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. Video summaries of some articles can be found on YouTube on the Eli Residential channel. Enjoy!
Question: Do you think the Amazon HQ2 development pause will cause home prices to fall in Arlington?
Answer: News broke Friday morning that Amazon will pause a majority of their HQ2 development in Arlington (link) — three 22-story buildings and their centerpiece, the 350ft Helix building. So far, Amazon has built two office towers and hired roughly 8,000 of the planned 25,000+ workers projected for HQ2.
The announcement of Amazon HQ2 in November 2018 led to a speculative boom in condo prices, so will this news cause a similar drop in prices?
Amazon HQ2 Led to a Condo Price Boom
The Amazon-effect was massive when Amazon announced its intention to build its second headquarters in Arlington on November 13, 2018. The condo market went from a multi-year annualized appreciation of less than 1% to an 11.7% increase in 2019, which was only slowed by COVID lockdowns in March 2020.
The non-condo market was appreciating nicely in the years leading up to the announcement and experienced a much smaller boost than the condo market.
Note: this data defines “condo” as multi-family/apartment-style condos, not townhouse-style condos (e.g. Fairlington)
Months of Supply (MoS), a measure of supply and demand where lower MoS means a more favorable market for sellers, fell off a cliff as soon as Amazon announced HQ2. I’ve always found this chart to be one of the best visual explanations of how immediate and extreme the Amazon-effect was on our market.
Prices Should Fall, If Real Estate Markets Were Efficient…
Given that prices increased speculatively in 2019 because of the announcement, not actual development and hiring, hypothetically, real estate prices should fall relative to the risk that Amazon cuts, materially reduces, or significantly delays their HQ2 plans.
This should probably look something like the JBG Smith (Amazon’s development partner) stock price, shown below, which dropped about 8% on Friday, after Amazon announced they were pausing HQ2, and has recovered about half of that price drop since, finishing Monday down just under 5% from Friday’s pre-announcement price.
Just for fun, I compared the difference in average condo prices if you replace the 2019 HQ2-driven “speculative” gains with the average annual appreciation of the Arlington condo market for the three years before and after (0.8%) and keep the actual 2020-2022 gains. In this hypothetical world where Amazon doesn’t choose Arlington for HQ2, condo prices would be 11.5% below their current levels.
…But Prices Will Probably Hold
In a hypothetical world where real estate prices react like the stock market, which is efficiently priced by sophisticated models and highly informed institutional investors, we might see condo values fall by an amount that captures what is already built and the impact of a multi-year delay, and discounts for the odds that Phase 2 of HQ2 never proceeds or proceeds only partially. This would probably amount to something like a 4-5% decline from current prices or a loss of roughly 30-40% of the “speculative premium” currently priced into the market from 2019.
But, unlike the stock market, the real estate market is relatively inefficient, at least on a small scale like the Arlington condo market. Prices are set by a handful of individuals — about 1,400 condo sales in Arlington over the past year compared to over a million shares of JBG Smith traded on most days — and those individual buyers and sellers have uniquely different priorities with different factors like emotion, motivating life circumstances, property condition, etc.
Real estate prices tend to be stickier than other markets with just a couple of past sales creating a strong resistance point for buyers and sellers so it’s unlikely we will see a noticeable drop this year in prices because of Amazon’s pause on HQ2. I also suspect that there are a lot of people who will buy and sell without knowledge of the HQ2 pause, who assume that everything about HQ2 is on track; another example of the efficiency difference in pricing of stocks (highly informed) vs residential real estate (information gaps).
Prediction: No Price Drop, Just Lower Appreciation
My guess is that the HQ2 pause will lower long-term appreciation (which is historically pretty low) for Arlington condos until we find out Phase 2 (development and hiring) is back on track, but I do not think we’ll see a near/mid-term drop in prices undoing the sharp increase after HQ2 was announced. The exception to this is the 22202 zip code of Pentagon/Crystal City (aka National Landing), where HQ2 is based, which might see condo prices slide slightly in 2023 because of the news.
Your thoughts and predictions are welcome in the comments!
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to [email protected]. 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 Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460
Good Friday evening, Arlington. Let’s take a look back at today’s stories and a look forward to tomorrow’s event calendar. 🕗 News recap The following articles were published earlier today…
There’s no official word on its website, but it looks like Bar Ivy in Clarendon may have closed permanently.
There’s persistence, and then there is Audrey Clement and her decade-plus effort to get elected to local office in Arlington. Clement talked with ARLnow editor Scott Brodbeck to talk about…
Makers Union, an upscale gastropub, is set to open its doors in Pentagon City next week, says Alex Brown, the restaurant’s director of operations. This opening marks the third Makers Union location in the D.C. Metropolitan area, following the debut of its Reston location three years ago and a recent opening at the Wharf in early October.
Children’s Weekday Program (CWP) is a non-profit preschool rooted in a play-based philosophy. We focus on developing a love of learning and exploration, cooperation, empathy, and independence.
Our caring and experienced educators create opportunities for children 16 months to 5 years old to play, learn, and grow in a nurturing environment of child-centered and developmentally appropriate experiences.
Initially established more than 50 years ago in South Arlington, CWP continues to be a lauded program in the Northern Virginia area. We are extremely proud to have been recognized as a Best Preschool in Northern Virginia Magazine for the last 4 years.
Located now in North Arlington at 2666 Military Road, CWP offers a part-time parents day out and preschool program with options to extend care both before and after school. We offer a supportive and inclusive school community for children and parents alike and welcome all families to join our school!
The Optimist Club of Arlington is holding its 77th annual Christmas tree sale!
This year, the tree sale will be held at the Knights of Columbus (5115 Little Falls Road). The lot opens for sales on November 24th. The Optimist Club is selling small and large trees ranging from tabletop size to 10 foot tall trees! Wreaths, garland, tree stands, and White House Christmas ornaments will also be for sale.
100% of all proceeds go towards helping Arlington County youth.
For more information, please visit the Arlington Optimists website at https://optimistclubofarlingtonva.org/.
Holiday Art Show featuring artists: Peter Fitzgerald, Claire Plante, Alanna Rivera, and Suzy Scollon. At the Barcroft Community House, 800 South Buchanan St., Arlington, VA. Dec. 8 from, 2 PM to 8 PM and Dec. 9 from 10 AM to
2023 Christmas Tree Sales Begin
Saturday, December 2
Get your holiday decorating off to the right start this year! We will be selling 150 Fraser firs, freshly cut and delivered from Sparta, North Carolina.