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 Ask Eli, Live With Jean playlist. Enjoy!
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 [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 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