Condo market

Reserve Studies Required Every Five Years for Condos/HOAs

elieliresidentialcom Arlington, Buyer, Home Owner , , , , , , , , , 0 Comment
Reserve Studies Required Every Five Years for Condos/HOAs

Question: How often do Condo Associations and HOA/POAs need to conduct a Reserve Study?

Answer:

Virginia Requires New Studies Every Five Years

In light of the recent condo tragedy in Miami, I thought it would be a good time to remind everybody that Virginia requires Condominium Associations and Home Owner/Property Owner Associations to conduct a new Reserve Study at least once every five years.

In addition to providing valuable financial/budget guidance, Reserve Studies are also an important way to ensure your building/community remains in safe working order and structurally sound.

What is the Purpose of a Reserve Study?

During the Study, an engineer, or team of engineers, will inspect all common elements of the building/community to provide an assessment of current condition, useful life expectancy, and projected cost of repair/replacement. A building inspection includes everything from the elevators, to foundation, to hallway carpet.

After the inspection, the Study team will provide a detailed report of their findings and an assessment of the future financial needs of the Association over the next 30 years to maintain and replace the common elements of the building/community.

In most cases, these annual financial needs are analyzed against the current Reserve Balance (Association’s savings to pay for common maintenance and replacement costs) and the current Reserve Contribution amounts to determine if adjustments need to be made to the contribution levels in future budgets. Accelerating savings for an under-funded Reserve are one of the most common reasons Associations increase dues. If the funding requirement is high enough and the repair/replacement needs are urgent, that is when Associations will consider charging a Special Assessment to fund the Reserves immediately.

Don’t Forget About Presentation

I have reviewed tons of Reserve Study reports over the years and there is a wide range in quality. In my opinion, a quality report should not only be incredibly detailed in the inspection findings, but also as detailed in the presentation of the financial projections/recommendations. It’s also critical that this information be presented in an organized and easily understood format, which is not an easy feat when dealing so much information. If you are helping your Association choose a company to lead the Reserve Study, don’t forget to review reports they’ve produced for other communities so you can see how well they present their findings.

Important for New Buyers Too

In addition to Reserve Studies being important for building maintenance and budgeting, every new Buyer into your community will receive a copy of the Reserve Study (along with a other Association documents) once they’re under contract and has a three-day review period in which time they can void the contract for a refund of their deposit. So having a current and easily understood Reserve Study report is also a critical part of keeping Buyers under contract and the resale market in your community from under-performing.

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.Reserve Studies Required Every Five Years for Condos/HOAs

Condo Market Update & Breakdown

elieliresidentialcom Arlington , , , 0 Comment
Condo Market Update & Breakdown

Question: How has the market for high-rise condo buildings compared to low-rise/smaller condo communities through the pandemic?

Answer: The condo market began to turn last summer and got progressively worse through November/December, but has improved slightly and stabilized a bit since December. The next few months will give us a lot of good information on whether the condo market will improve or if we can expect a rebalancing as buyer priorities shift more permanently due to their COVID experiences and new telework policies.

This week I took a look at some of the underlying condo market data to see if there has been a noticeable difference in how garden/townhouse-style (garden-style = low-rises of 1-4 stories) condo communities have performed compared to mid/high-rise buildings. I also broke down the condo market by bedroom to see if one-bedrooms have been impacted more than larger two and three bedrooms units.

Arlington/DC Metro Condo Market Overview

First, let’s take a zoomed-out look at the Arlington and DC Metro markets. We are still experiencing a rush out of condos (see first chart, New Listings), with the DC Metro and Arlington both recording record-highs in total condos listed for sale in January and February. The reasons for this range from people seeking more space/yard to investors unable to find tenants.

Months of Supply (measure of supply and demand) shown in the second chart shows us that Arlington experiences a slightly worse (for sellers) condo market than the DC Metro overall after experiencing a much stronger market from late 2018-early 2020 in the wake of Amazon’s HQ2 announcement. Both markets have shown signs of stabilizing over the last few months, after getting progressively worse each month in the 2nd half of 2020.

Garden/Townhouse-Style vs Mid/High-Rise

The overall Arlington condo market is sitting at about 2.25 Months of Supply, still well below the 6 Months of Supply deemed by economists to be a balanced market for buyers and sellers. As of this writing, the mid/high-rise market has about 2.6 Months of Supply and the garden/townhouse-style condo market is sitting at 1.3 Months of Supply, making it a pretty good market to sell into.

