Arlington Condo Market Performance Metrics

Question: How has Arlington’s condo market reacted to higher interest rates?

Answer: In last week’s column, I looked at performance metrics for detached homes in Arlington, shared my thoughts on local pricing behavior, and discussed news about the national vs local real estate market. This week we will look at the underlying performance metrics in Arlington’s robust condo market.

Underlying Arlington Market Performance Data for Condos

Here’s how I approached the data used in this week’s analysis:

  • Low-, mid-, and high-rise condos only
  • Resale data only, no new construction
  • All data is presented by the month a home was listed in so we can measure how home sales performed based on the month they came to market
  • Net Sold = Sold Price less Seller Credits
  • I used data from 2017, 2019, 2021, and 2022 because I think it offers a helpful snapshot of recent Arlington markets to compare 2022 to. 2017 was our last “normal” market because Amazon HQ2 was announced Nov 2018 and that kicked off a condo craze. 2019 was the first full year with the Amazon bump, but pre-COVID market, and 2021 was a full year of the COVID-driven shift in condo demand.

I either did not use or must caution your interpretation of this year’s August-November data because it is incomplete for purposes of this analysis. There are 13, 26, 39, and 42 condos actively for sale that were listed in August, September, October, and November, respectively, which will influence the performance metrics for those months when they do contract/close and most likely will result in worse performance metrics than those months currently show.

There are only 10 condos still for sale listed January-July that will likely pull down the performance metrics for those months once they contract/close, but not enough for me to be concerned about the resulting data being presented in this analysis.

Business as Usual for Condos

While the detached market was on fire in 2021 and early 2022, the condo market performed mostly along the lines of historical metrics, except for one month, February 2022, when average sold prices climbed slightly above the original asking price. As a result, high interest rates have led to a more modest reversal in pricing behavior over the last six months, compared to the detached market.

The only time in the last 15 years that we’ve seen a real acceleration in condo prices was during 2019 (and pre-COVID 2020) as a result of Amazon’s HQ2 announcement.

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Pace of the Condo Market Slightly Below Normal

We had a few months during the peak of the 2022 market where the pace of sales came close to the craziness we experienced in 2019, after Amazon announced HQ2, but average days on market has returned to its normal seasonal trends. As more data rolls in for closings in August-December, I expect the average days on market for the last 3-4 months of 2022 to exceed historical averages, but not by much.

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One of my favorite performance metrics is the percentage of homes that sell within 10/30 days. I think it beats average and median days on market for a true understanding of the pace of a market.

As opposed to average days on market, these charts indicate that high interest rates have slowed the pace of the condo market beyond the usual seasonal slowdown, with a notably slow October where just 38% of condos listed sold within 30 days. Expect to see these metrics fall even further as more condos listed after July contract and close.

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Looking Forward

Condo pricing tends to be pretty stable and movements up or down are relatively small, with the exception of major events like Amazon HQ2 (rapid appreciation) and COVID (rapid, temporary depreciation), so expect a return to stable and predictable pricing in our condo market where we’re used to seeing 0-2% appreciation year-over-year.

The effect of high interest rates will likely be felt most in the slow pace of the market. The pace will almost certainly increase in Q1 2023, which means we can expect about 1/3 of condos to sell within the first 10 days and about 2/3 to sell within the first 30 days during the spring selling season. 

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 @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Find Savings in Your Condo/HOA Budget

Question: We are finalizing our 2023 condo budget. Do you have any advice for ways to save money?

Answer: As a former Condo Board Treasurer, I feel the pain that this time of year brings, so I’m happy to offer some advice that helped me finding savings while I oversaw the budget and has helped other Associations do the same…review your Master Insurance Policy. I know, it’s not the most exciting answer, but your insurance policy is likely a top three expense on every year and if you haven’t reviewed it lately, there’s a good chance you can cut the cost by 5% or more and probably improve your coverage at the same time.

