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.

Improved Study on Off-Market Sales

Question: Should I consider selling my home off-market?

Answer: The correct question is not whether you can buy/sell a home yourself (yes, you definitely can), rather what are the chances that you net a better result doing so. Last year, Bright MLS released a significant study comparing the results of on and off market sales and found homes sold “on-market” through the Bright MLS platform (link to article explaining what Bright MLS is) sold for 16.98% more than those sold off-market. It was an excellent first attempt at objectively comparing sales data between the two approaches, but there were some flaws in the methodology that received pushback.

2022 Study is Much Improved

In August, Bright MLS released a new, much improved study on the same topic with significantly more data and better methodology. They expanded the data set from 443,000 sales from 2019-2020 to 840,000 sales from 2019-Q1 2022, which means we added data from the peak real estate market of 2021-early 2022. They improved the methodology in several ways such as controlling for flips, new construction, sales between family members, and distressed sales and also significantly improved how they compared prices by analyzing property and neighborhood characteristics, not just by median prices.

On-Market Sales Sold for 13% More, Even more in DC Area

The study found that from 2019-Q1 2022, homes sold through the Bright MLS platform in the Mid-Atlantic sold for 13% more than those sold off-market and the returns were even greater when the market peaked in 2021 (14.8%) and Q1 2022 (19.7%). The DC area market saw even higher returns for on-market sales than the Mid-Atlantic (see chart below).

I think that one of the most important takeaways from this study is how significant the increase in returns were for on-market vs off-market sales when the market was at its peak from 2021-Q1 2022. There’s a clear trend that as the market became more favorable for sellers, and it became easier to sell a home than ever before, the difference in returns between on-market sales and do-it-yourself sales became significantly greater.

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Are you Informed about Real Estate (Reader Poll)?

I would love to hear more from you in comments or by email (Eli@EliResidential.com) about your opinions on the availability of good real estate content – national or local market information, investing, best practices/how-to, etc. Whether it’s content you’d like to see here in my column or content you wish you could access from other sources, I’d love to hear!

Question #1: Are you informed on the real estate market?

A1: Yes, I seek out information and data regularly
A2: Somewhat, the news I follow includes enough to keep me informed
A3: Not really, I occasionally hear/read the headlines
A4: No, I don’t get any exposure to real estate news or information

Question #2: Are you happy with the real estate information/news you receive?

A1: Yes, I get exposure to the type and amount of real estate information I want
A2: No, I get real estate information but it’s not what I want
A3: No, it’s hard to find real estate information

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.

Algorithm-based Real Estate Losing Millions in Northern VA

Question: I have recently seen two properties from Open Door listed for less than what they paid for it. Is that common for them or are these outliers?

Answer:

What is Algorithm-based Real Estate?

Algorithm-based buying and selling, also known as iBuying (2019 article here for more details), is when large companies/investors use algorithms (e.g. Zestimates) to assess a home’s value, purchase it (cash), and then resell it for a (hopeful) profit. These are arms-length transactions using corporate-level strategies rather than local ones.

The idea is that there are enough homeowners who value the ease and flexibility offered by iBuyers (cash, quick closings, no showings, etc) over getting a higher price that there’s billions in business for these companies (Open Door is currently valued over $3B). The acquisition and resale values of homes are determined by algorithms that these companies believe give them a clear picture of local markets across the country and competitive advantage at scale.

Zillow lost about $1B over 3.5 years using their pricing algorithms and shut down their iBuying business last year (article here for more details). After Zillow shuttered their iBuying business, it left Open Door as the biggest player in the industry. What makes them different than Zillow is that iBuying is their core business; for Zillow it was a supplemental revenue stream that risked hurting their core business.

I think the business in fundamentally flawed for many reasons, one of them being the massive disadvantages iBuyers are at during shifting market conditions. In strong markets, sellers can achieve the same or similar terms from everyday buyers and iBuyers are competing with everyday buyers on a house they haven’t seen, in a market they don’t know. In a weakening market (like we’re in now), properties they bought months earlier may be worth the same or less than they are when they’re being resold, so profits are smaller and losses much more common. 

The greater DC Metro area is a relatively small, unattractive market for iBuying for multiple reasons, one being our diverse housing stock makes it difficult to value/project using algorithms; areas with large scale tract housing tend to much more popular with iBuyers (and corporate buy and hold investors) because it’s much easier to calculate market values.

