Market Metrics: Residential Leases in the NVAR Region

Residential Leases in the NVAR Region

By Dr. Terry Clower and Dr. Keith Waters

GIVEN THE CONTINUING DECLINE in properties available for sale across Northern Virginia, it’s likely that Realtors® are increasingly having to advise clients on the availability and costs of renting a home while trying to enter the homeownership market. The data examined in this article comes from Bright MLS and thus represents those homes sold or newly rented for a given time period. It does not reflect ongoing rentals covered by existing leases. It also only includes those properties that are listed through Bright MLS. Still, the snapshot of data offers insights into the regional housing market and provides data and information that can help prospective buyers make the best real estate investment decisions.

To put the data on residential leases into perspective, there were 1,549 residential units sold in December 2019 in the NVAR region (Table 1). The number of new residential leases in the NVAR area totaled 738 units, or about 32% of the total residential transactions (Table 1 and 2) in December 2019. The relative proportion of transactions that were residential leases was similar across most area jurisdictions (around 30%) with Arlington being somewhat higher (38.7%) and Falls Church having relatively fewer (23.1%) leased properties transacted last December. Falls Church, which is one of the smaller jurisdictions in the NVAR footprint, had only 13 property transactions (sales and new leases) in December. Fairfax County had 508 residences leased in the last month of 2019, accounting for 68.8% of total NVAR area residential leases.

Examining the composition of closed residential units over time reveals that leasing’s share of all closed residences increased year-over-year in the NVAR region (Table 2). The share of all closed residential units accounted for by leased residential units increased 3.9 percentage points from 28.4% in December 2018 to 32.3% in December 2019. Among the Table 1. Leased Residential Properties and Sold Residential Properties – Dec. 2019 PROPERTY TYPE ALEXANDRIA ARLINGTON FAIRFAX COUNTY FAIRFAX CITY FALLS CHURCH TOTAL Residential Sales 181 206 1,118 34 10 1,549 Residential Lease 83 130 508 14 3 738 Total 264 336 1,626 48 13 2,287 Source: Bright MLS and GMU Center for Regional Analysis

jurisdictions in the NVAR region, the two largest year-over-year market share increases occurred in Fairfax City and Arlington County – likely the result of low inventories of residential units for sale. In Fairfax City for December 2019, the share of closed residential units that were leased increased 9.2 percentage points over the previous December. In Arlington County, the share of closed residential units that were leased increased from 29.6% in December 2018 to 38.7% in December 2019, an increase of 9.1 percentage points. The share of closed leased residential units in Alexandria increased by the smallest amount year-over-year, increasing only 1.9 percentage points, which is interesting given the level of investor interest in Alexandria homes since the Amazon HQ2 announcement in 2018. The remainder of this analysis focuses solely on leased residential units. Among property types, townhouses and apartments accounted for the majority of leased residential units (Table 3). In December 2019, there were 279 apartments leased in the NVAR region, accounting for 37.8% of leased residential units. There were 277 townhouses leased in the NVAR region Table 2. Residential Leases as Share of All Closed Residential Properties – Dec. 2018 and Dec. 2019 ALEXANDRIA ARLINGTON FAIRFAX COUNTY FAIRFAX CITY FALLS CHURCH TOTAL Dec-18 29.5% 29.6% 28.2% 20.0% 18.2% 28.4% Dec-19 31.4% 38.7% 31.2% 29.2% 23.1% 32.3% Year-over-Year Change + 1.9 + 9.1 + 3.1 + 9.2 + 4.9 + 3.9 Source: Bright MLS and GMU Center for Regional Analysis

in December 2019, accounting for an additional 37.5% of leased residential units. In contrast, there were only 182 detached homes leased in the NVAR region, accounting for just 24.7% of leased residential units. The share of residential units leased by property type remained fairly consistent from December 2018 to December 2019; apartments and townhouses accounted for the majority of units, split roughly evenly between the two home types, with a notably smaller share of detached homes leased.

While the overall median rate of residences leased in the NVAR region increased from December 2018 to December 2019, the median rate of detached homes leased declined over the period (Table 4). However, just as when analyzing market data on units sold, a given decline or large increase in lease rates can be affected by the characteristics (size/age/location/ condition) of the particular units that transacted that month. The median rate of residences leased increased 3.4% from $2,200 in December 2018 to $2,275 in December 2019. Among home types, the median rate of townhouses leased increased the most, gaining 3.3% from $2,300 in December 2018 to $2,375 in December 2019. The increase in the median rate of apartments leased was not far behind, increasing 2.9% from $1,700 in December 2018 to $1,750 in December 2019. In contrast, the median rate of detached homes leased declined 1.6% from $2,999 in December 2018 to $2,950 in December 2019.

As would be expected, the median rate for residential units leased in the NVAR region in December 2019 increased with the number of bedrooms (Table 5). There were only 10 studios leased in the NVAR region in December 2019 with a median rate

Table 3. Residential Leases by Property Type – Dec. 2018 and Dec. 2019

DEC-19 DEC-18 STRUCTURE DESIGN TYPE UNITS % OF TOTAL UNITS % OF TOTAL

Detached 182 24.7% 157 23.3% Townhouse/Rowhouse 277 37.5% 261 38.8% Apartment/Unit/Flat 279 37.8% 255 37.9% Total 738 100.0% 673 100.0%

Source: Bright MLS and GMU Center for Regional Analysis

Table 4. Median Rate by Condo/House/Townhouse – Dec. 2018 and Dec. 2019

STRUCTURE DESIGN TYPE DEC-19 MEDIAN RATE DEC-18 MEDIAN RATE YEAR-OVER-YEAR % CHANGE Detached $ 2,950 $ 2,999 -1.6% Row/Townhouse $ 2,375 $ 2,300 3.3% Unit/Flat/Apartment $ 1,750 $ 1,700 2.9% Total $ 2,275 $ 2,200 3.4%

Source: Bright MLS and GMU Center for Regional Analysis

Table 5. Median Rate by Number of Bedrooms (0,1,2, 3+) – Dec. 2018 and Dec. 2019

BEDROOMS UNITS 2019 MEDIAN RATE 2018 MEDIAN RATE YEAR-OVER-YEAR % CHANGE 0 (studios) 10 $ 1,473 $ 1,415 4.1% 1 130 $ 1,585 $ 1,550 2.3% 2 187 $ 1,950 $ 1,913 2.0% 3 + 411 $ 2,650 $ 2,550 3.9% Total 738 $ 2,275 $ 2,200 3.4%

Source: Bright MLS and GMU Center for Regional Analysis

of $1,473. Residential units with one and two bedrooms leased for a median rate of $1,585 and $1,950, respectively. The median rate of leased residential units with three or more bedrooms was $2,650 in December 2019. The largest year-over-year increases in the median rate of residential units occurred at either end of the size spectrum with the smallest (studios) and largest units

MAR + APR 2020 (three plus bedrooms) recording the largest median rate increases at 4.1% and 3.9%, respectively, for the 12 months ending in December 2019. The median rate of leased residential units with one and two bedrooms increased year-over-year by 2.3% and 2%, respectively.

Finally, newer properties tend to command a higher median rate in the