I’m not an expert in insurance so, I asked Andrew Schlaffer, President of ACO Insurance to provide some details on what Boards should look for when they do a review of their Master Policy. If you’d like to discuss a review with Andrew directly, you can reach him at 703.595.9760 or andrew@acoinsgrp.com. Take it away Andrew…

Hardening Markets, Increasing Premiums, Decreases in Coverage

The condominium insurance marketplace is facing challenges that will impact homeowners in 2022 and beyond. Water damage claims are still among the loss leaders impacting Unit Owners, along with fire damage and wind/hail claims. The DMV is home to many aging condo buildings that continue to struggle with mitigating water damage losses and their impact on insurance premiums.

As water damage claims continue to rise and property damage costs increase, many insurance carriers are beginning to make changes to their coverage offerings that may increase your risk exposure. A few examples of these coverage changes include Increased deductibles, per unit water damage deductibles, removing coverage for Sewer or Drain Backup and Wind-Driven Rain. 

In general, condominium property rate increases in the DMV have been significant and unpredictable. Much of the pricing impact can depend heavily upon carrier underwriting discretion which highlights the importance of your insurance professional specializing in this space. It has not been unheard of for Master Insurance policies to receive between a 7% to 15% property rate increase in 2022. For struggling communities, these rates are much higher. 

The umbrella/excess liability carrier marketplace has also faced tremendous disruptions. There are several factors driving these rate increases including but not limited to: COVID-19 impacts, years of underpricing, reinsurance rate increases, and the rise of nuclear verdicts (claims over $10MM). Additionally, there have been several specialty real estate programs who no longer offer umbrella/excess liability options for the habitational industry which has put a lot of strain on remaining carrier markets to fulfill the increase in demand. Many communities can expect umbrella/excess liability rates to increase between 10% to 25% this year. 

Pillars Of Insurance Reviews

Condo insurance reviews require a holistic approach, so it’s important to break the cost into a few distinct categories: insurance premium, deductible expense, and out-of-pocket costs. To effectively accomplish long-term savings, all three of these categories need to be considered and addressed with a qualified insurance professional.

Adjust Coverage Responsibly To Save On Premium

Premium is certainly a factor to consider during the insurance selection process; however, available insurance products differ significantly. Coverages and services should be very carefully analyzed and compared. While omitting various coverages will save premium dollars, it might also result in substantially increased costs to the Association for out-of-pocket expenses related to uncovered claims. It is critical to work with a professional who understands local insurance needs and can adjust your insurance program in a way that maximizes premium savings while maintaining adequate insurance coverage. Some coverages may be required by statute and/or Association documents, so cutting required coverage exposes the Board to unwanted risk.

Deductibles Based On Loss History

Associations with strong financials often choose to increase their property deductibles which can provide immediate savings of 2-5%. Deductibles range from $2,500 to $25,000+. When considering deductibles, it is important for the Association to review their loss history and the loss history of comparable buildings in an effort to obtain an accurate estimate for deductible expenses.

Rate Shopping

The most common strategy employed by Associations seeking lower insurance costs is to shop their carrier. An Association can accomplish this in several ways but generally their appointed broker can offer alternative carriers in an effort to obtain the most competitive rates possible. Make sure your broker has access to all of the competitive markets in order to maximize the likelihood of finding savings.

Secondly, and more importantly, if savings is found, your broker should verify that all required coverages are included to secure the Association’s long-term financial security and lender approval. Additional savings can be realized by a thorough coverage analysis to verify the Association is not being over-insured by paying for coverage it won’t use.

To insure cost savings and long-term health of your property, make sure your insurance broker specializes in Condominium or Homeowners Associations. To maximize your savings, the Association, insurance broker, and insurance carrier need to work in harmony to identify and reduce threats to the financial health of the community.

Help Reducing Claims

One of the best ways to keep insurance costs down is to avoid claims altogether.  Some examples of how insurance brokers can help reduce claims and the impact claims have on your future premium costs include coverage reviews/benchmarking, claims management services, site inspections, building upgrade recommendations, life safety planning, vendor contract reviews, discrimination/harassment training, and hiring/firing best practices. 

Thank You

Andrew, thank you very much for providing your insight. I know from experience how much of an impact an insurance review can have on a condo budget, but also how important the right coverage can be when there’s an unexpected claim.