How It’s Going…

As noted earlier, Zillow exited the iBuying business after ~$1B in losses over 3.5 years, leaving Open Door (market cap $3B+) as the main players in this category. I was curious how Open Door’s business is performing in Northern VA so I dug into their data from this year.

I looked at all of Open Door’s currently active (88), currently under contract (29), and sold (35) properties in 2022 and found 152 properties. I was able to find Open Door’s purchase price on 112 of those properties via public records.

Of the 112 homes I found Open Door’s purchase price on, the total acquisition price for these properties was $63,464,400, for an average of $566,646 per property, ranging from $207,100 to $1,031,800. If we assume their average purchase price held for the 40 properties I couldn’t find an acquisition price for, we can estimate their total acquisition price for all 152 properties in this data set (Northern VA sold in 2022 or currently under contract or listed for sale) to be $86,130,257.

Based on the analysis below, I think they may end up losing $5M-$6M+ on these investments.

Known Losses on Closed, Under Contract, and Listed Homes

First, let’s take a look at the gains/losses I can calculate (Known Gains/Losses) based on the known data which is:

  • How much Open Door paid for 112 properties
  • How much settled properties sold for (including closing cost credits to the buyer)
  • How much under contract and active properties are listed for
  • That Open Door pays 2% of the sale price to buyer agents (note: in 2021 over 96% of sellers offered at least 2.5% to buyer agents, see analysis here).

I do not know what their other direct costs are including closing costs (on purchase and resale), carrying costs (taxes, HOA fees, utilities), improvements/repairs, marketing, etc but I will address those later in this article.

Here are some highlights on the Known Gains/Losses:

  • Known Gains on sold properties are just over $390,000
  • Known Losses on properties under contract or actively for sale are over -$1,458,000 if you assume the property sells for what it is currently listed at (unlikely, more on this later)
  • For the 40 properties I do not have the Open Door acquisition price for, I can confirm that they sold five properties for $479,413 less than they originally listed them for (including the 2% commission) and for the 35 homes currently for sale or under contract that I don’t have the Open Door acquisition price for, they’re listed for $1,727,003 less than the original asking prices
  • Of the 35 homes sold, they spent an average of 53 days on market and accepted a price on average 3.8% below the asking price. Only three sold over ask and another three sold for asking. These metrics fall well short of what sellers experienced earlier this year (the average home sold much faster and for at or above the list price).
  • The average property tax liability on these 152 homes is estimated to be roughly $71,000 per month
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Projected Losses on Under Contract and Listed Homes

In the section above, I calculated “Known Losses” on properties currently under contract and currently listed for sale by using the most recent list price as the projected sale price, but the reality is that most, if not all, will sell for less.

Of the 35 properties sold in 2022, Open Door accepted an average of 3.8% below their most recent list price with only three selling for over ask and just three more selling for asking price. This was during one of the hottest real estate markets ever, when the large majority of homes were selling for at or above the asking price.

If we assume that all properties currently under contract or for sale will sell for an average of 3.8% below the current list price (that’s probably too optimistic for Open Door), the projected Known Losses on the remaining homes is nearly $3,252,000!

Furthermore, this only accounts for losses on the 82 homes under contract or for sale that I know the Open Door acquisition price of, there are an additional 35 homes that are under contract or for sale that I do not have the acquisition price on so those homes could easily account for another $1M-$1.5M in projected Known Losses.

Additional Unknown Costs

There are plenty of additional direct and indirect costs that we know exist, but would be difficult or impossible for me to calculate including direct costs like their closing costs (e.g. transfer taxes) on the acquisition and resale, months of carrying costs like property taxes, Condo/HOA fees, and utilities, and any improvements/repairs prior to resale (it doesn’t appear they do much). There are also plenty of indirect costs of the operation including salaries of staff working on the deals, marketing each property, and more.

It’s likely that Open Door is taking on roughly $1M-$1.5M in additional direct unknown costs for these 152 transactions.

What Can We Conclude?

I think that we can safely assume that Open Door will be taking $5M-$6M+ in direct losses from the 152 homes they currently have for sale, under contract, or sold in 2022 in Northern VA.

For a company currently valued over $3B, these losses are meaningless; and Open Door reported nearly $1.5B in gross profit over the past 12 months (but losses on Operating Income), so clearly they’re winning big in other markets, but what conclusions can we draw from Open Door’s experience?

