Why the #*%$ is the Market Competitive Again?

Question: A friend of mine just lost an offer on a house and there were 7 other offers, is the market competitive again?

Answer: If you’re letting news outlets, national real estate pundits, and Twitter guide your real estate strategy in the DC Metro/Northern VA, you’re likely getting a very different perspective on the real estate market than what we’re seeing locally. Despite 6-8+ months of headwinds, the market did a 180 in the first few weeks of January, compared to the weeks prior (this is a common trend).

Multiple offers, escalations, and limited contingencies have returned to many parts of the market, so this week’s column is chart-heavy to show that the “crash” in the 2nd half of the year was all relative to the breakneck pace of the market in 2021 to mid 2022 and how natural supply/demand economics are keeping the market competitive and prices up, despite how much higher the monthly payments are.

Second Half 2022 was Relatively Bad, Historically Normal

Overall, across the DC Metro region, total sales transactions finished the year 3% above the 10-year average. Things seemed a lot worse than they were because of the massive number of sales we experienced in 2021 and 2020.

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While prices in most sub-markets did drop from the first to second half of ’22, real estate in the DC Metro still appreciated in 2022 above the 10-year average. Even condos, which struggled through the heart of the pandemic, appreciated nicely in 2022.

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In Northern VA, there’s a clear jump in average prices in Q1/Q2 2022, followed by a very normal drop in average prices for Q3/Q4 (this has more to do with more expensive homes being sold in the spring, not a seasonal drop in home values), but the Q3/Q4 average prices fit nicely within the normal trend line and do not suggest any sort of crash, just a jarring difference from what we experienced in the first half of the year.

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Average sale price to original asking price ratios, one of the best demand metrics, fell sharply through December, from all-time highs in the spring. While the speed of the drop shocked the market, it dropped to normal Q4 levels so the “crashing market” feeling was only relative to the extreme demand in early 2022, but not so when compared to historical norms.

A similar pattern can be seen in the second chart for median days on market. In fact, the 2nd half of 2022 was still a faster pace market than the 10-year average.

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Showing activity during the past week, as measured by Bright MLS, is 73.7% lower than it was in 2022, but 5.5% higher than it was during the same week in 2019.

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Interest Rates Are Lower, Relatively Speaking

The relative effect of interest rates plays a huge role in demand. For most of 2022, buyers felt like they were losing every week as rates climbed steadily from January through October. Conversely, rates have fallen since November and stimulating demand.

**It’s worth noting that there are Jumbo loan products currently available at rates ~.5% less than what the second chart shows.**

Just look at the difference between the mortgage rate trends from January ’22-October ’22…

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…compared to the mortgage rate trends since November ’22…

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Not Much Demand Needed to Make the Market Competitive

With supply this low, it doesn’t take historic demand to generate competition. Q4 2022 was by far the lowest quarter for new listing supply in over a decade and total active listings still trail well behind the 10-year average heading into a new year.

We’re currently see many more homes go under contract than what is being supplied to the market. For example, over the past seven days in Arlington, 48 properties went under contract compared to only 31 new listings.

The pace of new listings will continue to increase through the spring, peaking from roughly mid-March through May, so it will be interesting to see whether demand will keep pace with increased supply or whether supply will outpace demand and reduce the amount of competition that currently exists.

For now, the low inventory and current demand levels are enough to create competition in many sub-markets for good properties priced appropriately and thus putting upward pressure on prices at a time when many expected prices to fall or remain stable.

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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 Eli Residential channel.

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.

So You Want a Big Yard in Arlington?

Question: We’re moving to Arlington from out of state and have always had at least an acre of land. We’d like at least ½ acre in Arlington, but can’t find much. How big are most lots in Arlington?

Answer: I talk a lot about making sure the home you want exists before setting your hopes and dreams on finding it. Understanding what lot sizes you can expect to find in Arlington is a great example of that, so this week I’ll share data on lot sizes from homes sales going back to 2019.

