Resale Value of New Construction

Question: We bought a new home in Arlington five years ago and are considering selling, but we’re concerned about the resale value of new homes given the amount of newer homes being built in the market. Do you have any data on how new homes do when they resell for the first time?

Answer: The new/newer construction market is the only Arlington sub-market that is anywhere close to properly supplied, with almost 4.5 months of inventory available (number of homes for sale divided by average sales per month = months of inventory).

Most housing economists say that a market is at balance for buyers and sellers when there is six months of inventory. For comparison, sub-markets like one-and-two-bedroom condos, <$1M detached homes, and townhouses each have between one and three weeks of supply.

New Homes Are Appreciating…

There’s a logical case to be made that when a new home (built within the last decade) gets resold, it will struggle to compete with other brand-new homes given how similar these homes have been over the last ten years, combined with the amount of supply in the market. Fortunately for owners of recently built homes who may sell in the near future, that logic does not prevail and new homes are being sold for more the second time around.

…But Just A Little

There aren’t a ton of data points yet (most people buying expensive new construction will be there for a long time), but just enough that I think we can start to get a good idea of how new homes (that aren’t new anymore) from the past decade perform when they’re resold into a market with many similar new homes.

To study this, I identified homes built since 2012 that have since resold, excluding homes that sold within one year of their original purchase or any homes with major improvements since the original purchase or clearly left in disrepair. Here’s a summary of my findings:

  • 53 homes met the criteria, nearly all in North Arlington
  • Average appreciation on resale was 6.7%
  • Average annualized appreciation was 2.1%
  • Only seven homes sold for less than they were bought
  • Sixteen homes sold for at least 10% above what they were bought
  • On average, it took 64 days for these homes to go under contract, about 30% longer than the entire detached home market during that same period
Cause For Concern?

For those who own a new(er) home, you may be underwhelmed by these numbers relative to what the rest of the market is doing — compared to other detached homes in the Arlington market, new homes are appreciating at a noticeably slower rate.

Part of that is due to the fact that there’s a much higher supply of similar new/newer homes for sale so that will naturally keep prices more stable. Another reason is that it takes longer for the upper end of the market to appreciate, so the growth we’ve seen <$1.25M hasn’t impacted the $1.5M+ market as much.

So is a new home a bad investment because it appreciates less than other homes? Not at all.

First, one of the reasons buyers pay a premium for new/newer homes is because your maintenance and repair costs should be significantly lower for the first 10-15 years. Investment value isn’t only about what you buy and sell for, it’s also about how much you spend between the two transactions keeping the house operating (often more valuable than appreciation).

Second, for most families, a new/newer home offers square footage and a floor plan they can’t find anywhere else so the non-financial/quantifiable benefits are significant. Opportunities to customize to taste also factor into the non-financial/quantifiable return that owners may receive.

The new construction market operates differently from the rest of the housing market. If you have any questions, don’t hesitate to reach out to me at Eli@EliResidential.com. And a quick plug for two custom homes on ¼ acre lots I’m selling in Bellevue Forest, being built by James McMullin, Arlingtonian and third-generation Arlington developer/builder. Demolition and excavation will start in the next month!

The Real Story About 22202 Property Values (Amazon Zip Code), Part 1

Question: I have read articles about the 22202 zip code suggesting everything from extreme appreciation to homes now selling for pre-Amazon prices. Can you shed some light on what’s actually happening in that market?

Answer: After months of articles about extreme appreciation in 22202, the Amazon HQ2 zip code making up neighborhoods like Crystal City, Pentagon City, Aurora Highlands/Hills, and Arlington Ridge, there was an article published last week by the Washington Business Journal claiming that prices are now below pre-Amazon HQ2 announcement levels. The supporting data was that median sold price in November 2019 was 12% lower than November 2018 prices.

This is yet another example of lazy reporting on Amazon’s impact on local real estate with the sole intention of generating clicks. First of all, if you use the average sold price instead of median, there was a 2.3% increase in prices from November ’18 to November ’19, not a 12% decrease. Second, with a drop in total sales from 30 in 2018 to just 12 in 2019, with prices ranging from $255,000 to $1,145,000, there’s just not enough data to draw any sort of reliable conclusion on market performance by comparing the two months.

To generate reliable real estate trends, you either need a lot of data points (sales) or drill into smaller data sets. With that said, let’s dive into some real analysis on how Amazon HQ2 has impacted residential real estate for its new neighbors in 22202.

