continue hiring thousands/tens of thousands of people over the next decade and driving major commercial development in Arlington
  • The pipeline for new condo development is practically non-existent and it takes years to fill that pipeline
  • In many cases, apartment rents are now higher than they were pre-pandemic, making buying more attractive
  • Wider gaps between condo prices and single-family/townhouse prices drive more buyers to condos, if they wish to remain in Arlington

Market Performance Similar Across All Price Points

Sometimes entire markets are led or held back by smaller sub-sections of the market and that gets lost when you take broad averages. I broke the Arlington condo market down into the lower 25%, middle 50%, and upper 25% of price points in each of the last three years to see if one section of the market might have an unnoticed influence on the overall numbers.

As it turns out, all three price cross-sections of the Arlington condo market have performed very similarly over the last three years, which I think is representative of a healthy market.

2021 Performance by Zip Code

For those interested in what the condo market in each Arlington zip code looks like, I pulled together average prices, demand metrics, and property details for you in the table below.

The most notable takeaway is the high demand metrics for 22206 (Shirlington area) because most of the units in this data set located in 22206 live/feel more like a townhouse, despite not being direct-entry (the many direct-entry condos in 22206 were not included in this data set). This clearly shows the markets preference this year for anything resembling non-apartment living.

Next week I plan to do a similar market review of the single-family/detached market.

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

20% Down Payment Myth

Question: Are there ways to buy a home without putting 20% down?

Answer: I hope everybody is enjoying the holidays and some time off!

Next month we will take some time to look at market performance in 2021, but this week I’ll address one of the most common questions I get – is it necessary to save 20% for a down payment in order to buy a home? Studies show that the most common reason people give for not buying a home is not having enough savings for a down payment.

About 1/3 of Arlington buyers purchase a home with less than 20% down and for many buyers, especially first-time home buyers, they’re putting as little as 3-5% down.

Programs For Everybody

For those with good credit, there are popular Conventional Loan programs allowing for as little as 3% down and for those with lower credit scores, FHA Loan programs range from 3.5%-10% down. There are also some exceptional 10-15% down programs available to those with great credit and good incomes that do not include mortgage insurance premiums.

Specialty Programs For Military and Doctors

If you are an active-duty or former servicemember you likely know about VA Loans that allow purchases with zero down. Doctors also have access to special loan programs offering great rates with low down payments for large loan amounts.

Mortgage Insurance

Many loans with less than 20% down will include mortgage insurance, which I wrote about here. It will increase your monthly payment and is usually a higher the less you put down. However, there are options to get rid of the mortgage insurance fees by buying it out or applying for early removal after a couple of years.

There are also loan options that do not include mortgage insurance at all.

Impact on Negotiations

Clients often ask me if a lower down payment will impact their ability to negotiate, so in 2018 I did an analysis on the topic. The results showed that only cash buyers (100% down) and buyers not putting any money down were materially impacted by their down payment, the negotiation leverage was similar for everybody in between.

However, it would be misleading to suggest that down payment percentage doesn’t have any effect. Most sellers will respond more enthusiastically to higher down payments, and this comes into play in competitive scenarios (multiple offers), which are common in Arlington and the surrounding DC Metro neighborhoods. When sellers are choosing between multiple, similar offers, buyers with higher down payments have an advantage.

Buyers can combat the potential negative impact of a lower down payment in multiple offer scenarios by getting a strong pre-approval letter from a reputable local lender, offering to get pre-approved by a lender of the seller’s choosing, increasing the Earnest Money Deposit, or several other tweaks to the contract that will be looked at favorably by the seller.

Favorite Mortgage Programs

If you’d like any additional information or recommendations on lenders or loan programs, don’t hesitate to reach out to me at Eli@EliResidential.com.

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

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

Interest Rate Forecasts and New Loan Limits

Question: What do you expect from mortgage interest rates in 2022?

Answer:

Historically Low Rates

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). So take predictions/forecasts with a grain of salt.

Higher Prices Still “Manageable”

For perspective, the chart above shows the average 30yr fixed rated mortgage in the US since 1971. Historically low interest rates have been one of the main drivers of the rapid housing price appreciation we’ve witnessed over the last 12-18 months.

The charts below, courtesy of the National Association of Realtors, show that low interest rates have kept affordability, based on mortgage payments vs income, lower than the ’05-’07 housing bubble despite housing prices soaring relative to income; even higher than ’05-’06 peaks.