One thing Boards often overlook when they’re solely focused on price is the quality and speed of service when a claim in filed. For example, if a pipe bursts and floods the gym and lobby, a Board should be confident that the work orders will be executed quickly so the building can be back on its feet without delay or headache. Unfortunately, most Boards don’t think about this until they’re dealing with it, and it’s too late.

I encourage any Board/Treasurer to reach out to Andrew to review their policy. His contact info is:

Andrew Schlaffer, President

ACO Insurance

www.acoinsgrp.com

Direct: 703.595.9760

Email: andrew@acoinsgrp.com

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 | @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Pay Closer Attention to Your Condo Homeowners Insurance (HO-6)

Question: What is the difference between my individual condo insurance and the Association’s master insurance policy and do I need my own insurance?

Answer: Every condo association has its own (expensive) Master Insurance policy to cover the common elements and limited common elements, but there are substantial gaps between the association’s policy and what you’re personally liable for without an individual HO-6 policy. Most people shop for the cheapest, fastest individual insurance policy and apply just enough coverage to meet the lender’s requirements, but that may put you at financial risk.

To explain common gaps between master policies and HO-6 (individual condo) policies, I’d like to re-introduce Andrew Schlaffer, Owner and President of ACO Insurance Group. Andrew is an expert in Master Insurance policies and has helped multiple local condo association’s reduce their cost and improve their coverage since writing a column on the topic last year. If you’d like to contact Andrew directly to review your association’s master policy, you can reach him at (703) 595-9760 or andrew@acoinsgrp.com.

Take it away Andrew…

Master Insurance vs Individual Insurance Policy

Nearly all master insurance policies in this area are written on a Single Entity basis which means coverage extends to general and limited common elements but also extends within individual units to fixtures, appliances, walls, floor coverings, and cabinetry, but only for like kind and quality to that conveyed by the developer to the original owner.

Items not covered by the master insurance policy and are generally not the association’s responsibility include:

  • Personal Property (clothes, electronics, furniture, money, artwork, jewelry)
  • Betterments and Improvements (demonstrable upgrades completed after the initial conveyance)
  • Additional Living Expenses (the cost to live at a temporary location, storage fees, loss of rents)
  • Personal Liability (provides protection for bodily injury or property damage claims arising from your unit)
  • Loss Assessment (triggered only if there is a covered cause of loss and the master insurance policy limits are exhausted; this assessment would apply collectively to all unit owners)
  • Medical Payments (no fault coverage available for injured guests within your unit)

Condo owners should purchase an individual condo insurance policy (HO-6), which is also required by lenders. This policy can provide coverage for the items listed above.

Review Your Dwelling Coverage

Dwelling Coverage should be included in every HO-6 policy to avoid significant out-of-pocket expenses. Many condo associations can hold you responsible for expenses that fall under the master policy deductible that are caused by the owner’s act, neglect, misuse, or carelessness. Due to the rise in water damage losses, many insurance carriers are increasing their deductibles, which in turn spurs the need for homeowners to adjust their dwelling insurance limit.

In a recent instance, a condo suffering from significant water damage losses was required by its insurance carrier to increase the master insurance policy deductible from $10,000 to $25,000. In this community, each homeowner should have at least $25,000 of dwelling coverage to indemnify them for the deductible expense in the event a claim arises from their unit. If coverage is not available, the homeowner would either pay this expense personally or the association can put a lien on their unit.

Dwelling coverage should also include a homeowner’s betterments and improvements (improvements made above what the builder originally delivered), including those completed by prior owners. Most lenders will require at least 20% of the unit’s market value insured under this coverage as well. 

What Information to Share with Your Insurance Provider

You should always review the condo association’s governing documents and understand the applicable statutory requirements (i.e. Virginia Condominium Act) and lender requirements to verify their individual responsibilities, including maintenance/repair and insurance. Along with sharing the association documents, homeowners should also provide their personal insurance agent with the following:

  • What is the master policy deductible? ($5,000, $10,000, $25,000)
  • What approach is used for the condominium insurance coverage? (Single Entity)

My Recommendation for HO-6/Other Individual Policies

Thank you, Andrew, hopefully this helps at least a handful of readers better protect themselves.