Historically, the garden/townhouse-style market has performed better (faster sales, more competition/seller leverage) than the mid/high-rise market so the difference in Months of Supply doesn’t indicate a COVID-related shift. As you’ll see in the table below, the differences between the garden/townhouse-style condo market and the mid/high-rise market have remained relatively similar each year from pre-Amazon (2018) through the Amazon surge (2019) and now into the COVID-related pullback (2020).

Contract Year/ TypeAvg Sold to Original AskAvg Days on Market% Sold in 1-10 Days
2018
Garden/Townhouse-Style98.4%2746%
Mid/High Rise97.5%4534%
2019
Garden/Townhouse-Style100.8%1373%
Mid/High Rise99.3%2359%
2020
Garden/Townhouse-Style99.7%1465%
Mid/High Rise98.4%2947%
2021
Garden/Townhouse-Style98.7%3648%
Mid/High Rise97.7%4336%

Condo Market Performance by Bedroom Count

I also took a similar look at the Arlington condo market by bedroom count. Months of Supply for one-bedrooms is highest at 2.5, followed by two-bedrooms at 1.8, and then three-bedrooms at 1.7. The early data for 2021 suggests that one-bedroom condos will suffer more in the market than larger two and three bedroom units, which makes sense from a COVID standpoint because most one-bedroom units don’t have a good dedicated office space.

Contract Year/ Bedroom CountAvg Sold to Original AskAvg Days on Market% Sold in 1-10 Days
2018
197.7%3637%
298.4%3641%
397.5%3247%
2019
1100.2%1765%
2100.3%1767%
398.1%3555%
2020
199.0%2157%
299.2%2256%
398.8%2459%
2021
197.5%4832%
298.4%3547%
399.9%3256%

I do expect the condo market to improve over the next few months as more people are vaccinated and warmer weather allows people to return to some semblance of a normal life, and thus buying behavior that is more reflective of pre-COVID times. However, I think that how employers choose to handle telework long-term will ultimately determine whether we will experience a full return to the pre-COVID market or if we are going to see a more permanent rebalancing of condo values as commutes/convenience become less of a priority for buyers if they are no longer coming into an office every week.

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

Positive Signs in the Condo Market, Finally

elieliresidentialcom Arlington, Home Owner , , , 0 Comment
Positive Signs in the Condo Market, Finally

Question: Can you provide an update on how the condo market is doing?

Answer: Arlington’s condo market began shifting in favor of buyers this summer, after two years of a very strong seller’s market, when historical numbers of condos began hitting the market at the same time demand subsided. I’ve written about these changes four times since (falling values, visualizing high inventory, first signs of a trend, and first signs of a shift).

November Might be a Turning Point

For the first time since June, we’ve seen a reduction in the Months of Supply (MoS) of Arlington condos. Months of Supply is a great measure of supply and demand (lower MoS = stronger market with higher demand and less inventory).

While the reduction in MoS is slight, it’s a positive sign nonetheless that the market is either closer to finding its level again or may soon show signs of strengthening. However, one month, particularly a winter month, is not enough to establish any real change, we will need to see what the next 3-6 months bear.

Figure 1

Multiple Key Indicators Show Positive Signs

My hope for a settling or strengthening of the condo market is not solely based on one metric, there are other key metrics that suggest November may be the first month of a settling or strengthening condo market.

Absorption Rate (Figure 2), a measure of demand, increased ever-so-slightly in November, the first increase since May, albeit still down nearly 68% from the December 2019 Absorption Rate.

The number of condos for sale during November decreased for the first time since May (Figure 3), albeit slightly. The better news, however, is that the decrease in total condo inventory doesn’t seem to be caused by frustrated sellers pulling their condos off the market, rather due to promising contract activity (Figure 4), which was up 41% year-over-year in November.

Figure 2
Figure 3
Figure 4

Looking Ahead, Eyes on March-May

Over the next few months, I’ll be looking closely at whether these trends (stronger demand, falling inventory) continue, find a level, or revert back to what we’ve seen since this summer. I’ll be particularly interested in what year-over-non-COVID-year numbers looks like and if we settle into normal spring activity for inventory and demand.

For example, while the charts above are positive indicators for the condo market, Figure 5 shows just how much inventory (new listings) is still coming onto the market, with November generating nearly 79% more condo listings in 2020 than in 2019, but only a 41% increase in contract activity.

