Poll: Will You Be in Arlington in Five Years?

Question: Do you expect Arlington to suffer from an urban migration to less populous areas due to COVID?  

Answer: There has been no shortage of articles written about COVID’s impact on desirability of urban living and areas like NYC and SF have already seen drops in demand. I wrote a couple of weeks ago that demand (measured by absorption rate) in Arlington seemed to be tapering slightly, while increasing across Northern VA. This could be a sign that some buyers are choosing more distant/less populous communities, but it could also be a result of how little inventory there is and how quickly prices have gone up.

POLL

Are you more or less likely to be an Arlington resident five years from now due to the impact COVID has had on you or your partner’s life/commuting requirements?

Participate in the poll at ARLnow.

I don’t think we’ll know how COVID will impact long-term demand in Arlington until we see whether or not it results in substantial changes to where/how people work. Most people I’ve spoken to don’t know whether their employers will make permanent changes to telework schedules or flex hours, or whether they will return to their pre-COVID work routines once life returns to normal.

Commute times are a top-three consideration for most Arlington residents so it’s hard to argue that a trend towards 50% or more telework days per month won’t reduce housing demand in Arlington. The next decade is also likely to bring major improvements to autonomous driving and the commuting experience which will allow some to bear longer commutes by increasing productivity during the drive.

But just how much would net demand change? I can also see a scenario where Arlington residents who leave for more space and/or less expensive housing are replaced by new residents from cities like DC, NYC, or SF looking for a better balance of urban and suburban life.

Major shifts in telework and commuting may reduce long-term demand for Arlington housing, but I think it’s far from a doomsday scenario where the bottom drops out of the market. Commuting is still just one factor of a much larger set of needs and wants that Arlington offers its residents so it’s more likely to result in tapered housing appreciation over the long-term, rather than negative growth.

Let’s check back in on this in 2025 to see how we’re doing…

Awesome Heatmap of Neighborhood Turnover

Question: Which Arlington neighborhoods have the highest number of homes listed for sale?

Answer: I’m excited to show-off the first project to come out of a new data-visualization partnership so that I can make the data analysis I do a bit easier to digest (and prettier).

The chart below shows the Arlington neighborhoods with the most and least turnover of single-family detached homes, using the last 20 years of home sales.

Top Five Neighborhoods

The neighborhoods with the most turnover over the last 20 years are:

  1. Bluemont (1,406)
  2. East Falls Church (1,157)
  3. Yorktown (863)
  4. Donaldson Run (853)
  5. Rock Spring (848)

The nice thing about great data visualization is that it does most of the talking, so there aren’t nearly as many words for you to read as my usual column. Cheers to great data visualization and fewer words!

Have a great July 4th everybody!

April Real Estate Market Review

Question: How did the April real estate market compare to what you would have expected if we weren’t going through the COVID-19 pandemic?

Answer:

Expectations vs Reality

The 2018 Amazon HQ2 announcement sent demand up and supply down, creating a frenetic real estate market across Arlington and Northern VA in 2019 (2019 Review One and Two). The party continued into 2020, with rapid price growth and intense competition amongst buyers, setting the stage for the market to establish new highs. It also seemed that the volume of new listings would finally go up, after YoY increases in December and January, the first YoY gains since October 2018.

All of those expectations were put on hold when the Coronavirus outbreak shut down the economy two months ago. For the first 4-5 weeks, the market froze up, with buyers and sellers unsure if we were on the verge of a market collapse and how to safely navigate critical real estate activities. Over the last few weeks, demand seems to be coming back and there are signs that sellers are more confident in listing their homes, which should lead to more supply.

April 2020 Market Report

April was our first full month living with Stay-At-Home orders, so let’s take a look at how last month compared to April 2018/2019 and February 2020 (last full month of normalcy).

Extremely Low Supply

Low supply was part of every Arlington real estate conversation in 2018. Then Amazon came and supply got so bad that the County Board launched Housing Arlington, but 2019 felt like the trough. Then COVID-19 hit and April 2020 produced 18% fewer homes for sale than April 2019.

The condo market has been hit the hardest by low supply with an unfathomable 55% decline in condo listings in April 2020 compared to April 2018.

For additional context, new listings in April are usually 25-40% higher than in February, but this year they were only 10% higher and actually lower in the condo market.