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The data is based on total square footage of a lot, including the land the home sites on. Most people think about lots in terms of acres, so here’s a quick conversion key:

Square FeetAcres
5,4451/8
10,8901/4
21,7801/2
32,6703/4
43,5601

Arlington Lot Size Highlights (sales since 2019):

  • Average lot = 8,479 SqFt
  • Median lot = 7,277 SqFt
  • Lot with ¼ acre or more is in the top 83% largest lots
  • 1.4% with ½ acre or more
  • Just six of 4,355 were 1+ acre, none were 2+ acres
  • More homes sold on 1/10th acre or less than ½ acre or more

The chart below shows the percentage of homes sold in Arlington within five different ranges. 69% of homes sit on lots with 5,000-9,999 SqFt.

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Drilling down even further, we see that 1,672 of 4,355 lots (38%) were between 6,000 and 7,999 SqFt

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Lot sizes are not evenly distributed across the County. The smallest lots are found in South Arlington and along the Rosslyn-Ballston corridor with larger lots found further norther. The large lot sizes are one reason why 22207 has so much tear down-new build activity.

Below you can see a distribution of lot sizes by zip code, first as a percentage of sales in each zip code and then by number of sales in each zip code.

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If any readers would like to see pricing data for certain lot sizes, I’m happy to pull that for you, just send me an email.

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.

Interest Rate Forecasts and New Loan Limits

Question: What are current forecasts for mortgage rates in 2023 and beyond?

Answer: Happy New Year everybody!

A few weeks ago, I posted a “Beyond the Headlines” deep dive with James Baublitz, VP of Capital Markets at First Home Mortgage, into why interest rates have increased so much.

As the calendar turns, many of you will be kicking off your home search and asking about current and forecasted interest rates, so I’ll cover that today, plus a quick note on recent loan limit increases for down payments as low as 3%.

What is a “Normal” Mortgage Rate?

The first thing to understand about mortgage interest rates is that they are market-driven and forecasting comes with the same amount of unpredictability as any other economic/market-based forecasting (GDP, Unemployment, Stocks, etc). Take predictions/forecasts with a grain of salt.

The other truth that is best illustrated by the chart below, which shows the average 30yr fixed mortgage rate since 1971, is that there really is no established “normal” interest rate that we can point to and say “this is what you can expect when markets stabilize.” So, use caution when relying on assumptions about future rates (e.g. for a refi).

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Forecasting Future Rates

Most major forecasting organizations including Mortgage Bankers Association, Freddie Mac, and National Association of Realtors (NAR) believe rates will steadily decrease through 2023 and that trend will continue into 2024.

Mortgage Bankers Association expects rates to fall faster than Freddie Mac and NAR, with average 30yr fixed rates hitting mid 5s by the 2nd quarter and low 5s by the end of 2023. They forecast that rates will be in the 4s by Q1/Q2 2024 and believe the long-term stable rate to average 4.4%.

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Freddie Mac sees rates remaining in the mid 6s for most of 2023 and closing out the year at an average of 6.2%.

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NAR expects the average 30yr fixed rate will hover just above 6% in the first half of 2023 and then settle into the upper 5s in the second half of the year:

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Higher Loan Limits for Lower Down Payments

The Federal Housing Finance Agency (FHFA) just released new conforming loan limits for 2023, with significant increases to reflect recent price growth. The jurisdictions in the greater DC Metro area were given the maximum loan ceiling of $1,089,300.

Beginning this year, Fannie/Freddie will insure loans up to $1,089,300 with as little as 5% down, or the equivalent of a purchase price just under $1,115,000 with 5% down. The new conforming limits increase the maximum loan amount with 3% down to $726,200, or the equivalent of a purchase price just under $749,000 with 3% down.

For any conforming loan (or any loan for that matter), borrowers must also qualify on several factors including credit score, debt-to-income ratio, first-time buyer status, and more. Feel free to reach out to me for lender recommendations if you’d like to explore your mortgage options.

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 Expensive Homes Sold in the DMV in 2022

Question: What were some of the most expensive homes sold this year in the DMV?

Answer: Happy holidays and new year everybody!

It’s always fun to look back at the most expensive homes sold in our nook of the world, so without further ado, let’s take a look at the most expensive homes sold this year in DC, Maryland, and Virginia. Note: this includes what is entered into the MLS, it’s certainly possible (likely) that expensive homes have traded hands privately outside of the MLS.