Market Make-up

The 22202 market offers a diverse supply of housing. This year, condos have sold from as little as $195,000 for a 500sqft studio to $1,250,000 for a 2,900sqft 3BR/3BA penthouse. The least expensive detached home sold for $630,000 to be torn down and the most expensive a 6BR/4.5BA for $1,600,000.

Homes in the area tend to be pretty old with most detached homes being built prior to the 1960s and only one condo building has delivered since 1990.

Of the 135 homes to sell so far in 2019, 76 were in condo buildings, 47 were detached homes, and 11 were townhouses.

Condo Market

Inventory levels in the 22202 condo market took a huge hit, dropping 40% from 130 sales in 2018 to just 76 in 2019 (with two more scheduled to close in 2019). The decline is attributed to owners choosing not to sell (holding out for more appreciation), certainly not lack of demand.

As a whole, the average sold price in the 22202 condo market increase 22.8% ($402k to $492k) and median price increased 18.6% ($379k to $450k) for properties that went under contract after Amazon’s November 13 HQ2 announcement.

However, don’t think individual property values appreciated ~20%. The entire market is skewed higher because of a big drop-off in less expensive studios (60% decline) and 1BRs (33% decline).

Let’s take a deeper look at how property values actually changed by looking at similar sales within comparable buildings. I’ve grouped all buildings along Arlington Ridge and Army Navy Drive, along Crystal Drive, and both Eclipse buildings so that we have larger sample sizes to compare pricing activity from within comparable buildings. I limited this data set to one- and two-bedroom units.

The percentages for each building group represent the change from properties sold in 2018 and 2019 that went under contract pre-Amazon announcement vs post-Amazon announcement (Nov 13 2018).

Building GroupAvg $/SqftAvg Sold PriceAvg Days on MarketAvg SqftAvg Condo Fee# Sold
Arlington Ridge – Army Navy+7.9%3.8%-36.4%-3.1%1.3%-9.5%
Post Amazon$359$385,450331,064$70938
Pre Amazon$333$371,198521,098$70142
Bella Vista+4.4%37.7%-65.4%28.8%31.8%-58.3%
Post Amazon$462$579,800101,235$7345
Pre Amazon$443$421,02529959$55712
Crystal Drive+23.5%12.3%-79.9%-10.2%8.7%54.5%
Post Amazon$506$558,618291,112$91017
Pre Amazon$410$497,5321451,238$83711
Eclipse+8.1%26.5%-65.5%16.4%14.4%-50.0%
Post Amazon$526$525,184161,000$47519
Pre Amazon$487$415,20146860$41538

There’s a ton of interesting information packed into this table, here are some of my key takeaways:

  • The two groups with enough sales to offer reliable data, AR-AN and Eclipse, suggest actual appreciation of around 8% based on $/sqft. I think $/sqft is a better measuring stick than sold price in this case.
  • Across all condo buildings, the average price of 1BR condos increased 9.8% and 2BR condos increased 12.1%
  • Not shown in this table, but calculated elsewhere, is that the standard deviation of the average sold price increased by 49% and 72% in one-and-two-bedroom condos, respectively. This highlights the variability of pricing in the area and why it’s important to drill down into the data instead of just looking at overall average and median price trends.
  • In my personal market assessment, by comparing individual sales of similar units, I believe actual property value appreciation in the 22202 condo market is 8-12% depending on factors like property condition, condo fees, bedroom count, and age of building.
  • Sales activity increased significantly along Crystal Drive and decreased only slightly along AR-AN, as long-time owners saw an opportunity to sell condos that were previously difficult to unload due to building age and high condo fees. The 80% drop in days on market along Crystal Drive is incredible.
  • I’ve said for years that I thought the Eclipse buildings (3600 and 3650 S Glebe) offer some of the best long-term value in Arlington/Alexandria, and I still believe that to be true even after Amazon price increases. It would be great if I listened to my own advice and bought an investment property there…

I’ll provide a similar analysis of the detached single-family home market in Part 2, but the next two Tuesdays are Christmas Eve and New Years Eve, so I may wait until January to publish it. If you have any questions about my analysis or you’re considering selling a condo in 22202 and would like some more specific analysis done of your property, feel free to email me at Eli@EliResidential.com.