Sharp Decline in Demand

Given the on-going competition and mostly stable housing prices, it may come as a surprise to those actively searching for a home that demand has dropped off significantly.

The rate of properties going under contract compared to the new supply dropped to pre-Amazon levels and the number of homes selling within one week of being on market dropped significantly. Condo demand suffered the most which I think is due to a combination of health concern about being in common areas and because it’s easy to delay a condo purchase with an extra 6-12 months of renting a comparable apartment.

While many homes are still getting great offers, sometimes multiples, I do see more homes sitting on the market that probably wouldn’t have in a non-COVID market. Homes with large buyer pools had so much demand before the virus that they can afford to lose a chunk of the buyer market and still generate strong interest. Homes with a more niche buyer market have had their smaller buyer pool evaporate in many cases and should prepare for a longer sales timeline.

Prices Seem Stable

The Coronavirus’ impact on pricing is still to be determined because it’ll take a while to build up enough data points to draw a reliable conclusion. Based on my experiences and those of my colleagues, it seems that there has been little or no impact on prices for most properties (with the exception of niche home, mentioned above), which can be attributed to relatively parallel declines in supply and demand.

Looking Forward

As society adjusts to new norms and the science community continues to bring us promising news on treatments and a vaccine, I think that we’re likely to see more confident buyers and sellers over the next couple of months, which will translate into higher demand and more supply. The impact on competition and prices will depend on which moves faster, but I expect demand growth to outpace supply, at least in the next 4-6 weeks.

The big unknown is if/when there will be another seismic jolt to our health and job security that will send sellers and buyers out of the market. It seems this fall is the most likely window for a second shockwave, but this summer is shaping up to be a strong real estate market locally.

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

Past Seven Days (Arlington) 
Seven Days Prior (Arlington)
Landscaping To Improve At-Home Living

Question: We want to make our time at home more enjoyable by improving our outdoor space. What are some of the most common landscape/hardscape improvements you see in Arlington?

Answer: After six weeks in a row of Coronavirus market analysis/updates, I thought it would be a nice change of pace to talk about some ways you can improve your outdoor space to make staying at home more enjoyable. A nicely landscaped yard can also provide a strong return on resale, especially while stay-at-home orders are fresh in buyers’ minds.

To provide the best perspective on popular landscaping projects around Arlington, I asked Robert Groff of Groff Landscape Design, an Arlington-based landscape and hardscape firm, to share some of the most popular projects they do.

Thank you for sharing your insights Robert, take it away…

Thank you Eli and hello ARLnow. If all of this time at home has inspired you to invest in your outdoor space, I hope some of these projects are an inspiration.

April Showers Bring…Wet Basements and Mosquitos

We’ve all been reminded lately to be prepared for possible threats.  Now is the time to make sure rainwater is directed away from your home foundation and mosquito breeding grounds (standing water) are minimized.

Create Family Experiences

Patios – Patios are not only for dining and grilling anymore.  Patio activities can include yoga, outdoor office, study space, play space or even an outdoor movie theatre! With infinite amounts of material options here are our top recommendations:

  • Least Expensive:  Concrete Slab – In our region, concrete cracks but when necessary it absolutely has its place. 
  • Most Dynamic & Most Popular: Concrete Pavers.  We highly recommend Techo-bloc manufactured materials because of their lifetime warranty, density rating and wide range of colors, textures and styles https://www.techo-bloc.com/.
  • Favorite for Contemporary Style:  Porcelain Tile for Exterior Use https://www.architecturalceramics.com/portfolio/exterior.html.
  • Natural Stone: Flagstone is still extremely popular especially for our traditionalists!

Fire Pits – Fire pits can be wonderful, and they come in all shapes and sizes.  Consider if you want gas or wood burning.  How many times per year will you use it?  Would an outdoor heater be more beneficial to you? 

Vegetable Gardens – These can be excellent teaching tools for your children, and they can let you skip a trip to the produce aisle. They don’t have to be A LOT of work!

Playsets – With the public parks closed, maybe it’s time to get that playset for the kids.  Conversely, maybe it’s time to finally get rid of your playset to make space for a larger entertainment area or more usable yard space?

Lawn Space You Can Use – Many of us have muddy or sloped back yards. Grading, drainage solutions and tree trimming may all be pre-requisites before you add new grass seed or sod.