The most expensive home sold this year in all three DMV states is a beautiful 550-acre estate, with a private 18-hole golf course, in Upperville VA that sold for $23.5M! Despite the hefty price tag, it falls well short of the record sales from 2018, 2020, and 2021 that all cleared $40M.

Listing by John Coles, Thomas and Talbot Estate Properties, Inc (1584 Rokeby Rd, Upperville, VA)

Top 5 Most Expensive Sales in Arlington

Listing by Robert Hryniewicki, Washington Fine Properties (3433 N Albemarle St, Arlington, VA)

Arlington’s average and median prices are sky-high, but the area generally likes ultra high-end properties we see elsewhere in the region. Arlington’s most expensive sale this year is a new build in Country Club Hills clocking in at 7,450 SqFt, seven bedrooms, seven full bathrooms, and two half baths. The property sits on an unusually large (for Arlington) .39-acre lot.

Top 5 Most Expensive Sales in Alexandria

Listing by Preston Innerst, EYA Marketing (5 Pioneer Mill #502, Alexandria, VA)

The most expensive sale in Alexandria is a townhouse built in 1800 in Old Town that sits on nearly ¼ acre with over 6,000 SqFt and seven bedrooms. Pictured above is the second priciest sale in Alexandria, a waterfront penthouse condo in Robinson Landing with nearly 2,800 SqFt for $4,509,000.

Top 5 Most Expensive Sales in Fairfax County

Sold by Daniel Heider, TTR Sotheby’s International Realty (576 Innsbruck Ave, Great Falls, VA)

The most expensive sale in Fairfax County comes in at $11M for a 20,000 SqFt home recently built one block from Langley High School. Pictured above is the second most expensive sale in Fairfax County of a sprawling Great Falls residence on five acres, built in 2007, sold for $10.5M.

Top 5 Most Expensive Sales in Loudoun County

Listing by Cricket Bedford, Thomas and Talbot Estate Properties (21827 Quaker Ln, Middleburg, VA)

The most expensive sale in Loudoun County for $4,950,000 of nearly 190 acres with an active Angus cattle operation.

Top 5 Most Expensive Sales in Washington DC

Listing by Michael Rankin, TTR Sotheby’s International Realty (3017 O St NW, Washington, DC)

3017 O St NW in Georgetown is Washington DC’s most expensive sale, at $11.5M, for nearly 8,000 SqFt on over ¼ acre.

Top 5 Most Expensive Sales in Maryland

Listing by Brad Kappel, TTR Sotheby’s International Realty (3235 Harness Creek Rd, Annapolis, MD)

The most expensive sale in Maryland is a beautiful waterfront home in Annapolis with over 3.5 acres and nearly 12,000 SqFt, built in 2014 for $12,000,000.

I hope this makes for some fun conversation during the holidays about what type of ultra high-end home you would buy if you win the lottery! But I’ll be honest, the most expensive homes this year aren’t nearly as impressive as last year’s (link if you want it).

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.

My Best Advice to Start Your Home Search

Question: We are looking forward to buying a home next year. Do you have any recommendations on how we should start the home buying process?

Answer: If you Google “home buyer tips” or “what to know before buying a home” and you’ll find plenty of advice on the topic, so I’ll include some suggestions I don’t usually see online and put my own spin on some of the more common advice. 

Weighted Criteria

It’s easy to come up with 3-5 things that are most important to you, so challenge yourself early to come up with a list of 10-15 must-haves and wants. Then, starting with 100 points, allocate points to each criteria based on how important it is to you and you’ll end up with a weighted criteria list to help you focus your search and objectively compare properties.

I encourage couples to complete this exercise individually first, then work together on a combined list. This will put even the best relationships to the test!

If you want to take it to the next level, bring your weighted criteria list with you on showings and score each house based on the points you allocated to it and score each home on a 100-point scale. I often find that buyers who have taken this exercise seriously and are working within a budget are hitting scores in the 70s-80s on their top choice homes.