In my opinion, the most concerning data from Open Door’s Northern VA activity is not the millions in losses it’ll take on currently for sale and under contract properties, but the poor performance of their closed sales from earlier this year in a historically strong market. When you account for the unknown additional direct costs on those sales, Open Door is likely coming in at roughly break even. Additionally, the days on market and sold price to ask price ratio data (two key measures of resale success) is much worse than the rest of the market.

We can reasonably conclude that they overpaid for their acquisitions because they generated little-to-no profit, despite a rapidly appreciating market and we can conclude that their resale process/strategy (pricing, prep, listing management, negotiations, etc) performs significantly worse than market average.

As I mentioned above, they clearly are not having these problems in all markets because they’ve generated significant gross profits from their transactions (although they’re taking losses in Operating Income). Many markets are much easier to operate in with an arms-length, hands-off approach. Our market is not. I’ll leave you with some thoughts:

  • Local markets behave very differently and present vastly different nuances that make a national approach to local real estate difficult to execute
  • The greater DC Metro area market is a difficult one for algorithms to figure out because of the diversity in housing stock and nuances of price shifts over small geographic areas
  • The greater DC Metro area market will be a difficult market for high volume corporate buyers to profit from without taking a localized approach, which is expensive and complex
  • Our market is overwhelmingly full of smart, educated, and savvy home sellers and buyers relative to other markets which means that we are more likely to exploit flaws in corporate-level buying/selling strategies that are not specifically tuned to our market or markets like ours
  • There are plenty of examples where algorithms and/or arms-length, uninvolved are successful, there’s excessive risk of that approach in our market and it is unlikely to be more profitable than time-tested, human expertise in the long-run or at scale

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.

Expect Listing Activity to Spike, Fade Quickly

Question: I’ve noticed a lot less homes being listed lately, will that continue for the rest of the year?

Answer: I hope everybody had a great holiday weekend! For those in the market to purchase, you’ll want to quickly shift out of vacation-mode and into house-hunting mode this week because you’ll see a lot more homes being listed for sale in the coming week(s) than you have over the last couple of months.

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Historically, September comes in just behind March and June for new listing activity, with much of that front-loaded in the week or two following Labor Day weekend. This follows a similar trend on the demand side where we see peak demand from roughly mid-March to early June, with a slowdown during the summer vacation months, followed by a brief spike in buying activity following Labor Day weekend with dwindling buyer interest through the remainder of the year.

However, the seasonal increase in September demand generally lags the pace of new inventory and thus results in the most average available listings for sale in September and October, before falling rapidly in November and December because the volume of new inventory drops by over 50%. For buyers, that means that the next 4-8 weeks will be your last chance at a wide variety of homes for sale until March.

Projected Surge in Available Inventory

As of 10AM Monday September 5, there are 369 homes listed for sales in Arlington and a whopping 42 homes in Coming Soon status, 34 of which are scheduled to hit the market within the next week. The homes in Coming Soon status will boost total inventory by nearly 10% and there are sure to be plenty of homes listed for sale over the next week that are not showing in Coming Soon.

Given the decreasing absorption rates (demand) we’re seeing in the market, I would expect that by next week we will see an increase in available inventory of well over 10% when you take the net of homes listed for sales and homes that go under contract during the same one-week period.

Effect on the Market

I expect historical trends for monthly listing activity to play out along similar patterns as those charted above. With demand steadily decreasing from earlier this year because of normal seasonal trends and massive shifts in demand due to interest rates and other factors, the next 4-8 weeks will be an interesting period to observe our market.

How much of the new inventory will be absorbed? The absorption rate (ratio of homes going under contract to homes for sale) in Arlington fell 61% from 1.17 (more homes going under contract than coming to market) in February to .46 in July (and will certainly drop further when August data is released).

How will sellers with sitting inventory react? The average days on market for the 369 homes currently for sale in Arlington is 86 days and the median is 53 days. In the last 7 days, sellers have reduced their asking price on 31 homes.

I’m looking forward to providing insights to you over the coming months on how everything plays out!

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.

Most Common Contract Contingencies Explained

Questions: We’re making an offer on a home that has been on the market for a few weeks and want to include contingencies, what is normal?

Answer: Contingencies can be used by buyers to reduce their risk in a real estate transaction by allowing them, in specifically defined scenarios, to renegotiate contract terms or cancel a contract without losing their Earnest Money Deposit. The three most common contingencies are the home inspection contingency, financing contingency, and appraisal contingency.