I find that most buyers go straight for the path of least resistance and cheapest premiums for their insurance coverage. Adding coverage to your existing auto policy in 5-10 minutes probably means that nobody reviewed your association’s Master Insurance policy and thus you’re at risk of coverage gaps. Personally, I’d rather pay a bit more to know that my policies have been designed with some personal attention and reviewed annually for gaps. Andrew and his team can handle this for you as well.

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 | @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

2022 Arlington Mid-Year Condo Review

Question: How did the Arlington condo market perform in the first half of 2022?

Answer: It has been quite a ride for the Arlington condo market over the past four years!
After a long stretch of relatively little appreciation from ~2013-2018, the condo market surged on the November 2018 news of Amazon HQ2 and then flatlined when COVID lockdowns began in the spring of 2020. Beginning in the summer of 2020, condo inventory flooded the market in record volume, causing the market to soften and prices to drop.

Conditions were improving by the summer of 2021 as demand picked up. By early 2022, competition return to the market with more multiple offers and escalations. The competition didn’t last long, as the entire housing market began to slow due to high interest rates and worsening economic conditions. After much volatility in the condo market since late 2018, I think we are finally seeing signs of the market finding its natural balance — moderately favorable for sellers, while providing buyers with a range of options and the occasional opportunity for a discount.

Let’s look at the stats behind the first half of the 2022 Arlington condo market…

Pace of New Inventory Evens Out

From 2013-2018, the Arlington condo market averaged ~500 and ~700 new listing in the first and second quarter, respectively. Those numbers dropped off a cliff in 2019 and 2020 because people chose to hold properties because of Amazon’s announcement (Q1 2019-Q1 2020) and then held in Q2 2020 because nobody knew what to do when COVID hit. Then the pace of inventory surged at a record-shattering pace from the summer of 2020 through the end of 2021.

Inventory levels finally came down to earth, closer to their 2013-2018 averages, with 576 and 651 new condo listings in the first and second quarters of 2022, respectively.

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Supply/Demand Levels Back to Normal-ish

With the easing of new inventory volume and demand coming back to level, Months of Supply (a measure that combines supply levels with the pace of demand) has returned to levels more in-line with pre-Amazon years and what I would consider to be the Arlington condo market’s natural balance.

Housing economists consider six months of supply to be a truly balanced market for buyers and sellers, but we rarely see a sub-market around here that gets close to six months. 1.5-2 months of supply is a favorable market for sellers, but it usually takes less than one month of supply for multiple offers and escalations to become a common occurrence. 

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Demand Metrics Tell Similar Story

The return to balance is showing up on the supply and demand sides of the equation, although demand seems to be marginally stronger that it was pre-Amazon announcement, which I’d attribute to how expensive townhouse/single-family properties have gotten lately, driving more demand towards less expensive condos.

What we can see from the chart below is that the speed of the market, measured by the percentage of properties going under contract within the first ten days, has improved over last year but has fallen well below 2019/2020 levels. The same goes for the percentage of properties selling for at or above the asking price.

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Good Half-Year for Two-Bedroom Condos

All pricing data points to the first half of 2022 being a great year for two-bedroom condos and an okay year for one-bedroom units. Here are some key pricing data points:

  • The median price of a two-bedroom condo increased 11.7% to $550,000 in the first half of 2022 compared to the first half of 2021
  • The median price of a one-bedroom increased 3% to $380,000
  • The average price of a two-bedroom increased 15.7% to $620,616 compared to 3% to $381,220 for a one-bedroom condo
  • On a $/SqFt basis, two-bedroom condos increased 7.4% to $517/SqFt compared to 2.8% to $497/SqFt for one-bedrooms

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

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

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

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

Should Your Condo Building Have a Rental Cap?

Question: Do you think it is a good idea for our condo board to consider setting a cap on the number of units that can be rented at a given time?