Fencing – Struggling to keep your eyes on the kids and work all day?  A fence could bring comfort that your kids are safe and sound.  Is it time for that puppy you have been considering?

Outdoor Kitchens –  Although popular, these can cost a pretty penny and sometimes quite frankly aren’t worth the investment.  Specifically, utility needs, countertops and custom appliances elevate costs quickly. Alternatively consider a “grilling nook” to re-locate your grill or smoker. This may increase counter space while creating a more aesthetically pleasing grilling station.

Grilling Nook
Outdoor Kitchen

Health & Wellness Space – If you need a clean and green place to get your yoga time in, consider synthetic turf. Benefits to turf also include no more muddy paw prints.  No more watering.   Plus, it’s easy to clean and dog friendly. 

Relaxation – With everybody home you may want to design a small get-a-way in a corner of the yard to go read a book, sip a glass of wine or simply phone a friend.

Replace your Vacation with Staycation

If you had to cancel your vacation plans this year, maybe it’s time to create a “staycation” in the back yard with any of the above elements.  Consider creating more privacy from neighbors, outdoor lighting for ambiance, an audio system so you can hear the waves crashing on the beach or perhaps a pool!  We don’t know when we’ll be able to travel safely again so perhaps vacation just needs to be at home for a while.

With so many options, let us help you pick & choose and make them a reality!  For outdoor living ideas you can also follow us on social media:   https://www.grofflandscapedesign.com/social-media/.

Arlington/Local Market Update

Thank you very much Robert! Before we wrap up this week’s column, I wanted to include a quick overview of Arlington market activity over the last week.

My colleagues and I are actually seeing more competition over the last couple of weeks both within Arlington and around the DC Metro. It seems like the decline in supply is outpacing the decline in demand and that buyers are starting to come back to the market who had taken a pause through the first few weeks of the COVID-19 outbreak.

There was a slight increase in the amount of new inventory coming to market in Arlington over the last seven days, but that was offset by an almost equal increase in properties going under contract.

Past Seven Days (Arlington) 
Seven Days Prior (Arlington)

If you’d like to discuss buying or selling strategies in this market, don’t hesitate to reach out to me at Eli@EliResidential.com. Be smart, be careful, be strategic. And stay home!

Impact of Coronavirus on the Real Estate Market, Pt 6

Question: What has been the impact of the Coronavirus/COVID-19 on the real estate market?

Answer: In this week’s review of how the COVID-19 pandemic is impacting real estate, we’ll take a look at how Arlingtonians think Coronavirus will change their personal finances, how the Arlington market performed over the last seven days, and how the virus is changing the mortgage industry.

Arlingtonians Still Confident

Thank you to everybody who participated in the poll last week, we collected some really valuable information about how Arlingtonians think the virus will impact their personal finances.

Out of 1,055 respondents, 50% feel that their personal finances will either not be negatively impacted or that the impact won’t last more than six months. Over 70% of respondents don’t expect the negative effects to last more than 12 months.

These results reflect a strong local consumer (buyer) confidence and would suggest that local buyers still have enough confidence in their finances/income to make a long-term investment, like buying a home. When you consider the recent McKinsey study (below) on the most vulnerable jobs, you can see why Arlingtonians, many of whom make over $70k/year, remain confident in the face of a global economic crisis. Income/job security is likely the most important consideration for people determining what the negative impact of COVID-19 will be on their personal finances.

Arlington Market Update

New inventory tanked over the past week and we saw the largest week-to-week drop in the number of properties that went under contract. It’s hard to say for sure whether the decline in contract activity is demand-based on a result of less inventory, but it’s likely a combination of the two.

With very little new inventory coming to market and the Coming Soon pipeline drying up, total inventory is dropping quickly, which should keep home values relatively protected, despite declining demand.

Past Seven Days (Arlington)
Seven Days Prior (Arlington)

Showing activity is down significantly compared to a normal spring market, but it seems to be stabilizing at an average of 4-5 scheduled showings per week on properties listed in Arlington. I think that significant increases/decreases in showing activity will be a leading indicator of how the market feels about the risk of Coronavirus to public health and the local economy.

Major Changes To Mortgages

The mortgage industry has experienced rapid and impactful changes over the last month that will surely change demand for months or years to come. I checked in with Jake Ryon of First Home Mortgage (JRyon@firsthome.com) on the top three ways Coronavirus is impacting the mortgage business.