Length of Ownership

How long you expect to live in your home is one of the most important factors in defining what you prioritize and how you use your budget. You should focus on the following:

  1. Likely length of ownership
  2. Difference in criteria for a 3-5 year house vs a 10-12+ year house
  3. Difference in budget requirements for a 3-5 year house vs a 10-12+ year house

Appreciation is not guaranteed and difficult to predict, but the value of longer ownership periods is undisputed. One way longer ownership adds value is the potential for eliminating one or more real estate transactions over your lifetime, thus the associated costs (fees, taxes, moving expenses, new furniture, etc) and stress that comes with moving.

If you have an opportunity to significantly increase your length of ownership by stretching your budget, you generally should. On the other hand, if your budget or future (e.g. job will move you in a few years) restrict you to housing that’s likely to be suitable for just 3-4 years, it’s generally better to stay under budget.

Influencers (not the Instagram ones)

Family, friends, colleagues…they’re all happy to offer opinions and contribute to your home buying process, but the input can be overwhelming and unproductive if you don’t set boundaries. Try to determine up-front who you want involved in the process and how you’d like them to be involved.

Think about how you’ve made other major decisions in life – what college to attend, what car to buy, where to get married, whether to change jobs – and if you’re the type of person who likes input from your friends and family, you’ll likely do the same when buying a house. Plan ahead with those influencers so their input is productive and comes at the right time (e.g. not when you’re already two weeks into a contract).

Does Your House Exist?

Before jumping too far into the search process, spend a little bit of time searching For Sale and Sold homes on your favorite real estate search website/app to see if the homes selling in the area(s) you want to live in and that are within 10% of your budget are at least close to what you’re looking for. If not, spend some time adjusting price, location, and non-critical criteria to figure out what compromises you’ll need to make and then compare those compromises to your current living situation and/or alternatives like renting.

Know Your Market

We’re transitioning from the most intense housing market ever into a much more moderate environment, but what you see and read about the housing market may not be accurate in the sub-market you’re looking in.

Each sub-market behaves a bit differently and comes with its own unique set of challenges and opportunities, so take time early on to understand the sub-market(s) you’ll be involved in and what you’re likely to experience. This is something your agent should be able to assist with.

Pre-Approval & Budget

There is a lot of value in working with a lender early in the search process. For starters, you’ll have somebody who can provide real rates and advice based on your specific financial situation/needs. A lender can only do this if they’ve reviewed your financial documents and credit. The more you put in, the more you get out.

You’ll need to have a lender pre-approval to submit an offer (the seller has to know you qualify for the purchase you’re offering to make) so if you have to do it anyway, do it early on so you get the most value out of your lender. It also means that you’ll be prepared to make an offer if you find the right home earlier than you expect.

Despite the market slowing down, the quality of your pre-approval can make a big difference when you make an offer. Quality means a lender who has taken the time to fully review your documents and credit, will speak on your behalf to the listing agent, and is a bank/mortgage broker with a good local reputation.

You should strongly consider having a pre-approval from a reputable local lender to give yourself an advantage when making an offer. Pre-approval letters from big banks and online lenders don’t go over as well in our market. If you’re looking for a recommendation, consider Jake Ryon of First Home Mortgage (JRyon@firsthome.com).

Find an Agent

Agents come in many different forms and finding somebody who suits your personality and goals is important. Ask friends, colleagues, and family for referrals or spend time talking with different agents at Open Houses until you find somebody you like.

The worst thing you can do is choose your agent based on whoever responds to an online showing request faster. A good agent can provide a lot of value getting involved in your buying process 2-4+ months before you’re ready to buy.

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.

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.

Arlington Housing Market Performance Metrics

Question: How have you seen the Arlington housing market react to higher interest rates?

Answer: I hope everybody had a fantastic Thanksgiving. The results of last week’s Dark Meat vs White Meat poll were impressive. With 559 votes in as of this morning, only three votes separated white meat as the preferred part of the turkey over dark meat! We may have found the only vote closer than a Georgia Senate Race!

National vs Local Market Expectations

With daily news about the nationwide (and global) housing collapse resulting from parabolic price appreciation followed by parabolic interest rates, I want to use this week’s column to check-in on what we’re seeing locally and remind everybody that what you read in the news is generally going to be the most attention-grabbing data points and that our market is likely to experience a much more modest correction than many other markets nationwide, as we saw during the Great Recession.

