Visualizing Arlington’s Explosion in Homes Listed for Sale

Question: Did the volume of homes listed for sale recover after a slow spring/summer?

Answer: There has been a surge of new inventory coming to market since July. For condos, it has been historically high, by a wide margin, resulting in a 20% increase in 2020 over the 20-year average. While the single-family and townhouse listing volume has spiked since July too, overall, we’re just .5% above our 20-year average.

In July I wrote a column with charts showing how low Arlington’s listing volume was compared to the 20-year average and I made some predictions that the inventory we lost in the spring/early summer would return in the late summer/fall. This week we’ll take a look at how those predictions played out and dig further into listing volume over the last four months and overall in 2020.

Inventory Comes Back, And More

Historically, March-June bring about the highest listing volume, but this year, due to COVID-19, many homeowners held off on putting their home on the market. In July, I predicted that a lot of the “missing” inventory from March-June would be listed from July-October, which would result in a delayed spring market.

As it turned out, the number of condos listed from July-October FAR exceeded the amount of “missing” inventory from March-June, by nearly 3x! For single-family homes and townhouses, July-October listing volume also exceeded the amount of “missing” inventory from March-June, but by a much smaller margin.

In the chart below, missing and excess inventory is calculated off of the 20-year average for monthly listing volume.

Condo Volume at Historical Levels, By a LOT

Just how extreme have the last four months of listing volume been in the condo market? There were 801 condos listed for sale from July-October. Prior to that, the highest four-month listing volume was 650 units from April-July 2004.

Segmenting Listing Volume by Zip Code and Bedroom Count

Overall, the 2020 single-family home and townhouse listing volume is up just .5% over the 20-year average through October and the 2020 condo listing volume is up 20% over the 20-year average through October.

Below are charts breaking down how changes in listing volume have been distributed by zip code and bedroom count. My theory, prior to charting the data, was that there would be a bigger increase in listing volume for smaller properties (1BR over 2BR condos, 2-3BR over 4BR-6BR single-family/townhouses), but it turned out to be the opposite. Go figure!

Current Supply Levels

The market has been able to absorb the extra single-family and townhouse inventory, despite it coming during a time of year with historically lower demand. However, the market hasn’t come close to absorbing the condo inventory, which continues to build at a rapid rate.

See the below chart of changes to Months of Supply (measure of supply and demand, higher MoS favors buyers) over the last three years between single-family homes and condos.

The result is that the single-family and townhouse market remains competitive, with prices remaining stable through the fall and winter, while the condo market shifts to a more favorable market for buyers, creating substantial downward pressure on condo prices.

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

$2,000,000 Isn’t What It Used To Be

Question: Is it just me or have there been a lot more $2,000,000+ homes for sale this year than in the past?

Answer: The $2,000,000 mark used to represent a significant resistance point for homes in Arlington, reserved only for the best-of-the-best and difficult to sell, but we’ve seen a surge of $2,000,000+ homes for sale in Arlington this year and demand to absorb it.

One of the more interesting differences between Arlington’s real estate market and other expensive markets is that while a huge percentage of our homes sell for over $1M, we have very few homes that sell over $3M (link to previous article). For some context, there have been 82 single-family homes listed for sale for $2M-$3M in Arlington in 2020, but just 19 listed for sale/sold since 2010 for over $3M (four of them are currently for sale).

Below is a chart showing the number of single-family homes sold that were listed for $2M-$3M since 2010. 2020 also includes homes currently for sale or under contract that are listed for $2M-$3M (and we still have 5 weeks left in the year for more homes to be listed).

Here are some interesting details about the $2M-$3M single-family home price point:

  • The average sold price to original asking price from 2015-2019 was nearly identical, ranging from 94.1%-94.7%, but this year that average shot up to 96.5%. Also, from 2015-2019, the average days on market was 93 days, but in 2020 it dropped to 58 days. Both of these changes indicate a much stronger appetite from buyers for $2M+ homes.
  • Since 2010, 92.3% of homes were/are located in the 22201 (20.1%) and 22207 (70.2%) zip codes
  • I was surprised that only about half of the sales are new construction. I would have expected new construction to make up a much higher percentage of these high-price sales.
  • Prior to 2019, a $2M+ home usually meant at least 1/3 of an acre, but in 2020 it brings an average of just ¼ of an acre
  • Bedroom/Bathroom count has remained pretty consistent over the years, with an average of 5-6 bedrooms, five full bathrooms, and one half bathrooms
  • If you’d like to click through the $2M-$3M single-family homes since 2010, here’s a link!