Elimination of Products/Tightening of Requirements

Mortgage products are designed around a bank’s ability to accurately predict a borrower’s ability to repay their loan, so as economic uncertainty rises, a bank’s ability to forecast borrower risk decreases and banks become more risk averse.

As a result many loan products not backed by the Federal Government are being eliminated including loans like sub-20% down payment jumbo loans without Mortgage Insurance (a popular mortgage product locally), Non-Qualified Mortgages (borrowers with lower credit scores or high debt-to-income ratios), and mortgages for investment properties. I’ve also heard that Second Trust loans, a popular product that allows you to purchase your next home without making it contingent on the sale of your current home, may be up next for elimination.

In cases where products aren’t being eliminated, some products have tighter borrowing standards like higher reserves or credit scores.

I suspect that changes to jumbo loan programs and a potential elimination of Second Trust loans will have a material impact on the DC Metro’s ~$1M-$1.5M market.

If you’re currently searching for a home, you should regularly check-in with your Loan Officer, especially before making an offer, to confirm that the loan product you plan to use still exists and the requirements haven’t changed.

Interest Rate Volatility

Interest rates hit all-time lows in the beginning of March, but a week later spiked in response to an overwhelming rush of refinances. The first half of March was one of the most volatile periods for mortgage rates ever, including the most volatile day ever. Since the Fed stepped in with liquidity, rates have stabilized, but are still relatively volatile.

Rate volatility is generally bad for demand because buyers take comfort in certainty. Here’s a chart showing rate movement over the last six months to highlight how crazy the last six weeks have been:

Increased Loan Forbearance

Loan forbearance (temporary pause on mortgage payments) is skyrocketing in the US, and will likely be another exponential chart to watch over the next few weeks/months. Borrowers pay a Servicer (lender) and the Servicer pays investors, who are guaranteed to receive their payments from Servicers even if borrowers stop paying. This has led to a massive liquidity crunch for many lenders and put their businesses in jeopardy of failing, despite efforts by the Government to relieve the pressure.

https://ci5.googleusercontent.com/proxy/MibKUDdVZ2qrv2k_GJPswXrC-P3vbvz-A_LZLUpCKDDaA0YonxXQX0jLflPyBmyetHNa2IhYnfVtGIP4SeOwEg_4h_Ti7UPfLayIMuGS7A=s0-d-e1-ft#https://mba-erm.informz.net/mba-erm/data/images/04102020.jpg

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

Be smart, be careful, be strategic. And stay home!

Impact of Coronavirus on the Real Estate Market, Part 5

Question: What has been the impact of the Coronavirus/COVID-19 on the real estate market?

Answer: I hope this column finds everybody in good health. If you need to replenish your cooking oils and haven’t tried The Olive Oil Boom before, I highly recommend it. It’s a local shop in Courthouse that my wife and I love. My personal favorite is the Harissa olive oil.

If you have some local favorites that you’d like to help stay in business during tough times, please give them a shout-out in the comments section and note a personal favorite product/dish!

Financial Confidence Poll

Buyer confidence drives real estate demand, so I’d like to do a reader poll this week to measure the confidence of Arlingtonians. Thanks for participating!

Question: How long do you expect the effects of the Coronavirus pandemic to negatively impact your personal finances?

Arlington/Regional Market Update

Regionally and locally we’re seeing the pipeline of new inventory dry up and sellers lose confidence. The two charts below reflect market activity in Arlington over the past seven days (left) and seven days prior to that (right). While the total Coming Soon and New Active for each seven-day period is almost identical, the Coming Soon pipeline was cut in half. You’ll also note huge increases in the number of price reductions and properties pulled off market (Temp Off, Withdrawn, Canceled, and Expired).

Demand is dropping, but homeowners are experiencing it in different ways. For example, the markets that were hyper-competitive prior to the COVID-19 crisis, such as the $600k-$900k single-family starter home market that was seeing double digit offers, are still getting strong offers, and in some cases, multiple offers. For those homes, even a 60-70% decline in demand means a few offers instead of 10+.

I inquired on five homes this weekend for two separate clients. Each was a move-in-ready detached single-family home in Arlington, Falls Church, or Alexandria priced from $695k-$875k. All five had at least one strong offer, four were expecting multiples, one had two pre-inspections scheduled and one got seven offers.