My Take on Local Pricing Behavior

I shared some detailed thoughts and observations last month in a column addressing price drops in Arlington and the TL;DR version is that 1) yes prices have dropped relative to their peak this spring, 2) there’s not nearly enough data available locally to say with any statistical confidence how much that drop has been, and 3) my observation was/is that market-wide in Arlington we’ve lost most/all of the appreciation we saw in the first 4-5 months of 2022 ,but 2021 prices are still mostly holding up. Keep in mind that in a volatile, low inventory market (current state) pricing is more randomized and case-by-case than it usually is, so you’ll see plenty of individual examples that buck the aggregated trends/assumptions.

Underlying Arlington Market Performance Data for Detached Homes

This week, I thought I’d share some charts of underlying market performance metrics to help illustrate what our market is experiencing. Here’s how I approached the data this week:

  • Detached (single-family) homes only. I’ll probably look at condos next week.
  • Resale data only aka no new construction because performance metrics used in this column for new construction aren’t usually representative of the market
  • 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 sent data in unusual directions. 2019 was the first full year with the Amazon bump, but pre-COVID market, and 2021 was a full year of COVID frenzy buying with normal seasonal behavior (2020 was totally out of whack on seasonality).
  • 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 instead of the month they closed (closed data is a lagging performance indicator)
  • Net Sold = Sold Price less Seller Credits

**An important caveat to this data is that I either did not use or must caution your interpretation of this year’s September, October, and November data because it is incomplete for purposes of this analysis. There are 15, 22, and 19 homes actively for sale that were listed in September, October, and November, respectively, which will have a significant influence on 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.

Note there are 2 homes for sale listed in each month May-July and 7 for sale from August 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 for those months

Net Sold Price to Original Ask down 9.3% in 6 Months

The average net sold to original ask dropped from a March peak of 105.9% to 96.6% in August. I suspect that once September-November listings close and we can start filling in those fields, we’ll see that number fall further but maybe not significantly because asking prices have started to react to weaker market conditions and many sellers are coming off their expectations for spring 2022 prices.

Of note, this performance metric is coming more in-line with 2017 metrics. I’ll be interested to see if performance metrics stabilize around 2017 numbers, pre-Amazon HQ2, or if they worsen. My guess is that they’ll worsen slightly compared to 2017 through the end of the year and come more into balance in 2023 (pending interest rate movements).

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Average Days on Market 4.8x Higher in August than February ‘22

Unsurprisingly, the average days on market has skyrocketed relative to earlier this year from 9 days in February to 43 days in August. August ’22 is still lower than August ’17, but the August average will increase once the 7 properties still for sale from August contract/close. 

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Homes Selling Within 10/30 Days Go from Record High to Low

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 our market pace is slower than 2017, on a seasonal basis.

We’ve gone from 82% of homes listed in March selling within 10 days to just 27% in October. Similarly, at least 90% of homes listed February-April sold within 30 days compared to 45% and 44% selling within 30 days in August and October, respectively. That is a massive change in market pace within 4 months!

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Looking Ahead

I expect the performance metrics of August-October to worsen as more of those listings contract/close and November-December to come in below 2017 numbers. It’ll be a bit difficult to truly understand the aggregate effect on pricing because Arlington is a relatively small housing market, but I’ll do my best to come up with some accurate measures once we’re far enough into 2023 and enough 2022 listings have sold. Ultimately, the tale of local home values will be told in how long it takes interest rates to settle back down into the expected 4.5-5.5% range (don’t hold out for sub-4% rates again).

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.

Assumable Low Interest Rate Loans

Question: Is it possible to take over a seller’s existing loan if they have a low interest rate?

Answer: Thank you to our Veterans and Active-Duty military for your service.

In keeping up with the theme of last week’s column, addressing popular mortgage product/strategies, and in honor of Veterans Day, this week I’ll cover assumable VA loans.

An assumable loan is a loan that can be transferred from a seller to a buyer, allowing the buyer to maintain the interest rate of the seller’s existing loan rather than accept a market-rate interest rate. This can be valuable in a high-interest rate environment like we’re in now when most homeowners have an interest rate well below current market rates.

To help me provide the best information about assumable VA loans, I reached out to Skip Clasper of Sandy Spring Bank (sclasper@sandyspringbank.com), who I highly recommend for a range of loan products including VA loans, construction/rehab loans, and jumbo loans.