Answer: One of the most common debates within condo buildings is whether an Association should limit the number of condo units that can be rented concurrently. There are some benefits of limiting the number of owners who can rent out their unit(s), but I think it’s the wrong decision for most buildings because it can hurt property values and is unnecessary, in most cases.

For the sake of clarity, when I refer to rental/investor units in a building, I am referring to individual unit owners renting their unit(s) out to tenants instead of occupying it themselves (they are considered investors).

Lending Misinformation

There is a lot of misinformation out there about how the number of rental units in a building effect the warrantability of a building (ability of future buyers to secure a mortgage). Here are the limits you need to be aware of:

  • Fannie/Freddie Loans: Conventional loans backed by Fannie Mae/Freddie Mac do not have any rental limits for primary and secondary home loans. They limited the number of rentals in a building to 50% for investor loans only.
  • VA (Veterans) Loans: No rental limits. The VA does not like seeing rental caps and may not approve a building for VA loans if they do have rental limits in place.
  • FHA Loans: FHA loans are restricted in buildings with more than 50% of units rented. FHA loans represent a small percentage of the loans written in this area.
  • Jumbo/Private Loans: High balance loans (over $970,800 loan amount), not insured by Fannie/Freddie, have a wide range of guidelines. Some have rental restrictions and others don’t, but in general jumbo/private loans tend to have more conservative lending guidelines and a higher chance of restricting a loan due to the number of units being rented. However, many banks will make exceptions, especially with higher (30%+) down payments and there are many alternative lending options in the jumbo/private arena a buyer can choose from.

Pro: Better Quality of Living

Owner-occupants generally invest more in their home, take better care of common areas, and take more pride in developing a strong social community. In small associations or those intent on maintaining a certain standard of living, quality of living may prevail over property value.

Cons: Buyer Turn-Off, Forced Sales

Many buyers want to keep their options open to renting a unit out after they are done using it as their primary residence and are turned off by the idea of a rental cap and plenty will not buy in a building if there is a cap, even if it’s unlikely to be reached. By turning otherwise motivated and qualified buyers away, you’re bound to hurt the market value of units in your building.

If a rental cap is reached and enforced, it can hurt market values even more because homeowners are forced to sell if they move out and a forced sale may result in a homeowner agreeing to take a worse deal when they would have otherwise chosen to rent the unit until they can sell into a strong market.

Track Rental Activity in Your Building

Even if you do not have a rental cap, it’s still important to track which units are being rented out. At a minimum, your Board/Management should receive a copy of each lease and keep a basic spreadsheet to be able to report on which units are being rented. In my experience, I have found that most buildings in Arlington settle into a rental percentage of 20-35%. For some buildings, like those in the heart of Clarendon, I see higher rental percentages, sometimes exceeding 50%.

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 | @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Are Condos a Good Investment?

Question: How have rental rates on condos compared to appreciation in resale market value?

Answer: Last week, I compared the historical appreciation rate of different property types (tl;dr…single-family > townhouse > condo) so this week, I thought it would be interesting to drill into what a condo investment looks like in Arlington by comparing historical market value appreciation against historical rental rate appreciation.

1BR vs 2BR Condos, North vs South Arlington

Last week we learned that, since 2012, condos in South Arlington have appreciated faster than similar condos in North Arlington, and in both areas, a two-bedroom condo has performed better than a one-bedroom condo.

North Arlington Rental Rates Frozen, Moderately Higher in South Arlington

Incredibly, the average rent for a one- or two-bedroom condo in North Arlington has barely changed since 2012, while increasing about 18% and 15%, respectively, in South Arlington. I believe that is due to the high volume of new apartment buildings delivered over the last 10+ years, significantly increasing the supply of rents and delivering more modern finishes and amenities than most condo buildings offer, causing condo buildings, mostly built 15+ years ago, to become less desirable for renters.

It’s important to note that the rental data below is limited to what is in the MLS, which is mostly condo rentals and does not reflect the commercial rental market, which has seen average rental prices increase since 2012.