However, the number of price drops and listings being pulled from the market shows that many homeowners are experiencing something different. If your home was likely to get one strong offer before the Coronavirus lockdown, a significant drop in demand can easily mean no offers and a longer wait for the right buyer to materialize.

To gauge the odds of a successful sale (quick sale, at/near asking price), homeowners should be conscious of the profile of the buyer(s) most likely to purchase their home and try to understand how their motivation and financial security has been impacted by COVID-19. For example, dual-income families are likely feeling more financial security than single-income buyers. Buyers with kids are often more motivated because they likely have fewer alternatives than somebody buying a 1-2-bedroom condo who can more easily find a comparable rental apartment until the economy is back in order. Further, families with kids are generally buying with a longer ownership horizon and thus able to outlast whatever economic recession/depression is brought on by the virus.

Past Sever Days (Arlington)

Seven Days Prior (Arlington)

Are Prices Dropping?

Although some homes are still selling for their pre-COVID prices (which shouldn’t be happening, in my opinion, given the amount of uncertainty/risk in the market), I suspect that most homeowners are settling for a few percent less than what they would have pre-Coronavirus. You can also argue that they’re taking an even greater loss than what they would have gotten in the peak spring market (right now) had Coronavirus never been a factor.

I think that for most of the DC Metro, that’s the appropriate discount at this time, considering what we do and do not know about the future of the national/regional economy.

The price drop that most people are worried about or looking forward to, depending on which side of the transaction you’re on, is a double-digit drop like we saw during the Great Recession 12 years ago. There are myriad inputs that factor into real estate prices, but the simplest is supply and demand. If you’ve been paying attention to real estate in Arlington or the DC Metro, you know that we’ve suffered from a historically low supply of homes for sale, driven by both a lack of new inventory and high demand.

Econ101 tells us that in order for there to be a significant price drop, demand will have to recede substantially more than supply. There’s no doubt that an on-going economic shutdown will significantly reduce demand, but if changes to lending practices over the last decade and financial support from the government allow people to keep their homes, inventory will likely plunge as well. So long as inventory and demand are dropping by somewhat similar amounts, we may not see the type of dramatic price drops we saw in 2008.

To highlight just how bad the supply is around here, I pulled charts showing the months of supply in Arlington, Northern VA, and the DC Metro over the last 10 years. Note that most economists agree that a market is fairly balanced for buyers and sellers when there’s ~6 months of supply.

I also added a chart showing the corresponding change in median sold price for Arlington during that same 10 year period.

https://cpp1.getsmartcharts.com/chart/mls/1/getreport.php?rid=60&ftid=2&fid=1000&gty=120&ltid=4&lid=51013&gid=2&cc=0000dd&sid=0&mid=0&tt=2&mode=4
Months of Supply for Arlington County
https://cpp1.getsmartcharts.com/chart/mls/1/getreport.php?rid=6&ftid=2&fid=1000&gty=120&ltid=4&lid=51013&gid=2&cc=0000dd&sid=0&mid=0&tt=2&mode=4
Median Sale for Arlington County
https://cpp1.getsmartcharts.com/chart/mls/1/getreport.php?rid=60&ftid=2&fid=1000&gty=120&ltid=2&lid=1006&gid=2&cc=0000dd&sid=0&mid=0&tt=2&mode=4
Months of Supply for Northern Virginia
https://cpp1.getsmartcharts.com/chart/mls/1/getreport.php?rid=60&ftid=2&fid=1000&gty=120&ltid=2&lid=1034&gid=2&cc=0000dd&sid=0&mid=0&tt=2&mode=4
Months of Supply for The DC Metro

If you’d like to discuss buying or selling strategies in this market, don’t hesitate to reach out to me at Eli@EliResidential.com. Be smart, be careful, be strategic. And stay home!

Ask Eli: Impact of Coronavirus on the Real Estate Market, Part 4

Question: What has been the impact of the Coronavirus/COVID-19 on the real estate market?

Answer: I hope you and your families are healthy and finding some productive ways to remain safely at home. It’s been great to see so much carryout and delivery activity at local restaurants, I hope we can keep our favorite establishments in business.

I want to shout out the Sunday evening manager at the South Arlington Ledo Pizza for the way he was expressing constant, sincere appreciation to every employee hard at work and each customer who came in. It was refreshing to hear such positivity.