Only Some Loans Are Assumable

VA loans (available to Veterans, service members and surviving spouses), FHA loans, and USDA loans are the only traditional loan products that are assumable. They make up a relatively small percentage of existing home loans in Arlington (likely single-digit percentage of total loans). I’m not aware of any conventional loans that can be assumed.

Key Details about Assuming a VA Loan

There are some important details and caveats to assuming a VA loan that both buyers and sellers need to understand prior to transferring a loan:

  1. Buyers do NOT have to be a Veteran or otherwise qualify for a VA loan to assume a VA Loan
  2. Sellers can NOT obtain a new VA loan until the previously assumed loan is paid off (or refinanced out of) unless the new buyer is a Veteran and uses their eligibility on the assumed loan
  3. It is less expensive (closing costs) to assume a loan than to originate a new loan.  The VA Funding fee is only 0.5% for assumable VA loans.
  4. You need a down payment that covers the gap between the assumable loan balance and the purchase price. For example, if the seller’s loan balance is $200,000 and the purchase price is $500,000, the buyer is assuming $200,000 is debt and will have to cover the remaining $300,000 via down payment or alternative debt such as a second trust.
  5. Buyers need to qualify for the loan using normal income, debt, and credit guidelines

As you can probably determine from the above details, there are only a limited number of scenarios where assuming a VA loan makes sense for both parties. The biggest hurdle to VA loan assumption is that the VA loan eligibility stays with the loan so if the buyer does not have their own VA loan eligibility, the seller must be sure they are okay giving up this very valuable benefit until the new buyer pays it off or refinances.

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.

How Home Sale Contracts Fall Through

Question: We just accepted an offer on our home and wanted to know what can happen to cause a home sale contract to fall through.

Answer: Happy Halloween! In keeping with the Halloween theme, I thought I’d write about something really spooky…home sale contracts falling apart! Now that we’ve returned to more “normal” real estate contracts with standard contingencies, it’s easier for buyers to walk away from a deal without risking their deposit, so let’s talk about some of the common ways buyers and sellers can get out of a deal.

Earnest Money Deposit Seals the Deal

The Earnest Money Deposit (EMD) is a negotiated amount of money that is held in escrow to ensure the Buyer performs their contractual obligations to purchase a property. In the event of Buyer default, some or all of the deposit can be claimed by the Seller for damages. If the Buyer voids the contract using a contingency or other contractual protection, their EMD is protected and returned in full. The amount of EMD is negotiable, but often falls somewhere between 1% and 5% of the purchase price.

For a  more detailed explanation of EMD, you can read my May 2021 article on the topic.

How Can Buyers Back Out?

The sales contract stipulates if, and how, the Buyer can walk away from a home purchase without losing their EMD. I’ll highlight the most common protections Buyers have, which are also the most common ways home sale contracts fall through.

Home Inspection: Home inspections are usually completed within one week of being under contract and are the most common reason for deals to fall through. If your contract has a Home Inspection Contingency, it allows a Buyer to void the contract within a specified number of days (usually 3-10 days) and may also provide for a negotiation period after the inspection for the Buyer to negotiate for repairs and/or credits. The Home Inspection gives the Buyer a unilateral option to void and does not allow a Seller to void, only to reject requests for repair and/or credit.

Financing: The next most common way for a deal to fall through is a Buyer failing to secure financing, which can occur for a wide range of reasons. If a Financing Contingency is included in the contract, Buyers can walk away from the deal if they are legitimately rejected for their loan. Buyers are not protected if they self-sabotage their financing, but this can be a grey area and challenging to verify. Depending on the structure and handling of the financing contingency, Buyers may be protected up to the closing date.

The best way to reduce the risk of a deal collapsing from financing is to ensure the Buyer has a strong pre-approval letter from a Loan Officer who has reviewed critical financial info and documents like credit, proof of income, and tax returns. 