The shift in market conditions over the last 3-4 months has meant adjusting from a market where most winning offers did not include any contingencies to a market where many buyers are able to include at least one or two contingencies, often all three. This week I thought it would be helpful to refresh everybody’s understanding of the three most common contingencies and what protections they provide to buyers.

Home Inspection Contingency

  • Purpose: Allows buyers to hire a licensed home inspector who will provide a detailed assessment of a home’s condition and recommendations for repair, replacement, and maintenance.
  • Structure: The inspection contingency offers two options. One being the ability to void the contract after the inspection and the second being the option to void and the option to negotiate for repairs or credits based on the results of the inspection. 
  • Timeline: In most cases, I see inspection contingencies last 3-10 days and if there is a negotiation period, those often last 2- 5 days.

Financing Contingency

  • Purpose: Protects buyers if they do not get approved for their loan and allows them to void the contract or delay closing without losing their Earnest Money Deposit.
  • Structure: The financing contingency can either automatically expire at the end of the contingency period or extend to the closing date, unless the seller takes formal action to remove it after the contingency period ends.
  • Timeline: In most cases, I see financing contingencies last 10-24 days. It is a good idea to consult your lender on this timeline.

Appraisal Contingency

  • Purpose: Protects buyers in the event the property appraises for less than the contract purchase price. It allows a buyer the option to void, renegotiate, or proceed.
  • Structure: In some cases, through a separate addendum, buyers may agree to waive a specified difference between the appraised value and purchase price and make the appraisal contingency only if the appraisal value is below a certain number.
  • Timeline: In most cases, I see appraisal contingencies last 10-24 days. It is a good idea to consult your lender on this timeline.

As a buyer, it is important to understand that the use of, structure, and timeline of contingencies in your offer play a significant role in how a seller responds to your offer. In some cases, contingencies (or lack of) may have a greater influence on negotiations and a seller’s response than price, so it is important to approach contingencies thoughtfully and strategically based on your interest in a home, days on market, and an assortment of other factors.

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.

Housing Slowdown More Extreme in Outer Suburbs

Question: Are you seeing different patterns in the housing market slowdown in different parts of the region?

Answer: In September 2020, I wrote an article highlighting how extreme the differences were between the demand shift in Arlington compared to outer suburbs like Fairfax and Loudoun Co. In short, Arlington was competitive before the COVID surge and the outer suburbs lagged far behind it, but once the COVID surge began, Arlington became moderately more competitive while the outer suburbs experienced an extreme shift in market conditions, becoming more competitive than Arlington in just a few months.

Fast-forward two years and we are seeing something of a rubberband-effect as the entire housing market slows down, with noticeable shifts in all markets, but more extreme shifts in the outer suburbs. Not that we are witnessing anything close to a crash, the market is still good for sellers, but very different than what we’ve seen the last two years.

Note: this analysis focused on the single-family/detached housing market, not condos or townhouses

Outer Suburbs Slowing Faster, Arlington King of Stability

Months of Supply (MoS), a measure of supply and demand that calculates how long existing inventory levels will last based on the current pace of demand (lower levels favor sellers), tells the story better than any other metric.

In the charts below, you can see our regional story of the pre-COVID, COVID, and current real estate market play out:

  • Competition in the outer suburbs generally trailed the DC and Arlington markets, offering buyers more time and leverage in their purchase decisions
  • After Amazon announced HQ2 in November 2018, MoS in Arlington dropped sharply as demand picked up and supply dropped, with a more modest, lagging effect on the surrounding markets
  • The COVID market from roughly summer 2020-spring 2022 sent MoS lower (favorable to sellers) in all markets, but the drop in MoS in outer suburbs was more extreme, pushing those markets well below Arlington and DC, making them extraordinarily competitive
  • As of July 2022, MoS in the outer suburbs was still lower than Arlington and DC, but rapidly increasing. The year-over-year increase in MoS in Loudoun County was 94.4%, nearly double what it was in July 2021. The increases in MoS were 67.4% (DC), 41.6% (Fairfax Co), and 27.8% (Arlington).
  • You can see the steadiness and strength of the Arlington housing market playout over the past five years in these two charts
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Market Shift is Demand-Driven

You can blame the sudden market shift almost entirely on a drop in demand, not more listing volume. Absorption Rate (AR) measures the percentage of homes going under contract compared to the number of homes for sale and is a good way of measuring demand.