This week I’ll cover some real-time market updates and take a look at how past recessions have impacted real estate.

March 30 Stay At Home Order — Executive Order 55

Yesterday afternoon, Governor Northam announced EO 55, at Temporary Stay At Home Order due to COVID-19 to further discourage gatherings and personal contact.

There was an immediate concern across the real estate community that the new order effectively shut down all real estate operations, but soon after Northam’s announcement, the Northern Virginia Association of Realtors (NVAR) and the Virginia Association of Realtors (VAR) announced that under EO 55, real estate business may continue to operate using best practices for social distancing and other measures recommended by the CDC, as well as avoiding any gatherings of 10+ people. Here is a link to the official NVAR comments.

That means that as of this morning showings, inspections, appraisals, closings, lending and other activities critical to a real estate transaction are all still allowed in Virginia/Northern Virginia. Public Open Houses are strongly discouraged and many companies have suspended them.

Personally, I think showings are the most questionable activity because you can make a strong case in both directions. If somebody needs to find a home, it’s fair to say that they need to see the home in person before making an offer. On the flip side, somebody seeing five properties on a Saturday afternoon to prepare for a purchase 6 months from now should not be out on showings. There’s certainly a level of personal responsibility required here.

Arlington Market Update

It seems that much of the Arlington and Northern Virginia market has softened in the past week. This is based on further decreases in showing activity and the negotiations I’ve been directly involved in or aware of via colleagues. We won’t have actual price data available for another 3-4+ weeks when homes start closing that were placed under contract during the COVD-19 lockdown period.

New inventory continued to flow into the market, but was down from the previous week. A healthy 63 homes went under contract, showing that there are still buyers out there, but many of them are likely securing better terms than they would have a month ago, and facing much less competition.

Arlington market activity over the last week

Showing activity is unsurprisingly very low, with the average showings per listing dropping to 2.25 over the past week. With an average of about 15 showings before a ratified contract, expect average days on market to start increasing. However, the showings that are taking place tend to be to ready-buyers so it should take fewer showings than it used to for the right buyer to surface.

Average showings per listing in Arlington last week
Real Estate During a Recession

The economy is in bad shape and it could get a lot worse. It’s way too early to make any predictions about the real estate market 6-24 months from now until we know just how long Coronavirus will keep businesses closed and consumers at home.

What we can do is look at the real-time/near-term impact (what I’m trying to cover every week) and what’s happened in past recessions. The 2008 crisis crushed real estate across the country (Northern Virginia/D.C. Metro fared relatively well) and is fresh on everybody’s minds, but it’s important to note some key differences between the Great Recession and other down markets.

First, that was a mortgage-based crisis so the real estate industry was hit directly. Second, prices were up despite high supply because demand was artificially high due to absurdly irresponsible lending practices that allowed people to buy much more than they could afford via low/easy entry into loans.

Mortgages over the last decade are much more conservative than the mortgages that led to the Great Recession. There are strict debt-to-income and credit limits, and predatory products/practices like zero interest balloon loans are all but eliminated from the market.

So the recent price appreciation is driven by a more natural supply/demand curve. Low supply because we’ve run out of land to build on and strong demand from much more qualified borrowers.

In three of the last five recessions, housing prices actually increased, as illustrated by the chart below from Attom Data Solutions and in a similar study by First American of the last three recessions, showing the dramatically different impact the 2008 crisis had on housing prices compared to other recessions.

Conclusion

I want to be absolutely clear that I’m not suggesting everything is going to be fine or that the real estate market won’t take a significant hit. That type of messaging from real estate “professionals” irks me almost as much as the idea that a market can simultaneously be great for buyers and sellers… that’s not how markets work (can’t help myself from the Esurance meme)!

It seems almost certain that negotiation leverage will favor buyers over the next 4-6 weeks. The critical question is whether or not buyers will have even more leverage months from now or whether markets will begin stabilizing, then return to the hyper-competitive market we had just a month ago.

The fact is that we have never experienced a complete economic shut-down like this, nor do we know how long it will last, and economic/real estate forecasting models aren’t tuned for this. It’s still too early to say with any level of certainty right now what the mid/long-term fallout will be for real estate or any other industry.

Be smart, be careful, be strategic. And stay home!