Appraisal: When a Buyer is taking out a loan to purchase a property, the bank will usually require an independent appraisal from their third-party appraiser pool (in other words, the appraiser comes from the bank, not the Buyer or Seller). The Northern Virginia contract requires Buyers with conventional financing to give the Seller the opportunity to lower the sale price to the appraised value before voiding the contract, but allows the Buyer to void in the event the Seller does not agree to the lower price and Buyer and Seller are unable to reach an alternative agreement. The Northern Virginia contract allows Buyers with FHA, VA, or USDA financing to unilaterally void the contract in the event of a low appraisal, or renegotiate the contract price with the Seller.

Association Document Review: Any time a property is sold within an Association, be it a condo association in a large building or a small HOA cluster of single-family homes, Virginia law requires Sellers to provide a resale package with information about the Association ranging from by-laws, to budget, to the reserve study. In Virginia, Buyers receive a three-day review period of these documents and can unilaterally void the contract within those three days.

The intention of the review period is to provide Buyers an opportunity to review the health, standing, and operations of the association they’re buying into. The reality is that this review period can also be used as a way out for a reason that’s not protected by a standard contingency (e.g. Buyer gets cold feet) because voiding within the review period does not require a specific reason or require that the Buyer allow the Seller to rectify the issue. For this reason, it’s in the Seller’s best interest to have their resale package prepared and available before they accept a contract so the three-day review expires early in the contract period.

Title: The Seller is contractually obligated to deliver title (ownership) of the property to the Buyer that is “good, marketable, and insurable” and in the event the Seller is unable to do so by the closing date, they are in default, which gives the Buyer the right to void the contract. Examples of ways a Seller can’t deliver clean title are unreleased liens (e.g. an unpaid debt to a contractor or unresolved bankruptcy) or an improperly recorded deed (can be a simple clerical/administrative error from past transaction).

How Can Sellers Back Out?

Sellers rarely have a legitimate way of backing out of a sales contract unless the Buyer defaults by not delivering their EMD on time, not applying for financing on time, or does not meet some other contractual obligation.

In the event the contract includes a Home Sale Contingency (Buyer does not have to purchase unless they successfully sell a home), Sellers have a kick-out clause which allows them to notify the Buyer of their intent to void the contract within a specified period if the Buyer does not have a ratified contract on the property they’re selling or cannot otherwise remove the Home Sale Contingency. This is the closest most Northern VA contracts get to allowing the Seller to void, and even that is not common.

How Is EMD Handled If Deal Is Voided?

If a Buyer voids under the contractual protections of a contingency, association review period, or seller default they are due 100% of their EMD. If a Buyer walks away from a deal outside the legal protections of the contract, the Seller may make a claim on their EMD.

In any case, whether the Buyer is protected or has defaulted and the Seller has a legitimate claim on the EMD, no money can be released to either party without both parties signing off on the amount(s) to be released to each party.

It’s rare for there to be a conflict over the release of EMD back to the Buyer if they are legally voiding a contract, but there can be conflict when a Buyer defaults/walks without contractual protections and the Seller makes a claim on the EMD. This can turn the EMD release into a negotiation and in the (unusual) scenario that the release cannot be agreed upon by both parties, legal action is required to resolve the distribution of the deposit. The Title Company, the party that often holds the EMD, can be an informal mediator but cannot make any legally binding decisions about how EMD is distributed, no matter how strong or weak the case is for each party.

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 Home Prices Dropping In Arlington?

Question: I’ve read a lot of bad news about the real estate market, how is that playing out in Arlington?

Answer: Bad news sells…keep that in mind as you get your daily/weekly dose of headlines that the housing market is collapsing under the weight of high interest rates and overinflated prices. With that said, I’m not about to deliver a rosy picture of the Arlington real estate market, but it’s important to keep in mind that most of what you’ll see in the news will be cherry-picked statistics and stories around the country/region that are likely more extreme than what our market will experience overall.

Arlington remains one of the most stable, reliable real estate markets in the country. We are absolutely feeling the effects of a dramatic tide shift in demand, but just as our market didn’t see meteoric price increases like other markets from Loudoun County to Tampa to Boise during Summer 2020 to Spring 2022, we most likely won’t experience as extreme of a pullback while interest rates remain high.

Usually, you’d scroll down and see a lot of charts and data from me in an article like this, but I don’t think we have enough of the right data yet to tell an accurate story of property values in Arlington. So this week is more of a stream of conscious of my thoughts on property values, with a few data points sprinkled in. I welcome any and all theories, agreements, and disagreements in the comments section!