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*Calculated using that year’s average 30yr fixed interest rate (5.5% for 2022), 20% down, and $50 per month on homeowner’s insurance

**Approximate first-year return on an all-cash purchase

Expect Low Return, Potentially Negative Cashflow

In most cases, real estate investments follow similar principles as other investments – more risk for higher returns and lower expected returns for more stable investments. Arlington is one of the most stable, lowest-risk real estate markets in the country/world and condos tend to have the lowest risk of all property types because they’re generally easy to rent with less exposure to costly repairs and maintenance oversights. Thus, you can expect shockingly (for some) low returns on a condo investment in Arlington.

If you’re putting close to 20% down, expect to be cash-flow negative for a while. If you’re paying cash, expect a low single-digit cash-on-cash return. It’s important to note that the calculations above do NOT include vacancy periods (expect some between tenants), property management (usually ~6-10% of gross rent), maintenance/repair, and other expenses you may incur.

Where is the Payoff?

Investment properties come with significant tax benefits from depreciation and some other expenses (not mortgage interest) so for high-earning individuals with few write-offs, the payoff for large tax deductions is substantial and can offset monthly cash flow losses. If you are financing the investment, you must consider the unrealized gain of principle buydown (unrealized until you sell) and incorporate that into your return-on-investment calculations.

Also, keep in mind that these are blended averages of one- and two-bedroom condos. If you are exclusively seeking an investment property, you will find some properties with moderately better-projected returns by focusing less on what you want to live in and more on value.

Many people end up with a condo investment property because they’ve bought it for their primary residence and then convert it into a rental property when they move out. This can be an excellent way to build your investment/real estate portfolio because you get a lower interest rate on a primary residence, with the ability to put less than 20% down, and generate value just by living there and not paying rent yourself.

Condos are, of course, not the only option when it comes to real estate investing but they tend to be the most accessible, and thus, the most popular. Investing in real estate can be a great way to build wealth, but you must first understand the risk-return profile you want and be realistic about costs, returns, and the time you’ll spend managing the investment. 

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 | @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Which Property Types Appreciate Faster?

Question: What type of property appreciates faster – condo, townhouse, or single-family?

Answer: Since 2012, the data is clear – single-family homes appreciate the fastest, followed by townhouses/duplexes, and then condos. Since 2012, the average single-family home has appreciated 69% compared to 27% for condos.

This pattern was true before the pandemic market sent single-family home prices through the roof
(see 2016/2018 numbers below), but was amplified over the last two years as demand intensified for
single-family homes.

South Arlington Appreciating Faster Than North Arlington

Based on appreciation since 2012, South Arlington has been a better investment than North Arlington for all three property types. I expect that trend to continue as new construction picks up steam in South Arlington, Columbia Pike development continues to thrive, and Amazon HQ2 expands hiring.

Two-Bedroom Condos Appreciate Faster Than One-Bedroom

Two-bedroom condos consistently offer a higher return than comparable one-bedroom units. South Arlington condos have appreciated so much since 2012 that even a one-bedroom condo in South Arlington has produced a higher percentage return than a two-bedroom condo in North Arlington since 2012.

Of course, return on investment isn’t the only consideration when buying a home and you certainly need a lot more money to afford a single-family home (avg over $1.3M in 2022) than a condo (avg $533k in 2022) and a 2BR condo (avg $633k in 2022) over a 1BR (avg $377k in 2022), but for most buyers, having a good understanding of how historical returns compare by property type and size should influence decision-making. But please don’t forget that most single-family homes will also require a much higher maintenance, repair, and replacement budget than townhouses and condos (even accounting for condo fees) in order to access those higher long term returns.

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 | @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Demand and Showing Activity Slowing Down

Question: Have you seen a drop in demand and buyer activity recently?

Answer: There has been a modest, but noticeable drop in the intensity of demand and buyer activity over the last 3-4 weeks. I’m seeing fewer showings/offers and more price reductions and cases of homes lasting through the first week on market. I saw signs of it in the second half of April, but it became most noticeable in May.

But let me be clear, we are still very much in a seller’s market. I expect prices to hold in many cases and continue increasing in some, but the frequency and number of escalations should start to ease (already has) and buyers may find themselves able to secure some contract protections (contingencies) they couldn’t before.