Impact of Coronavirus on the Real Estate Market

Question: How will the threat of Coronavirus impact the real estate market in 2020?

Answer: I wasn’t planning to write this, it seems a little click-baity (now my “Trump’s Impact on Real Estate” column has some competition!), but I got the question four different times in under 24 hours last week so here I am writing about it.

Too Early To Know

Nobody knows how Coronavirus is going to impact the real estate market over the next month or the next ten months because we don’t know what the real impact of the virus will be on public health and markets. According to President Trump, it could disappear one day “like a miracle” and according to others, we could face a devastating pandemic.

Yesterday’s stock market closed down nearly 8% and this morning, the Futures were up almost 4%. Uncertainty slows the real estate market down and the only certainty right now is how uncertain the markets and public are about COVID-19. It’s hard to see how this type of uncertainty doesn’t create a drag on real estate across the country, the question is how long it will last.

Beyond the uncertainty, you have the very real impact of a sharp decline in investment/retirement accounts that many people use for down payments. With many accounts down double digits over the last two weeks, some buyers may reconsider their decision to sell stocks right now.

On the other hand, interest rates are historically low, hitting all-time lows last week, and the real estate market across the greater DC Metro has been on fire since January so it’ll take a major shift in demand to slow things down as we head into peak buying season.

What I’ve Heard

So far, what I’m hearing from clients, colleagues, and other industry partners (lenders, title, etc) is that buyers are hoping the Coronavirus slows the market down so they can have a better opportunity to buy, but there seems to be very few people actually pulling out of the market or reducing offers because of it.

Currently, buyers still seem more motivated by historically low rates and lack of buying opportunities than they are concerned that the likely impact of the virus. It seems that long-term confidence in local real estate is still a stronger influence on people’s decisions.

I think this mindset could change quickly, having broad negative effects on the local real estate market, if markets continue to tank, systematic failures in the market appear (e.g. Mortgage-backed Securities in 07-08), or people begin experiencing more direct effects of the virus like work/school closures or people they know testing positive. This is an important change to watch for if you’re considering putting your home on the market in the coming weeks.

Don’t Overvalue Speculation

It’s important to distinguish between fact and speculation and not overvalue speculation. If you spend 30 minutes online today, you’ll be able to find an assortment of well-supported reasons why the markets is on the brink of another recession as well as well-supported reasons why everything will be just fine, with growth ahead.

Your decision should be rooted in things you can rely on like how long you can live happily in a home (nothing creates value like longer ownership periods) and what your best alternatives are to buying (renting, staying put) or selling (do you have a better utilization of your equity?).

Of course, you want to consider the national, regional, and local economy as well as neighborhood trends, development pipelines, and other factors that will influence appreciation/depreciation potential, but be careful not to overvalue speculation.

(Tax) Assessment Values Well Below Market Values

Question: The County significantly increased the assessment value of my home this year, should I appeal it?

Answer: It’s that time of year again…time for homeowners to find out they’ll be paying more in real estate taxes this year due to an increase in the assessed value of their homes. Arlington increased the assessed value of residential real estate by an average of 4.3%, which is less than the 6.3% increase in average sold price in 2019 and much less than the 8.9% increase in median sold price.

Tax assessments are based on the sum of the County’s determination of the value of the land your home sits on and the value of the improvements made to that land (your home). The County adjusts each of these values every year to generate the total assessed value, of which Arlington homeowners pay about 1% of each year to the County in real estate taxes.

Based on conversations I’ve had with homeowners around the County, it sounds like most of the increase in assessments this year were driven by increases in the land value, which makes sense.

Assessed Value vs Market Value

While it is frustrating to see your assessment increase so much, costing homeowners an average of a few hundred dollars in additional tax payments, it’s highly unlikely you’re in a position to challenge your assessment. Over the last 14 months, the County’s assessed value was an average of 14.2% below what homes actually sold for.