Have Prices Gone Down?

The short answer is “yes,” prices have come down from their 2022 peak. By how much? That is a very difficult question to answer and there’s no reliable way for us to know at this point. So let’s talk about how I think we should we talking about prices based on what we do and do not know at this stage:  

What we do know:

  • The prices we saw in the first half of this year are out of reach, in most cases
  • In the last seven days, 52 properties in Arlington (12.5% of homes for sale) have cut their asking price, which is a pace consistent with previous seven-day windows. Odds are this pace increases as we get closer to, and into, the holidays.
  • Price reductions and sale prices are not being discounted anywhere close to enough to offset the difference in monthly payments between earlier this year and now
  • The market always slows in the summer and continues to taper off through the end of the year (with the exception of September/early October), we’re just experiencing a more dramatic version of seasonality because of the sharp interest rate increases that have paralleled the traditional seasonal slowdown and because of where we’re coming from – insane demand for nearly two years.
  • Supply coming to market is down, contract activity is down, and showing activity is down all about 20-30% year-over-year

What we don’t know:

  • What is the appropriate baseline to judge price change from? Is it the relatively short window of peak pricing from roughly February-May 2022? If you want headline news, sure, but if you want a more accurate/helpful perspective on market conditions, you probably want to use a wider data set that goes back to Q2/3 2021.
  • We don’t have anywhere near enough data points after the market inflection this summer to assess market price changes in Arlington (or even Northern VA or the DC Metro, in my opinion) and because sold price data lags so much behind shifts in market condition, we won’t truly know what the pricing effects were on Q3/Q4 markets until at least February 2023 because many homes struggling to sell now won’t show up in sold data until then.
  • There’s no precedent for how buyers as a whole will respond to such extreme interest rate increases (see chart below I saw last week on MortgageNewsDaily.com that highlights the historical significance of recent rate increases), so it makes pricing challenging for sellers (and buyers, for that matter). Days on market has increased 2-3x or more for most sub-markets and the number of showings are down by about 30-35% year-over-year so it can also be very difficult for sellers to infer whether their time on market is price induced or not. A lot of current pricing is based on seller motivation and their hope/fears of market conditions 3-6 months from now.

The Big Unknown (hint: interest rates)

The most significant “what we don’t know” is what will happen with interest rates in the coming months/year. And please save me the “interest rates are still low relative to the last 30 years” non-sense. The fact is that buyers, homeowners, and prices have adjusted for sub-5% rates over the last 15 years and a long-term reversion back to the 6-8%+ range will be painful.

Per MortgageNewsDaily.com, the average 30yr fixed rate is ~7-7.3%, depending on the data source (see chart below). What we don’t know is how long we’ll have unusually high interest rates and that is ultimately what will drive changes in property values in Arlington, regionally, and nationally (I know, stating the obvious here).

Barring a change in Fed policy (e.g. reducing expected Fed Rate increases or bringing liquidity to the mortgage market), it seems unlikely rates will drop much or at all in Q4. High rates compounded with the normal seasonal slowdown means that there will be plenty of discounted sales from motivated sellers who don’t want to hold out until 2023, but when we eventually aggregate all the sales data from Q3/4, I’m not sure it will amount to an eye-popping drop in prices across the entire Arlington market (maybe 5-10%, depending on your baseline data).

I think the problems (aka a double digit drop in home values over a longer 6-12 month period) will show up in Q1/2 2023 if interest rates are still 7% or more through Q1 2023. I think that is when we’d start to see property values in and around Arlington drop as a whole, by uncomfortable amounts (maybe below 2021 prices).

On the flip side, if rates come down by late Q4/early Q1 and we start seeing 6% or lower averages on the 30yr fixed, that would coincide with our normal ramp-up period into the spring and the market could very quickly turn around. I would bet that if we see the average 30yr fixed rate get to the mid 5% range or less in Q1, we will see a rapid return to competition as buyers who have been sidelined due to high rates in the 2nd half of 2022 return to the market and meet the normal churn of new buyers introduced to the market in the new year.

Chart, line chart, histogram

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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.