Forecasting Future Rates

For years, we’ve been reading/hearing pundits say that it’s hard to imagine mortgage rates getting lower, often coupled with overly salesy messaging from the real estate industry that you must buy now because rates have never been so low and likely will not remain this low much longer. The problem with those claims is that mortgage rates have been dropping for about 40 years now (with relatively minor fluctuations along the way)…

With that said, even small fluctuations in rates in the near/mid-term impact affordability and buying decisions, making forecasts for the upcoming 12-24 months relevant to those currently, or soon-to-be, active in the buyer/seller market. The chart below shows the latest 30yr fixed mortgage rate forecasts from four leading housing research sources:

Everybody expects mortgage rates to increase over the next 12-24. This is mostly based on the expectation that the Fed will start easing its economic support and will increase interest rates (indirectly influences mortgage rates) to fend off inflation, so if that strategy changes, so too will mortgage rate forecasts.

It’s my belief that a slow, gradual increase in rates, as predicted by Fannie, Freddie, and NAR, is unlikely to have much influence on home values but any sharp increases, or even the pace predicted by MBA, could result in some downward pressure on prices. Home values are an important part of the US economy so you can expect efforts to be made by the Fed to prevent mortgage rate spikes that shock the housing market.

High Loan Limits

The Federal Housing Finance Agency (FHFA) just released new conforming loan limits for 2022, with significant increases to reflect recent price growth. The jurisdictions in the greater DC Metro area were given the maximum loan ceiling of $970,800. Beginning in 2022, Fannie/Freddie will insure loans up to $970,800 with as little as 5% down, or the equivalent of a purchase price just under $1,022,000 with 5% down. The new conforming limits increase the maximum loan amount with 3% down to $647,200, or the equivalent of a purchase price just over $667,000 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.

Cost of New Construction Homes in Northern VA

Question: How has the cost of new construction single-family homes changed over the last few years?

Answer: First, thank you to everybody who voted in last week’s poll to decide how we would donate to locate charities. Arlington Food Assistance Center (AFAC) received almost 2/3 of the vote and thus a donation of nearly $1,000 to help feed our neighbors in need. Now on to this week’s real estate topic…

The cost of a single-family home has skyrocketed locally and nationwide, with the average cost of a single-family home in Northern VA increasing 31.6% from October 2019 to October 2021. This data includes resales of existing homes and new construction, with the majority of the sales being resales. Let’s take a specific look at how the cost of a new single-family home in Northern VA has changed over the last three years (hint: they also got much more expensive!).

A few quick notes about the data:
  • The data is limited to what has been entered into the MLS (Realtor database of record) and not all new construction makes it into the MLS, but the majority does and thus gives us an accurate reading of the market
  • Northern VA aggregate totals includes Arlington, Fairfax, Loudoun, and Prince William Counties plus the Alexandria, Falls Church, Fairfax, and Manassas Cities
  • In the table below Alexandria, Falls Church, Fairfax, and Manassas refer to the County, not City, portions
Here are some highlights from the data I reviewed:
  • The average cost of a new single-family home in Northern VA increased a staggering 25.9% to an average sold price over $1.6M from 2019 to 2021
  • The biggest increase from the localities I reviewed was in Aldie, which increased 37.5% to an average cost over $1.25M from 2019 to 2021
  • The most expensive County for a new single-family home is Arlington, coming in at an average sold price just over $2M in 2021, trailed only slightly by Fairfax County, with an average sold price about $100,000 less than Arlington
  • The best value, on a price per square foot basis, for new construction in 2021 is in Manassas ($173/SqFt) and Dumfries ($183/SqFt) and the least value, on price per square foot, is Mclean ($380/SqFt) and Arlington ($379/SqFt)

If you are interested in learning more about new construction options in Northern VA or the DC Metro, feel free to email 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.

Zillow Shutters Their Home Buying/Selling Business

Last week I wrote about breaking news in the real estate industry that Zillow was underwater on their home buying/selling business, Zillow Offers. Hours after I published my article, to the surprise of many, Zillow announced it was shutting down Zillow Offers and reducing their workforce by 25% as a result.

The purpose of last week’s article was to discuss what Zillow’s problems meant for the real estate market and Zillow. For those who didn’t read and don’t intend to, the bottom line was that Zillow’s issues are not an indicator of trouble in the broader real estate market or for Zillow’s business overall, they’re simply a bad bet by Zillow that will cost them about $1B since they started Zillow offers in 2018.