If you’re as curious as I was about what the chart for $1M-$1.999M single-family homes looks like, it’s quite different. Enjoy!

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

What Joe Biden’s Tax Plan Means for Real Estate

Question: What are the key tax changes Joe Biden is proposing that will impact real estate?

Answer: Joe Biden’s proposed tax plan is full of interesting details and so I reached out to the tax experts at Bormel, Grice & Huyett, P.A. for their input on the details that would have the most direct impact on real estate. Below, Matt Bormel (301-953-3259), shares the two biggest changes that President-elect Joe Biden will likely champion as part of his overhaul of the current tax code. Take it away Matt!

President-elect Joe Biden has proposed a number of policies that would affect taxes on individuals with income above $400,000, including raising individual income, capital gains, and payroll taxes. Biden would enact tax changes on corporations by raising the corporate income tax rate and imposing a corporate minimum tax.

Biden’s plan includes all sorts of changes and updates to the payroll tax, individual income tax, estate and gift tax changes, but two particular changes stand out for the real estate industry.

Elimination of 1031 Exchanges

The President-elect has detailed many updates and additions, but one of the tax provisions he wants to eliminate would have a major impact on real estate.

Biden’s proposed tax plan would eliminate the ability to defer capital gains on the sale of real property in a like-kind exchange. A like-kind exchange – sometimes referred to as a “1031” exchange – allows real estate investors to swap one real estate investment property for another and reduce or eliminate the capital gains tax on the sold property. It’s very popular among investors and developers.

The IRS has recently issued new regulations that specifically outline what constitutes real estate property in order to determine eligibility for Section 1031 like-kind exchanges.  However, those provisions would be moot if your ability to make a Section 1031 exchange is eliminated or you’re unable to get your exchange done before that elimination takes place.

With that being said, it would be prudent to consider taking advantage of Section 1031 exchange breaks before a Biden tax plan could potentially eliminate it.

First-Time Home Buyer Assistance

According to Joe Biden’s campaign website, Biden has also pledged to “provide financial assistance to help hard-working Americans buy or rent quality housing.”

Part of a Joe Biden tax change would re-establish the First-Time Homebuyers’ Tax Credit, which was originally created during the Great Recession to help the housing market. Biden’s updated homebuyers’ credit, referred to as “First Down Payment Tax Credit” would provide up to $15,000 for first-time homebuyers.

Building off of a temporary tax credit expanded as part of the Recovery Act, this tax credit will be permanent and advanceable, meaning that homebuyers receive the tax credit when they make the purchase instead of waiting to receive the assistance when they file taxes the following year.

Proposed, but Not Guaranteed

A new Administration often comes with a major overhaul to tax regulations, but it is worth noting that the President can’t raise or lower taxes on his own.  Congress has to pass legislation to adjust taxes and then send the Bill to the President for signature.  If the Senate remains in Republican control, getting new tax legislation passed without many compromises may be difficult to achieve.

As more updates become available, you can count on the experienced tax professionals at Bormel, Grice & Huyett, P.A. to provide thorough updates and guidance on how to proceed.

10-Year Real Estate Appreciation in Arlington (Interactive Chart)

Question: Do you have any data available on how Arlington real estate has performed over the last ten years?

Answer: A lot has changed in Arlington since 2010. We’re less reliant on the Federal Government for jobs, you can find something to do after 6PM outside of Clarendon, and $1,000,000 definitely doesn’t go as far as it used to. BUT we still don’t have a Rosslyn-Georgetown Gondola or a boathouse; maybe in 2030…

I thought it would be cool to create an interactive chart for everybody to play around with to show how real estate values in Arlington and different Arlington sub-markets have changed from 2010 to 2020. Click on the image below to get to a page on my website that will allow you to see 2010 vs 2020 price changes based on things like zip code, bedroom count, new builds/resale, and more.

Now stop reading and go vote if you haven’t already!

Housing Market Update, Condo Slide Continues

Question: Last month you wrote about troubling signs in the condo market. Do you see things leveling off or getting worse?

Answer: The trends I wrote about last month – shifting demand in single-family housing out west and troubling signs in the Arlington/DC condo market – continued through September with the developing changes in the condo market being the most noticeable. Let’s take a look at what we’re seeing in the housing market through September…

Arlington/DC Condo Inventory Piling Up

The number of condos listed for sale in Arlington during September (261) ranks as the 2nd most in any month over the last 10+ years, trailing a record-setting April 2016 volume (268) by just seven. The last time we had this much active condo inventory on the market in Arlington was September 2017 and you have to go back to September 2016 for a month with higher Months of Supply (measure of supply and demand).