DC Area Demand Index Tapers, Arlington Remains Strongest Market

Below you will see the Bright MLS Home Demand Index for the DC area. From July 2021 through February 2022, demand trailed its year-over-year (YoY) counterpart and even came close to matching the YoY demand reading in February 2022. However, you’ll see a noticeable separation in YoY demand taking place in March and especially April. I expect these lines to separate even further in May.

It’s worth noting that, with a demand reading of 227, Arlington has the highest demand reading in this index amongst the nine jurisdictions included in the Washington DC area index, followed by Alexandria at 190 and Fairfax at 151.

Arlington Showing Activity Drops

I pulled data on total showings and showings per listing for Feb 1-May 23 2021 and 2022 on homes priced from $500k to $1.7M, with combined data for all price points at the top of each table. For those not interested in examining the data in detail, here are the highlights:

  • Activity surged in the beginning of the year and shifted in April/May (I think this started in mid/late April)
    • Showings per listing increased 20-26% YoY from February-April 2022, but decreased 12% YoY in May 2022
    • Total showings were up a more modest 9% and 3% YoY in February and March 2022, respectively, but dropped by 11% and 25% YoY in April and May 2022, respectively
  • Historically, we have seen showings slowdown from April to May, but the rate of the slowdown in 2022 compared to 2021 is significant
    • From April 2021 to May 2021, showings per listing dropped 21%, but from April 2022 to May 2022, showings per listing dropped 43%
    • From April 2021 to May 2021, total showings dropped 31%, but from April 2022 to May 2022, total showings dropped 42%
  • In February and March, nearly every price range experienced a YoY increase in showings per listing and most experienced an increase in total showings as well. By April, the changes were split evenly between increased and decreased activity, but in May nearly every price range experienced a YoY decrease. 

I will continue to track market data for you and in a couple months, once most of the spring contracts have closed, we will be able to measure how some of these early indicators of weaker demand effect price metrics.

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 | @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

The Effect of Boeing’s Headquarters on Arlington Real Estate

Question: What effect will the recently announced move of Boeing’s Headquarters to Arlington have on our real estate market?

Answer: I got this question from quite a few people over the past week, but it wasn’t until my Mom asked that I decided it needed to be this week’s topic!

The news itself, Arlington becomes Boeing’s Global Headquarters, seemed to be another massive shock to our real estate market just a few years after Amazon’s HQ2 announcement sent demand through the roof. Fortunately or unfortunately (depending on whether you’re on the buying or selling side), that is not the case and it’s unlikely to have a material effect on the housing market in the near or mid-term.

For now, Boeing is not planning much of a change in their workforce in Arlington or Chicago, where they’re currently headquarter. The CEO and CFO offices will move to Arlington, but that seems to be the extent of the immediate workforce changes planned.

It’s possible that in some one-off scenarios, this news will give more confidence in our local housing market to some buyers and investors and result in a willingness to make a better offer or an offer they otherwise may not have. However, it’s unlikely these cases will cause any sort of noticeable trend in an already thriving real estate market.

I do expect a longer-term positive effect (4-5+ years out) on the Arlington real estate market for a few reasons:

  1. It’s probably a safe bet to assume that future workforce growth, office expansion, and community investment will focus in Arlington
  2. As with Amazon, smaller companies and start-ups in the Boeing orbit will be more likely to carve out space in and around Arlington
  3. Hosting powerful and diverse corporate name brands like Boeing, Amazon, and Nestle significantly increases the likelihood of Arlington (and surrounding markets like Tysons and Reston) landing at the top of the list for other Fortune 500/1000 companies to relocate their headquarters here. In my opinion, this is the most important effect of Boeing’s Global HQ announcement.

As we grapple with some difficult and unique market forces – supply/demand disconnect, surging interest rates, soaring inflation, plummeting stock-market, and signs of a potential recession – news like Boeing’s choice to move its Global HQ to Arlington is an important reminder of the long-term strength of our housing market and its resilience in the face of economic headwinds.

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 | @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Condos Must Be Aware of New Fannie Mae Guidelines

Question: Can you summarize the important details of Fannie Mae’s new condo loan deferred maintenance requirements?