Figure 5

I think that March-May 2021 are going to be very interesting months, statistically speaking, and will be excellent indicators of what the market might look like for the next few years, until the next major market event (e.g. Great Recession, Amazon HQ2, COVID). I think/hope that by then, we will also have a better understanding of how the Federal Government and private companies will address teleworking beyond COVID and thus whether commute time will be prioritized differently by buyers.

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

Housing Market Update, Condo Slide Continues

elieliresidentialcom Arlington, Buyer, Home Owner , , 3 Comments
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.

The Shifting Condo Market

elieliresidentialcom Arlington, Buyer, Home Owner , , , 1 Comment
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.

Arlington Condo Mid-Year Real Estate Review

elieliresidentialcom Arlington, Buyer, Home Owner, Seller , , , , , 0 Comment
Arlington Condo Mid-Year Real Estate Review

Question: How did Arlington’s real estate market perform in the first half of 2020?

Answer: What a wild year it’s been for real estate. After a huge 2019 (SFH/TH review, Condo review), the 2020 market took off in January with prices and competition up sharply. When Coronavirus hit, that momentum tapered off for a couple of months but prices remained steady because of low interest rates and low supply. The Arlington housing supply was down about 400 listings from March-June, but listing activity is surging to historically high levels in July and August, which is traditionally when we see the spring market momentum slow down.

Let’s take a look at how the condo market performed in the first half of 2020 using some awesome charts developed by my new partner, the wonderful Alli Torban. We took a similar look at single-family detached and townhouses last week.

Note that all of the data used in these charts is based on sales that went under contract from January-June in order to provide the most accurate reflection of the market during the first 6 months. I don’t like using the date a home sold/closed for analysis like this because closing date often lags 30-60 days behind agreement of sale (contract). I also removed sales of condos in 900 N Taylor St (The Jefferson), an age-restricted community.

Average and median price continued to rise, but not by nearly as much as last year. The total condos transacted in the first six months of 2020 dropped significantly to 484 from a previous 5-year low of 614, established in 2019.

The Rosslyn-Ballston Corridor, made up of 2201, 22203, and 22209 is by far the busiest condo market in Arlington and 22204 offers the most affordable options, by a significant margin.

The volume of one- and two-bedroom condo sales was nearly equal during the first six months, but I’ve seen a shift over the last few years in buyer demand over the last few years towards two-bedrooms.

Studios/efficiencies (no separate bedroom) are very difficult to come by in Arlington with very few being delivered over the last 20 years. The Eclipse in Crystal City and Trafalgar Flats along Columbia Pike were notable for delivering an unusually high number of studios in the last 20 years.

The demand for larger condos with three-bedrooms has increased significantly over the last 3-5 years as owners of large homes have looked to downsize. However, the market is severely undersupplied with units that meet the needs of these buyers, with just 18 three-bedroom condos selling in the first half of the year.

One of the measures I like taking to gauge market competition is the percentage of condos going under contract within the first week and how much buyers are paying relative to the asking price within that window. An incredible 36% of condo contracts were accepted within the first week this year and the average buyer paid 1.5% more than the asking price to secure a home that just hit the market.

The key takeaways are that good condos sell very quickly and if you love a unit that has just hit the market, be prepared to pay the asking price or more to secure it because if you don’t, there’s a good chance somebody else will.

As the chart above showed, this is a fast-paced market and it got even faster in 2020 with the median days on market for condos remaining at six days and the average dropping to just two weeks.

I took a similar look at single-family detached and townhouses last week. If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com.

2019 Arlington Real Estate Market Review: Condos

elieliresidentialcom Arlington , , , 3 Comments
2019 Arlington Real Estate Market Review: Condos

Question: How did the Arlington real estate market do in 2019?

Answer: Arlington’s real estate market made the national news cycle more than a few times in 2019 with some pretty extraordinary references to rapid appreciation – some accurate and some not. I’ve seen prices in some pockets of the market surge 15-20% in 2019, but for most of the market, appreciation was strong but not eye-popping.

Overall, the average and median price of a home sold in Arlington in 2019 was $705k and $610k, a 6.3% and 8.9% increase over 2018, respectively. Average days on market dropped by one week and an incredible 61.4% of buyers paid at or above the seller’s original asking price. The number of homes listed for sale in 2019 dropped about 17% compared to 2018 and demand surged, with buyers absorbing about 67% more inventory in 2019 than in 2018.

