Are Home Warranties Worth it?

Question: Do you think it’s worth it to buy a home warranty and, if so, is there a provider you recommend?

Answer: Last week I talked about mitigating the risk of not doing a home inspection and failed to mention that purchasing a home warranty can also help reduce the risk of buying a home, regardless of whether or not you do an inspection.

What Is a Home Warranty?

Home warranties protect many of the systems in your home including things like the HVAC (heating and cooling), appliances, and water heater. If one of those systems stops working while you’re covered, the warranty provider will repair or replace the system, or cut you a check to replace it yourself. One year of protection generally ranges from a few hundred dollars to one thousand dollars, depending on the scope of coverage.

Most home warranties are purchased by or for a homebuyer just before closing, but sellers can also purchase a warranty and benefit from protection during the sale period, or if something comes up on the home inspection, then transfer the protection on to the buyer. Homeowners can also buy a warranty at any time after buying a home, it doesn’t have to be associated with a sale. The provider usually requires a month or so between the time of purchase and coverage taking effect to prevent people from buying a warranty just when something goes wrong (pre-existing condition).

Are They Worth the Cost?

I generally find home warranties to be worth the cost for at least the first year of ownership. If the home you’re buying has old systems, consider buying multi-year coverage. Think of the expense like you would home or auto insurance. If you’re somebody who prefers to pay higher premiums for more coverage/peace of mind, a home warranty probably makes sense for you.

A common scenario I see where home warranties pay-off is with HVACs when a new owner transitions from heating to air conditioning in the spring. During the winter, it’s often to cold outside to test the air conditioning during the home inspection so AC issues may present themselves after closing. With a home warranty, those issues should be covered.

Recommendation: Super Home Warranty

Warranty companies tend have bad reputations with complaints ranging from difficulty filing claims, low quality contractors, and lengthy delays. There were a few years that I stopped recommending warranties to most clients because of all the issues people were experiencing.

For the last ~5 years I have been recommending Super Home Warranty and have their coverage on my personal home. They’re responsive, have a good user platform/app, use high quality contractors for repairs, and I’ve yet to run into an unreasonable claim denial.

They also have some valuable inclusions that other warranty companies don’t offer like a contractor concierge that gives you access to their vetted contractors and a bunch of add-on services for a small fee like re-keying locks, carpet cleaning, and HVAC cleaning.

It’s worth noting that I don’t get anything from Super for recommending them, just in case this seems like a sales pitch ☺

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.

So, you’re not doing a home inspection?

Question: Do you have any advice to help reduce the risk of not doing a home inspection before buying a house?

Answer: The unfortunate reality of the current market (and the market of the last ~18 months) is that, in most cases, to make a competitive offer on a home, buyers are absorbing all the risks (financing, appraisal, inspection, etc). Understanding the risk/benefit trade-offs and the downside potential of these risks is critical in such a fast-paced, expensive real estate market.

Risk Management is Critical

If I had to guess, I would say that at least 75-80% of winning offers on local homes that go under contract within the first 1-2 weeks do not have a home inspection contingency, meaning they are either not doing a home inspection at all (unfortunately common) or doing a pre-offer home inspection. As with nearly every decision you make in real estate, this needs to be done with great consideration for the cost of the risk and the value of the upside to make sure it is the right decision for you on a specific property.

Part of that risk assessment is making a determination on the condition of the home – whether it has “good bones.” Having a home inspection done is the best way to reduce the risk of buying a home with condition/maintenance issues but is no guarantee that everything will be caught. If you can’t do a home inspection, seeing a home with a trusted, experienced real estate agent or somebody in the home building/improvement industry (contractor, builder, etc) is also a good way to reduce your risk.

Property condition/maintenance issues show up in a multitude of ways. Below I’ve summarized some tips on assessing a home’s condition from inspectors I work with, an article written by Stephanie Dickens of BOWA, a local design-build firm, and my personal experience.

Observe How Water Moves

Water is a home’s worst enemy and poor water management can lead to water pooling against a home and getting into the cracks of the foundation, which can lead to structural deterioration over time. A musty-smelling basement is a sign of poor water management. Look at where gutters drain – I often find that they’re dropping water right next to the house instead of sending it away. Look at the grading (slope of the yard) and if water is running towards the house, look for drainage systems. Sump pumps are nice, but they should be connected to a battery backup in case power goes out.

Good vs Bad Cracks

Cracks can be deceiving. Something as small as a crack in the drywall could be a sign of larger structural issues but are most likely cosmetic. Straight, hairline cracks above openings or at joints, like the one pictured below to the left, are nothing to be alarmed about.  If you see jagged, diagonal cracks that are wider than 1/8”, like the one below to the right, the house may have settlement issues or insufficient framing. A pattern of uneven floors and cracking around support (e.g. lintels) in one section of a home can be a sign of a bigger issue.

Level Floors Are a Good Sign

A nice, level floor indicates good structural support. If you look up to where the ceiling and the wall meet, the corner crease should be mostly straight. If the floor looks wavy or dips down in the middle, the floor joists may be sagging and need reinforcement. Uneven floors do not necessarily indicate a problem, rather is a justification for a harder look to see if there are other signs of active issues. We have plenty of well-built old homes with uneven floors around here that have been that way, without issues, for decades.

