This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Enjoy!
Question: What has been the impact of the Coronavirus/COVID-19 on the real estate market?
Answer: I hope this column finds everybody in good health. If you need to replenish your cooking oils and haven’t tried The Olive Oil Boom before, I highly recommend it. It’s a local shop in Courthouse that my wife and I love. My personal favorite is the Harissa olive oil.
If you have some local favorites that you’d like to help stay in business during tough times, please give them a shout-out in the comments section and note a personal favorite product/dish!
Financial Confidence Poll
Buyer confidence drives real estate demand, so I’d like to do a reader poll this week to measure the confidence of Arlingtonians. Thanks for participating!
Arlington/Regional Market Update
Regionally and locally we’re seeing the pipeline of new inventory dry up and sellers lose confidence. The two charts below reflect market activity in Arlington over the past seven days (top) and seven days prior to that (bottom).
While the total Coming Soon and New Active for each seven-day period is almost identical, the Coming Soon pipeline was cut in half. You’ll also note huge increases in the number of price reductions and properties pulled off market (Temp Off, Withdrawn, Canceled and Expired).
Demand is dropping, but homeowners are experiencing it in different ways. For example, the markets that were hyper-competitive prior to the COVID-19 crisis, such as the $600k-$900k single-family starter home market that was seeing double digit offers, are still getting strong offers, and in some cases, multiple offers. For those homes, even a 60-70% decline in demand means a few offers instead of 10+.
I inquired on five homes this weekend for two separate clients. Each was a move-in-ready detached single-family home in Arlington, Falls Church, or Alexandria priced from $695k-$875k. All five had at least one strong offer, four were expecting multiples, one had two pre-inspections scheduled and one got seven offers.
However, the number of price drops and listings being pulled from the market shows that many homeowners are experiencing something different. If your home was likely to get one strong offer before the Coronavirus lockdown, a significant drop in demand can easily mean no offers and a longer wait for the right buyer to materialize.
To gauge the odds of a successful sale (quick sale, at/near asking price), homeowners should be conscious of the profile of the buyer(s) most likely to purchase their home and try to understand how their motivation and financial security has been impacted by COVID-19.
For example, dual-income families are likely feeling more financial security than single-income buyers. Buyers with kids are often more motivated because they likely have fewer alternatives than somebody buying a 1-2-bedroom condo who can more easily find a comparable rental apartment until the economy is back in order.
Further, families with kids are generally buying with a longer ownership horizon and thus able to outlast whatever economic recession/depression is brought on by the virus.
Past Seven Days (Arlington)
Seven Days Prior (Arlington)
Are Prices Dropping?
Although some homes are still selling for their pre-COVID prices (which shouldn’t be happening, in my opinion, given the amount of uncertainty/risk in the market), I suspect that most homeowners are settling for a few percent less than what they would have pre-Coronavirus. You can also argue that they’re taking an even greater loss than what they would have gotten in the peak spring market (right now) had Coronavirus never been a factor.
I think that for most of the D.C. metro area, that’s the appropriate discount at this time, considering what we do and do not know about the future of the national/regional economy.
The price drop that most people are worried about or looking forward to, depending on which side of the transaction you’re on, is a double-digit drop like we saw during the Great Recession 12 years ago. There are myriad inputs that factor into real estate prices, but the simplest is supply and demand.
If you’ve been paying attention to real estate in Arlington or the D.C. metro area, you know that we’ve suffered from a historically low supply of homes for sale, driven by both a lack of new inventory and high demand.
Econ101 tells us that in order for there to be a significant price drop, demand will have to recede substantially more than supply. There’s no doubt that an on-going economic shutdown will significantly reduce demand, but if changes to lending practices over the last decade and financial support from the government allow people to keep their homes, inventory will likely plunge as well. So long as inventory and demand are dropping by somewhat similar amounts, we may not see the type of dramatic price drops we saw in 2008.
To highlight just how bad the supply is around here, I pulled charts showing the months of supply in Arlington, Northern Virginia, and the D.C. metro area over the last 10 years. Note that most economists agree that a market is fairly balanced for buyers and sellers when there’s ~6 months of supply.
I also added a chart showing the corresponding change in median sold price for Arlington during that same 10 year period.
If you’d like to discuss buying or selling strategies in this market, don’t hesitate to reach out to me at [email protected]. Be smart, be careful, be strategic. And stay home!
If you’d like a question answered in my weekly column or to set-up an in-person meeting to discuss local real estate, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at www.EliResidential.com. Call me directly at (703) 539-2529.
Eli Tucker is a licensed Realtor in Virginia, Washington D.C., and Maryland with RLAH Real Estate, 4040 N. Fairfax Dr. #10C Arlington, VA 22203, (703) 390-9460.