However, ARLnow Commenter “Arlington Robin” made a great point that while Zillow’s issues may not be indicative of trouble in the nationwide/DC area real estate market, it will likely create problems in local markets like Phoenix where Zillow will be selling a lot of homes, likely with a priority on selling quickly vs extracting top dollar.

Background

Zillow entered the iBuying business in April 2018 (launched in Phoenix) with a home buying program called Zillow Offers in which they’d quickly purchase homes using their internal pricing algorithm (built off the Zestimates algorithm) directly from homeowners for cash. The incentive structure is simple: fast, cash, reliable, no list prep. In 2019 I wrote a column on iBuying and discussed the approach, pros, and cons.

Since 2018, Zillow Offers expanded to over 20 markets around the country (mostly in the south and out west) and bought tens of thousands of homes. Three weeks ago, Zillow announced it was freezing home buying through 2021 to focus on selling ~7,000 homes they had accumulated and last week an analyst at KeyBanc found that 2/3 are selling for less than their purchase price at an average discount of 4.5%.

Soon after these reports surfaced and hours after I wrote my article about it, Zillow announced they were shutting down their iBuying program completely (although they still have thousands of homes to sell).

Zillow vs iBuying Competitors

Zillow wasn’t the only one in the business of large scale iBuying. Opendoor and Offerpad both operate in this space with better margins and, at least for now, do not seem to be heading for the same fate as Zillow. Although, based on my reading of their earnings statements, they’re both operating at a loss, like many tech start-ups.

Even though Zillow has access to more resources and data, there are a few good reasons why Zillow has tapped out.

Setting the right offer price (high enough to buy homes at scale, low enough to make money) and forecasting the market 3-6 months out are critical to the success of an iBuying business. Zestimates, Zillow’s market valuation tool that drives these buying/forecasting decisions, was designed to attract and engage consumers, not to drive a massive home buying and selling business. Companies built around iBuying designed their pricing algorithms specifically for the purpose of maximizing margins in buying/selling real estate at scale.

Furthermore, Zillow needs to protect its core business from the high volatility of iBuying at scale ($1B in losses in 3.5 years). Zillow investors likely have less of an appetite for the risks associated with large scale iBuying, but the investors in iBuying focused businesses like Opendoor and Offerpad know exactly what they’re signing up for and are likely more willing to accept early losses. As a large publicly traded company, Zillow couldn’t just ask itself whether they could make it in iBuying, but whether the payoff in making it in the iBuying business was worth the risk of compromising its core business and brand. Clearly, Zillow leadership decided that it was not worth it.

Opendoor and Offerpad both have earnings calls scheduled for this Wednesday Nov 10 so it’ll be very interesting to see how their numbers compare to Zillow’s and what they have to say about Zillow’s exit from their business.

My Thoughts

Zillow’s foray into iBuying via Zillow Offers feels more like a lab experiment with tight guardrails than a genuine attempt to stand-up a lasting business. They’re well aware of their high margin of error predicting home sale prices via Zestimates for off-market sales (in other words, when they don’t get to tune the Zestimate based on a list price), disruptive market events are the norm not the exception, and every market is tremendously risky when buying and selling into short windows. All of these, and more, make iBuying an inherently risky business.

I doubt Zillow went into iBuying simply hoping to get lucky with market timing or that they under valued the risk associated with the business. So now that we’ve seen Zillow exit the business in less than four years instead of pause, recalibrate, and continue, my theory is that a large part of their reasoning for starting Zillow Offers was for the data and lessons learned. If they timed it right and their tech worked as hoped, it could have transformed their business (they projected the market could be worth $20B annually to them), but if it didn’t they walked away with incredible data they will certainly leverage for future ventures.

Zillow has clear intentions of growing from a search and marketing platform to becoming more integrated in the transaction (including title and mortgage) so this may ultimately be a small price to pay (~$1B in losses) towards finding the most profitable and scalable way to reach their goals. Even if it takes a few more $1B mistakes to figure it out, there’s too much return in disrupting the business of buying and selling real estate for Zillow to not keep investing in potentially disruptive ventures.

The next step for Zillow in their quest to be more integrated into the transaction is likely Power Buying whereby Zillow will buy the house you want, allow you to move in, sell your previous home, and then sell your new home back to you. It’s essentially a more involved bridge loan for people who need to sell a current home in order to buy their next home. This model is less risky and allows Zillow to profit off the transaction in multiple ways.

I’d love to hear other thoughts and theories about Zillow Offers and Zillow’s next ventures in the comments!

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