Jump Around

Stand on your tiptoes then drop down hard on your heels. Do this at various points in the house to test the deflection in different areas. All wood-framed floors are going to have some deflection, but you don’t want it to feel like you’re jumping on a trampoline. Too much bounce is an indicator of insufficient structural support.

Young At Heart

A house with newer core systems is not just a sign of good maintenance, but it’s a huge money-saver in renovations. Check on the age of the windows, roof, HVAC, water heater, plumbing, electrical, and main sewer/water lines. Any of these systems that are in the first half of their expected useful lifespan add tremendous value.

Permits Help, but Not the Whole Story

If a home has been updated or expanded, look for permits on the County permit status website, but remember that permits and quality work are not necessarily directly correlated. I’ve seen far too many permitted projects with quality issues and plenty of unpermitted projects done at a high level. Permits are a good sign, but not the entire story.

Look for Signs of Cover-up

Don’t be afraid to ask questions if you see recently painted foundation walls, patched ceilings, or brand-new flooring in the basement. They may be perfectly innocent attempts at improving the aesthetics of an ugly basement wall or old carpet, but they are also signs of covering up moisture or cracking issues. Sellers in Virginia do not have to disclose defects, but they cannot actively hide, mislead, or lie about them.

Quality Care and Repair

One of the most important judgments I try to make when looking at a home is how attentive a homeowner was to issues as they came up and how likely it was that they addressed them with quality service and solutions instead of cheap patches. There’s no specific formula for this, but there are usually signs throughout a home that suggest solid long-term maintenance vs one-time, cost-conscious listing prep. I look for the quality of materials and craftsmanship in work that was done while the owner was living in the home. For example, the choice in appliances, windows, shingles, and plumbing fixtures. Signs of attentiveness and quality in the things you can see are often suggestive of the same care in the things you can’t see.

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.

Has Your Condo/POA Banned Smoking?

Question: Do you know if Associations in Virginia have begun banning smoking using the new law?

Answer: Last year, I wrote an article about Virginia’s new law that allows Condo and Property Owners Associations to easily ban smoking inside units/homes via a new resolution to the rules and regulation, which generally requires a simple majority vote by the Board. Prior to this, Boards could ban smoking in common areas this way, but smoking bans within units/homes required a lengthy (multiple years), costly, and resource intensive effort to get a 2/3+ vote from owners to change the by-laws.

I have heard from a couple of Condo Associations that have implemented this new law to ban smoking and I would love to hear from other readers, in the comments section or in email, who have either passed a new smoking ban resolution, are in the process of doing so, or have run into challenges trying.

Last year I spoke with attorney Michael C. Gartner (703.280.9267 or mgartner@wtplaw.com), a Partner at Whiteford, Taylor, & Preston LLP and current President of the Community Associations Institute (CAI) Washington Metro Chapter, about the new law to make sure I was clear on the implications this has for Virginia condos and POA communities.

Mr. Gartner confirmed that the new law, effective July 1 2021, does in fact allow condo and POA Boards to ban smoking inside private residences with a simple majority vote of the Board. He also offered some helpful advice and caveats for any Boards/communities who plan to move forward with in-unit smoking bans:

  • In rare cases, some by-laws may specifically restrict a Board’s ability to make certain rule changes or require something other than a simple majority, so Boards should have an attorney review their by-laws prior to proceeding with a smoking ban
  • Smoking bans should be written as a compliant resolution through legal counsel, not as a simple motion
  • Enforcement is always a challenge for Boards (noise, trash, and other common rules always present enforcement challenges) and Boards may want to work with their legal counsel to establish compliant enforcement protocol
  • The new law includes a provision that allows owners to call a special meeting to vote and repeal a change in the smoking policy
  • Smoking ban policies might flip back-and-forth as new Boards are elected and the majority votes for a new/different smoking policy than the previous Board

Last week, I followed up with Mr. Gartner on the new law and he said that he has several clients (condo buildings) considering implementing a smoking ban and so far is not aware of any legal challenges or considerations that would change the opinions he shared last year when the bill was approved.

Please use the comments section or email me if you are in an Association who has taken advantage of this new law or is planning to!

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.

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.

Market Values 14% Higher Than County Assessments

Question: How close are the County’s tax assessments to actual market values?

Answer: Last week, Arlington announced that the next round of annual tax reassessments would increase the total residential assessment by 5.8% (this is overall, changes to individual home/land values will vary significantly). This change is meant to align with the increase in market values of Arlington homes, but assessed values remain well below actual market values for most homes. In fact, 88.6% of homes sold in 2021 sold for above their most recent tax assessment value.

Homes in Arlington that sold in 2021 sold for an average of 14% (median 12.3%) above their most recent tax assessment. Last year, that difference came to an average of 18.2% and in 2019 it was 14.2%.

Homeowners in the 22205 zip code benefit the most by underassessments with an average difference between 2021 sold prices and their assessments of 20.9%, or nearly $181,000. Owners of single-family homes and townhouses (17.6% average difference) benefit more from underassessments than condo owners (9.5% average difference).

If County assessments were representative of actual market values, the average Arlington homeowner would pay over $1,000 more per year in property taxes. So don’t forget to send the Department of Real Estate Assessments a thank you card!

If you believe that the County’s assessment of your home’s value is too high, you have the right to appeal the assessed value, but that must be done by March 1.

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.

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.

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.