In the charts below, check out the massive spikes in demand for Loudoun County during the market peaks and the rapid fall over the last few months. You’ll notice in the five-year history that the AR for all four markets shown was pretty similar pre-COVID, increased far rapidly in the outer suburbs during the COVID market, but in just the last couple of months, all four markets have come together to their “natural” pre-COVID levels.

The AR in Loudoun Co dropped 60.1% year-over-year in July and Arlington had the lowest year-over-year drop in AR of the four markets, at 35.7%. DC dropped by 48.9% and Fairfax Co by 40.6%. Loudoun Co capped out at an astonishing 3.1 AR in February, fell to 1.49 by April, and came in at .57 in July. Loudoun and Fairfax Cos remain slightly ahead of Arlington and DC, but I suspect those rankings will reverse in the August/September readings.

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Want another sign of lower demand? The average sold price as a percentage of the asking price has dropped from 105.1%-106.7% in April to 100.7%-101.4% in July. Keep in mind that these are trailing metrics because they are based on sales (usually 3-6 weeks after going under contract), so these are reading from contracts in Feb/Mar and May/June, respectively. I think we will see the average sold price to ask price drop below 100% in most or all four of these markets by the time September data is published, which will reflect contracts from July/Aug.

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Listing Activity Remains Stable

As noted above, the market shift can be attributed almost completely to lower demand because listing activity remains similar to historical volumes, even down a bit, which is an opposing force on lower demand and helping to maintain a more favorable market for sellers.

The charts below show new listings of single-family homes in Arlington, Fairfax, and Loudoun Counties, and DC, following by the same chart for the DC Metro and Northern VA region, and finally a chart just for Arlington since Arlington is a bit hard to see on the first chart. The main takeaway is that across all regional markets, the number of single-family homes being listed for sale has remained steady over the past five years and the fluctuations in market conditions are almost completely driven by changes in demand.

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

Influence of New Construction on Arlington Prices

Question: How much of an effect do expensive new construction homes have on the average prices in Arlington?

Answer: A couple of weeks ago I offered a mid-year review of the single-family housing (SFH) market in Arlington and average prices were a focal point. This week, we’ll look at some pricing data with and without new construction included to understand how much new builds influence our average prices. Please note that the data used below is based on new construction sales entered into the MLS and accounts for most, not all new construction sales.

New Construction Prices High, Effect Limited

So far in 2022, a new SFH home has sold for an average of nearly $1,000,000 more than resales. Sales of new SFHs have accounted for 9% of total sales but only account for a 6.8% increase in Arlington’s average home value. The numbers were similar last year.

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22207 Dominates New Construction Sales

Since 2018, the 22207 zip code has accounted for 54% of all new SFH sales in Arlington and so far in 2022, 22207 has accounted for 60.3% of new SFH sales. In 2022, new home sales have accounted for 14% of all sales in 22207 and are responsible for increasing the average home price in 22207 by $120,000.

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Average New SFH Nearly $2.2M

In 2021, the average new SFH crossed over $2M for the first time and after a 7% increase in average prices so far in 2022, the average new SFH is nearly $2.2M. There are still some markets where you might find a new house under $2M including 22205 where lots, and thus homes, tend to be smaller than neighboring North Arlington zip codes.

The 22204 zip code far out-paced other zip codes in average price appreciation for new SFH, increasing by 15% from 2021 to 2022. I expect similar double-digit growth in new construction prices in 22204 for another year or two until the gap between 22204 and other Arlington neighborhoods gets tighter. So far in 2022, new SFH outside of 22204 is selling for an average of over $2,273,000, which is 45.1% higher than new homes in 22204. The percentage gap of average prices of resale homes in 22204 versus other Arlington zip codes is similar, at 48%.

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

2022 Arlington Mid-Year Single-Family Home Review

Question: How did the Arlington single-family home market perform in the first half of 2022?

Answer: We have reached two years of the average single-family home (SFH) in Arlington selling for
over the asking price, but like the rest of the economy, things are finally cooling down. However, the
“cool-down” data won’t start showing up for another month or two and the data you’ll see here, a
review of the first half of 2022, reflects what was mostly a red-hot market.