Our neighbors in DC blew past all-time highs over the last 10+ years with 969 condos listed for sale, well above the record set this past July (863). Three of the four months with 750+ condo listings in DC have taken place in the last three months. You have to go back to June 2011 for a month with more active condo inventory in DC and July 2012 for a month with higher Months of Supply.

Fairfax and Loudoun County Condos Doing Fine/Better

While Fairfax and Loudoun County condo markets are seeing a similar late-season surge in listings, those markets are doing a better job of absorbing the inventory, so Months of Supply measures are still much more favorable for sellers with Fairfax County getting only slightly worse in 2020 and Loudoun County actually getting even more competitive.

Arlington Single-Family Market Stable

Arlington’s single-family market remains stable and is more reflective of the slight slowdown we expect around this time of the year, especially one month from an election. Single-family homes are still selling at peak prices, albeit sometimes with slightly higher days on market and fewer offers than earlier in the year.

We’re experiencing unusually high listing volume for this time of year, but that was expected given how little inventory was listed this spring/early summer. The number of single-family homes listed for sale in the 3rd Quarter of 2020 is up 42.5% over Q3 2019, but active listings are up just 2.1% for the same period, suggesting that the market has had no problems absorbing the extra inventory…and higher prices.

Sellers have not missed the memo that prices and demand are up in Arlington for single-family homes. September is the first month in 2020 that the median asking price of active single-family listings dropped below $1.5M.

I hope you’ve found this market overview interesting and/or helpful. If you’d like to discuss buying or selling strategies, 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 set-up an in-person meeting to discuss local Real Estate, please send an email to Eli@EliResidential.com. Call me directly at (703) 539-2529.

ROI On Pre-Listing Home Improvements

Question: We are planning to put our townhouse on the market this spring and wondering if you have any advice on how we should choose what improvements we should or should not make prior to listing.

Answer: The decisions you make on what money you do or do not spend improving your home prior to a sale often influence your bottom line more than any other decision you make during the sale process. They’re also the decisions you’re most in control of, so take your time and take them seriously.

Remodeling.com publishes an annual report showing the resale return of specific remodeling jobs, based on region of the country. Unfortunately, I can’t share the DC-area report here because of copyright issues, but it’s worth going to the link (you have to provide them some basic info) to take a look yourself. The findings of their report show that the majority of projects, done individually, return just 50-80% of the cost. I have seen another study by Zillow that shows similar projections.

Note that I said when “done individually” most projects return well below 100% of the money spent, but when you combine the right improvements you can create value/profit that can add to your bottom line.

Tier Your Improvements

After you prepare a full list of potential improvements, it’s important to bucket them into tiers and analyze each tier for cost, project timeline, and impact on the expected resale value to determine which improvements make the most sense. At a high level, these tiers generally fall into three categories:

  • Clean-out, Clean-up: This focuses on the low cost, high return items to make a home more presentable such painting, deep cleaning, repairs, light landscaping, etc
  • Bring up to par: Investing in one/some more expensive projects to bring them up to par with the rest of the home. For example, improving a dated kitchen if the rest of the home is updated so that the kitchen doesn’t drag down the value of the other improvements or replacing damaged hardwood floors.
  • Remodel/Homeowner Flip: Similar to what an investor might do to a dated home in an expensive neighborhood, a homeowner might choose to make a major investment into updates and benefit from a significant profit
Consider All Costs

The cost of doing improvements goes beyond the cost of the labor and materials. Don’t forget to consider things like:

  • Your time managing the work
  • Inconvenience of having work done while you’re living in the home
  • Carrying cost while work is being done, if the home is vacant
  • Risk of something going wrong during the work (applies more to larger projects)
100%+ ROI

There’s no doubt that remodeling your bathroom will generate a higher sale price, but it’s rarely advisable to invest money into improvements if you won’t return more than 100% on the investment. Herein lies the challenge and strategy in planning your improvements. Understanding the profile of your likely buyers and what they value is crucial to making investments that generate profit, not just a higher price.

If you’d like to discuss buying or selling strategies, 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 set-up an in-person meeting to discuss local Real Estate, please send an email to Eli@EliResidential.com.

Condo Smoking Ban Update

Question: Do you have any updates on how smoking bans are going in Arlington condo buildings?

Answer: In 2016, I wrote a column on condo smoking bans as my fellow 1800 Wilson Board members and I explored a smoking ban within our community. Since then, I’ve had the pleasure of meeting members of our condo communities that have been instrumental in clearing the path for healthier, more welcoming condo buildings by navigating the complex rules and challenges of banning smoking in condo units and on private balconies (banning smoking in common areas is easy).