Answer: In response to the collapse of the condo building in Surfside, FL last year, Fannie Mae issued new “temporary” lending requirements, effective Jan 1 2022, for Condos and Co-ops to protect against future deferred maintenance issues and, hopefully, incentivize Associations to address issues faster.

I will highlight some of the key changes below, but I advise Condo and Co-op Boards/Management to review the policy changes in detail to ensure properties in your communities remain warrantable (banks will lend using traditional mortgage products), otherwise you’ll risk a significant drop in property values by limiting your buyer pool to cash buyers or those who qualify for alternative lending products (non-Fannie).

Significant Deferred Maintenance and Unsafe Conditions

This is the strictest of the new requirements, but also leaves a lot of grey area and subjective decision-making by each bank’s underwriter(s). The Fannie Mae language states:

“Loans secured by units in condo and co-op projects with significant deferred maintenance or in projects that have received a directive from a regulatory authority or inspection agency to make repairs due to unsafe conditions are not eligible for purchase. These projects will remain ineligible until the required repairs have been made and documented. Acceptable documentation may include a satisfactory engineering or inspection report, certificate of occupancy, or other substantially similar documentation that shows the repairs have been completed in a manner that resolves the building’s safety, soundness, structural integrity, or habitability concerns.

Significant deferred maintenance includes deficiencies that meet one or more of the following criteria:

  • full or partial evacuation of the building to complete repairs is required for more than seven days or an unknown period of time
  • the project has deficiencies, defects, substantial damage, or deferred maintenance that
    • is severe enough to affect the safety, soundness, structural integrity, or habitability of the improvements;
    • the improvements need substantial repairs and rehabilitation, including many major components; or
    • impedes the safe and sound functioning of one or more of the building’s major structural or mechanical elements, including but not limited to the foundation, roof, load bearing structures, electrical system, HVAC, or plumbing.

…These policies do not apply to routine maintenance or repairs that a homeowners’ association (HOA) undertakes to maintain or preserve the integrity and condition of its property. Also, if damage or deferred maintenance is isolated to one or a few units does not affect the overall safety, soundness, structural integrity, or habitability of the improvements then these project eligibility requirements do not apply. Examples of this scenario include water damage to a unit due to a leaky pipe that is isolated or damage from a small fire impacting the interior of a specific unit…”

It’s possible a Fannie Mae loan can be approved on one unit and denied on another. The grey area comes from 1) how the Association responds to the questionnaire sent by the lender and 2) how each lender’s underwriter(s) determine what qualifies as significant/substantial deficiencies. It’s possible that the interpretation of a question, and thus the way that question is answer, can change based on who from the Management company is responding. The same difference an interpretation of a response and support information can occur between underwriters at different banks.

Special Assessments

Associations should be much more careful when choosing to issue a special assessment (as opposed to borrowing or increasing condo dues) because of the extra scrutiny that now applies for loans and possibility that issuing a special assessment may cause properties in the building to be unwarrantable. The Fannie Mae language states:

“Any current or planned special assessment, even if paid in full for the subject unit, must be reviewed to determine acceptability… The lender is expected to obtain the financial documents necessary to confirm the association has the ability to fund any repairs. If the special assessment is related to safety, soundness, structural integrity, or habitability, all related repairs must be fully completed or the project is not eligible. Additionally, If the lender or appraiser is unable to determine that there is no adverse impact, the project is ineligible.”

Reserve Requirements

Associations are now at risk for loans not being approved if they are not allocating 10% or more of their annual budget towards Reserves. In my opinion, this is the most unreasonable of the new Fannie requirements because it doesn’t take other relevant details into account like whether or not the account is overfunded or the recommendations of the Reserve Study. To issue a blanket requirement for every Association to contribute 10% of their annual budget to Reserves is bad policy.

However, there is some flexibility in this requirement. Borrowers putting 10% or more down can get an exception that will allow them to proceed with the loan. Borrowers with less than a 10% down payment have to go through an expensive and time-consuming exception process.

The full guidance letter from Fannie Mae can be downloaded here.

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 | @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.