coronavirus

COVID-19 Market Impact Update

elieliresidentialcom Arlington, Buyer, Investor, Seller , , , 0 Comment
COVID-19 Market Impact Update

Question: What impact is Coronavirus having on the real estate market?

Answer: COVID-19 has had a similar impact on new listings in Arlington as it has across Northern VA and the DC Metro with each market dealing with a ~30-35% year-over-year drop in April and May. However, demand in Arlington has tapered off from 2019 highs, while demand in Northern VA and the DC Metro is steadily increasing, despite everything we’ve gone through with Coronavirus.

The tapering of Arlington demand, which is still very strong relative to historical numbers, is bringing the Arlington market more in-line with supply/demand readings of the Northern VA and DC Metro markets. The below chart shows Months of Supply (a good supply/demand ratio) for each market. Months of Supply calculates how long it would take for the existing housing inventory to sell out, if no additional inventory was supplied.

Prices Up Regionally

Year-over-year prices for May sales and year-to-date sales are up significantly across the region. Across all of the counties/regions listed below, Arlington’s year-over-year growth is the lowest, which is almost certainly due to the significant appreciation in Arlington last year, after the Amazon announcement.

Keep in mind that sales data lags actual market activity because it usually takes 30-45 days for a property to close, so May sales are more reflective of March and April activity than what we’re currently seeing. This is particularly interesting because March and April were the peak of Coronavirus concerns/lockdowns. Barring any major shifts in the DC-area economy, I expect year-over-year prices to show even more growth as we get further into the year and sales reflect an even stronger buyer market.

Arlington New Listings Down

We’re used to seeing new listing supply peak from March-June, after November-February lows, with April and May almost always exceeding March’s supply. Unfortunately for many home buyers, new inventory tumbled in April and continued dropping further in May.

The May 2020 drop in new inventory represents a 32.1% decline compared to May 2019, which is particularly concerning when you consider that new inventory in May 2019 was already down 21.3% from May 2018, giving us a 47% decline in new inventory from May 2018 to May 2020.

The decline in new inventory was distributed pretty evenly across property type (single-family vs condo) and price point.

Arlington Demand Down

Absorption is a good indicator of demand, providing the rate of homes going under contract relative to total supply. Demand, and therefore absorption rate, are usually highest from February/March through May/June and have been sky-high since spring 2019, with an absorption rate of 1.0 or more in eight months since March 2019.

While the absorption rate in April and May 2020 remained high relative to pre-Amazon years, there was a year-over-year decline of 37.6% and 25.5%, respectively, indicating a tapering of Arlington demand compared to last year. However, with so few listings coming to market, there’s still high levels of competition for desirable properties that are reasonably priced.

This doesn’t mean that the bottom is dropping out in Arlington. Part of the difference in year-over-year data is due to how sharply Arlington demand rose in 2019 (post-Amazon announcement), but we’re also seeing a lot of buyers being priced out of Arlington and pushing their searches further into Northern VA.

Northern VA New Listings Down, Demand Up

Northern VA has experienced a similar drop in new listings (33.8% and 33.4% YoY decline in April and May, respectively), but is actually seeing an increase in year-over-year demand with a 32.2% increase in absorption rate in May 2020 compared to May 2019 and absorption rates exceeding 1.0 in three of the last four months.

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

Impact of Coronavirus on the Real Estate Market, Pt 6

elieliresidentialcom Arlington, Home Owner, Investor, Seller , , , , , 0 Comment
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

elieliresidentialcom Arlington, Buyer, Home Owner, Investor , , , , , , , , 0 Comment
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?

Participate in Poll at ARLnow
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

elieliresidentialcom Arlington, Buyer, Home Owner, Investor , , , , 0 Comment
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

judson726 Arlington, Buyer, Home Owner, Investor, Seller , , , , , , , 3 Comments
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.