The process of implementing a smoking ban is long, difficult, and time-consuming for those involved, but it is possible. I’m aware of at least 10 buildings in Arlington and Alexandria that have already passed, or are in the process of passing, amendments to their by-laws to ban smoking inside units and on balconies. Some of those communities I know of off-hand are (I know I’m missing a few):

  • Hyde Park (Ballston)
  • Wentworth Place (Virginia Square)
  • Carlyle House (Columbia Pike)
  • Lyon Pointe (Lyon Village)
  • Horizon House (Pentagon City) *I believe they’re in process
  • Carlyle Towers (Alexandria)
  • The Towers (NW DC)

For those of you interested in pursuing a smoking ban within your condo community, I recorded the panel discussion I hosted last year and you can watch it on YouTube here. It’s a long video (almost two hours), but it provides a highly detailed roadmap and great lessons learned from members of the community who have gone through the process already. I also have some materials from the meeting that I would be more than happy to email to anybody who wants it. Just email me at Eli@EliResidential.com.

For those of you considering a smoking ban effort, it’s important to understand a few things before you get started:

  • It usually takes 18-24+ months
  • It requires a by-law change, which usually requires at least 2/3 “yes” votes (non-votes are the same as “no” votes)
  • Start with an informal survey of the community to see if you have enough support to reach 2/3
  • Documentation and organization are critical
  • Prepare to have an attorney involved throughout the process
  • Some communities must compromise on a Grandfather Clause in order to get the necessary votes, but Grandfather Clauses are not required

I love hearing from people in communities who are making progress towards a smoke-free building, so please reach out to share your successes and frustrations!

If you’d like a question answered in my weekly column or to set-up an in-person meeting to discuss local Real Estate, please send an email to Eli@EliResidential.com.

Single-Family Demand Shifting From City to Suburb

Question: Have you seen a shift in single-family home preferences away from DC/Arlington further out into Northern VA?

Answer: Last week, I wrote about a clear shift in Arlington’s (and DC’s) condo market as historically high volumes of inventory have come to market and demand has tapered off. I received some follow-up questions about how the single-family market compares so this week we’ll take a look at some of the trends in single-family detached (SFD) homes in DC, Arlington, Fairfax County, and Loudon County.

Across all markets, demand and competition for SFD homes is high, but there is a clear shift in preferences for SFD housing further away from the city that we’ve never seen before. Both Fairfax County and Loudon County have reached all-time highs in absorption and all-time low months of supply.

Suburban Absorption Rate Sky-Rockets

The absorption rate, a strong metric for demand, has almost always been higher in DC and Arlington than in Fairfax and Loudon Counties. An absorption rate of 1.0 equal one home under contract for every home listed for sale and great than 1.0 means homes are going off the market faster than they’re being put in the market.

The first chart shows a dramatic increase in the absorption rate in Fairfax and Loudon Counties since June, far outpacing the DC and Arlington markets. Loudon County, the furthest/least densely populated of the four markets was on fire in August, with an already high absorption rate increasing nearly 50% over July.

Check out the difference between the Arlington County and Loudon County 10-year Absorption Rate in the second and third charts below.

Listing Volume Up Seasonally

One of the trends that stood out in last week’s condo analysis is the historically high volume of listings that came to market in July and August, ranking among the highest of any month in the last 10+ years. While the volume of SFD listings is up in July and August compared to past summer months, volume is still well below peak spring listing volume.

The year-over-year change in SFD listing volume in Arlington for July and August is pretty extreme (see second chart below) simply because of how low volume was in 2019 due to the Amazon HQ2 announcement, but the numbers still fall well below a normal spring market.

Historically Low Months of Supply in Suburbs

Months of Supply, a great supply/demand metric, is something I watch closely to predict price movement. The lower the Months of Supply, the more upwards pressure there is on prices.

Months of Supply for SFD homes in Fairfax and Loudon Counties has blown through 10+ year historical lows (first and second charts) and shows no sign of slowing down (prices likely rising rapidly), while Months of Supply has tapered off and even increased slightly in Arlington (third chart), a sign that prices might be stabilizing. Months of Supply in Arlington is still way too low to create a buyer’s market where prices might start dropping.

I hope you’ve found this analysis interesting and/or helpful. If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com.

The Shifting Condo Market

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

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

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

Historically High Listing Volume

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

Pre-Amazon HQ2 Demand

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

Monitor Months of Supply

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

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

Condo Market Stronger Across Northern VA

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

What About Washington DC?

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

What’s Next?

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

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

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

Why Is My Neighbor Mowing My Lawn

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

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

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

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

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

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

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