This week I will dig into how Arlington’s condo market performed in 2019 and next week I’ll do the same for the detached single-family home and townhouse market. I did separate write-ups on the 22202 (Amazon zip code) condo and detached home markets last month.

Arlington Condo Market Performance

First we’ll take a look at some of the key measures for market performance across Arlington and within North and South Arlington. This data excludes age-restricted housing (The Jefferson), Cooperatives (River Place), and townhouse-style condos (Fairlington).

  • The condo market seems to have appreciated 7-8% in 2019, after experiencing barely any growth from 2013-2017 and modest growth in 2018
  • South Arlington beat out North Arlington in every key category, which makes sense because it’s an easier price point for homeowners and investors who wanted some sort of real estate position in Arlington before Amazon’s hiring picks up
  • The average condo buyer in South Arlington paid .8% over the seller’s asking price
  • Condos in North Arlington sold twice as fast as they did from 2015-2017. In South Arlington they sold more than three times faster than 2015-2016.
Performance of Different Sub-Markets

I took a look at some of the sub-markets that make up large cross-sections of Arlington’s condo market to see how they performed compared to the overall market.

For “standard” 1BR and 2BR condos in the Rosslyn-Ballston (R-B) Corridor I specifically looked at condos in buildings constructed during the 2000s condo boom with 650-800sqft (1BR) and 950-1,200sqft (2BR).

  • “Standard” R-B 1BRs appreciated 4% in 2019
  • “Standard” R-B 2BRs appreciated 5% in 2019

For “older” 1BR and 2BR condos, I looked at those constructed in the 1940s-1960s. This category of condos had been slow to appreciate and as of 2018, a lot of owners were still trying to dig out from 2005-2007 prices.

  • Older 1BRs appreciated 7.4% in 2019
  • Older 2BRs appreciated 10.5% in 2019
Performance Within Different Price Ranges

Appreciation in Arlington’s condo market was pretty evenly distributed between the upper, middle, and lower price ranges as evidenced by the change in the average price of the lower 25%, middle 50%, and upper 25% of sales from 2018 to 2019.

  • The average price of the middle 50% of Arlington is now well north of $400k
  • Over the last two years, Arlington’s least expensive housing has appreciated the fastest, with the average price of the lower 25% increasing by more than 12% since 2017. You can likely attribute this to investor activity.
  • If you’re curious about the max sold price in 2019 of $4,750,000, it was a top floor 4,400+sqft condo at Turnberry Tower (link). It was first offered for sale three years ago for $7M. If you remove this sale from the data, the upper 25% appreciated 7.4% in 2019.
Inventory Shortage

A lot of real estate conversation in 2019 revolved around inventory shortages. The number of condos offered for sale dropped nearly 21% in 2019 and the increased demand (higher absorption rate) pushed available inventory down by more than 57%. The chart below shows the YoY quarterly decrease in new condo listings and available condo inventory in Arlington.

https://cpp1.getsmartcharts.com/chart/mls/1/getreport.php?rid=2,3&ftid=2&fid=1005&gty=4&ltid=4&lid=51013&gid=2&cc=05c500,ffc000&sid=1&mid=2&tt=2&mode=4
Looking Ahead

I will be keeping a close eye on inventory levels as this year starts off. Last year a lot of homeowners decided to withhold homes from the market in anticipation of higher Amazon-related appreciation. Now that much of the market has experienced significant appreciation, it will be interesting to see if more homeowners decide that now is the right time to sell. I expect demand will be able to keep pace with an increase in new inventory, but more inventory should keep prices a bit more level this year.

With rates remaining low through last year and projected to do so again this year, couples with a strong employment and stock market, buyer confidence is high. On the flip side, markets usually stagnate heading into an Presidential election so it’ll be interesting to see if/how the election effects counter the current momentum.

I predict that condo values will grow steadily in the 2-5% range over the next 5-10 years, but that no year in the 2020s will outpace 2019. Some possible exceptions to this are major zoning changes by Arlington to allow for more condo development (increased supply), the conversion of some large apartment buildings into condos (increased supply), or a national economic crisis (decreased demand).

Thanks for reading along! If you have any questions or I can be of any help with your real estate needs, don’t hesitate to reach out to me at Eli@EliResidential.com. Next week we will dig into the detached single-family and townhouse markets!

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.