More Competitive, Less Price Growth?
By nearly all measures, the first half of 2022 was more competitive than the first half of 2021, yet we
got lower average and median price growth in ’22 than in ’21, compared to the first half of the year
prior.

The competition in the first half of 2022 was unlike anything we’ve seen in Arlington before with the
average SFH selling for 4.2% more than the asking price, compared to an average of 1.8% over ask
in the first half of 2021. In 2022, an insane 79% of homes sold within the first 10 days on market,
compared to 70% in 2021 and 73% of homes sold at or above asking price in 2022, compared to 66%
in 2021.

With such intense demand, one would expect to see higher price growth in 2022 than in 2021, but
that’s not the case. The average and median price change in the first half of 2022 was 7.1% and
5.6%, respectively, compared to the first half of 2021. From 2020 to 2021, the average and median
price change was 9.6% and 16.6%, respectively.

I think the reason for conflicting demand and appreciation data is two-fold. First, the 2021
appreciation is based on the first half of 2020, which included the first few months of COVID
lockdowns when the market basically froze, so those prices may have been somewhat artificially
deflated. However, the counter argument to that is comparing the first half 2020 prices to 2019 prices,
we got a healthy 5% appreciation in average price.

The second reason, and this is just a theory, is that by 2022 the market (sellers and listing agents)
knew that buyers were accustomed to paying significantly over the asking price and thus set more
conservative (lower) asking prices to ensure competition instead of setting prices that were more
reflective of actual/likely market values. Doing so would artificially inflate some demand measures
without causing a coinciding explosion in prices.
Since the beginning of the pandemic in the first half of 2020, the market has experienced the
following:

  • Median price increased by $225,000 or 23%
  • Average price increased $197,000 or 17.5%
  • Average seller credit (towards buyer closing costs) decreased by 75%
  • The number of homes sold for $2M+ increased from 5% to 11% of total sales
  • The number of homes sold for under $1M decreased from 53% to 31% of total sales


22205 Leads Growth, 22201 Still Most Expensive
The 22201 and 22207 zip codes remain significantly more expensive than other Arlington zip codes
as the only two with an average price higher than the county-wide average. The 22205 zip code has
benefitted from tremendous growth over the past five years and led the way in the first half of 2022
price growth, adding 12.7% to its 2021 first half average.

After gaining 19.8% in 2021, 22204 settled back down to a 5.1% increase on average price in 2022
and remains the only zip code with an average price below $1M, but with more new construction
popping up throughout the 22204 neighborhoods, I don’t expect the sub-$1M average price to last
much longer.

Market Conditions Are Demand-Driven
We hear a lot about under-supply being the main cause of extreme competition and significant price
appreciation. While that is true — we have been running low over the last few years on homes actively
listed for sale — the reason for the low supply is almost exclusively demand-driven (high absorption
rates) not because the number of homes being listed for sale has collapsed. As you can see from the
chart below, illustrating the number of SFH listed for sale in each quarter over the last decade, the
amount of inventory coming to market has remained relatively consistent.

What has changed is how quickly those homes are being purchased and that has caused the
average number of SFH actively for sale to drop significantly, per the chart below. One thing that is
particularly well illustrated is how much more of an effect the Amazon HQ2 announcement
(November 2018) had on demand, and thus active supply, compared to the COVID market that had
such a dramatic effect on other regional and national markets.

Looking Ahead
We have absolutely seen a shift in market conditions over the last couple of months. Good homes are
sitting on the market through the first week(s), more sellers are reducing their asking price, and
buyers are negotiating more contingencies.

This is all, in my opinion, a very good thing. This is not the bottom falling out in Arlington, rather just
regaining some much-needed balance.

Will softer market conditions lead to a drop in prices? Maybe a little. There will certainly be some
sales from the first half of this year that seem extraordinarily high versus comparable sales in the
second half of the year, but I think on aggregate we won’t see much of a dip in pricing, mostly just a
leveling off.

The best support for that theory comes from the fact that we didn’t experience the same extreme shift
in demand/pricing during the COVID market that other regional and national markets did. We were
already experiencing a competitive, moderately high-growth market prior to COVID due to natural
market forces created by increased demand on the news of a massive new employer, Amazon, so I
expect our market to be able to hold most, if not all, of its value through the cool-down. I also expect
things to pick right back up in 2023 if interest rates come down a bit by the end of the year, like
they’re expected to.

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

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. 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.

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.