Here’s a breakdown of how the County’s assessment compared to actual sold prices since 2019, broken out by zip code, property type, and price range. Here are some highlights from the data:

  • If the County’s assessment matched actual market values, homeowners would pay an average of about $800 more per year in taxes
  • Unsurprisingly, the zip codes with the greatest difference between market values and assessed values were all three South Arlington zip codes (22202, 22204, 22206), with homes in 22202 (home to Amazon HQ2) selling for nearly 20% more than the County’s assessment
  • The County has the most difficult time assessing home values in 22205 compared to other zip codes and, unsurprisingly, detached homes compared to condos or townhouses
  • Residents who own homes worth over $1M benefited the most by the County’s low assessments, with market values nearly 19% higher than their tax assessment, resulting in an average annual savings of about $1,900 if the County’s assessments were on par with market values
Zip CodeAvg Sold $ to Assessment $StdDev Sold $ to Assessment $Avg Difference Sold $ vs Assessment $
2220112.3%8.7%$71,412
2220219.7%15.9%$108,083
2220313.1%10.7%$72,268
2220415.4%13.7%$62,933
2220515.4%19.3%$126,150
2220618.1%11.9%$71,783
2220711.1%14.4%$106,188
2220910.7%8.8%$57,149
2221310.4%9.7%$40,016
Arlington14.2%13.0%$79,434
Property TypeAvg Sold $ to Assessment $StdDev Sold $ to Assessment $Avg Difference Sold $ vs Assessment $
Condo13.9%10.6%$50,659
Detached14.0%17.0%$118,925
Townhouse15.0%9.9%$81,220
All14.2%13.0%$79,434
Price RangeAvg Sold $ to Assessment $Avg Difference Sold $ vs Assessment $
<$1M13.3%$58,720
$1M+18.6%$187,718
Total14.2%$79,434

As reported by ARLnow last week, the County will not increase the tax rate (percentage of assessment homeowners pay in annual taxes) and may still decide to reduce the tax rate to offset increased assessments. The hope for many homeowners is that as commercial vacancy rates drop from the historic highs over the past decade, the increased tax revenue from businesses will allow the County to ease the tax burden on homeowners by reducing the residential real estate tax rate.

As always, if you are considering buying, selling, or investing in Arlington/Northern VA real estate, feel free to email me at Eli@EliResidential.com if you’d like to discuss your strategy and/or current market trends.

Pierce Condos Pre-Sales

Question: Do you know when Pierce condos sales will begin?

Answer: Penzance’s ambitious Pierce condo project, the high-end 104-unit building that is currently under construction in Rosslyn, began setting pre-sale appointments last week and taking their first deposits this week for condos expected to deliver in 2021. Their sales team set over 50 appointments during an invite-only event last week, indicating plenty of interest in the building…but will that interest turn into the 10% deposit needed to secure a unit in Northern VA’s most expensive building?

When 2000 Clarendon in Courthouse began sales there was no question the demand would be through the roof given the lack of condo supply and that pricing was within range of other condos in the Rosslyn-Ballston Corridor. However, Pierce is a different product and very different price point with over half of the units priced over $2M and many units going for $1,100-$1,200/sqft.

The most comparable building we have to this in Arlington is Turnberry Tower in Rosslyn (the blue glass building) which has had 85 sales in the last five years, 20 of which have been over $2M and only seven at $1,000/sqft or more. Pierce will need to sell 104 units in a lot less than five years with more than 50 units being $2M+.

Is the luxury buyer market in Arlington/Northern VA deep enough to support these sales? I’m looking forward to finding out.

What Will You Get?

The amenity package at Pierce includes a 24hr concierge staff, rooftop pool, two-level gym, and a rooftop club room and terrace.

Each unit is being designed with the same finishes and color package; there will not be any options/upgrades for buyers. The package includes Thermador and Bosch appliances, custom Snaidero cabinetry, hand-scrapped hickory floors, quartz countertops, and many units with direct-access elevators. There have been other high-end condo projects in the region that have taken a similar approach of not offering finish options for buyers, so there is some precedent.

Below are some renderings and finish samples courtesy of The Mayhood Company:

Feature Floorplans

I think there are a handful of units that will sell quickly. The ~$1M 1BR+den and 2BR units on lower floors, a few units with massive terraces, and premier units with unobstructed views of the Potomac River and Georgetown. I included some of those floorplans below courtesy of The Mayhood Company:

This is easily the most ambitious project in the Arlington pipeline and quite possibly all of Northern VA so I’ll be keeping a close eye on it and hope to bring you some updates over the next year or two on how sales are going.

For those of you interested in the building, a sales office is located a block away that include a partial model unit to show off what the kitchen and living space will look like. You can email me at Eli@EliResidential.com to schedule a visit or make a pre-sale appointment.