2022 Washington DC Market Report and Outlook

2021Market Report | 2022 Market Outlook Duncan Colquhoun

A View From Washington, DC Foreword The end of last year showed signs of aslight shift in the frenzied market of 2021-- including fewer bidson houses, and homesspending longer on the market. But atrue buyer'smarket isn't likely, as people continueto move, and real estate isconsidered ahotter investment than ever. Plus, there are two major issueskeeping the market on the side of the sellers, those being: low inventory and material supply slowdowns. Assuch, most expertspredict priceswill increase throughout 2022, especially after the slower winter months.

Asborders reopen, pent-up demand from international buyerswill compete for limited inventory with local buyers. That might spell good news for financial capitalslike New York and London, and Washington, DC. If 2020 and 2021were fueled by remote work, we're predicting that in 2022, hybrid work is likely to drive the market, with many looking for larger homes that can accommodate remote work yet remain within commuting distance to their office.

Millennialsare changing the market, too, finally giving up their rentalsand buying homes--often with money passed down by their parents. Tech companies--many of which have relocated, expanded their headquarters, or are planning to do so--are affecting the migration patternsof these millennials (and Gen Z, too).

Duncan Colquhoun Real EstateAdvisor TTR |Sotheby'sInternational Realty C. 914.413.1915| E. duncan.colquhoun@sothebysrealty.com | distrcitadvisorygroup.com

Increased popularity of Eco-conscioushouse buying (think solar energy and electric-car chargers), and even the emergence of cryptocurrency, which isstill in nascent stageswith regardsto buying and selling property, but likely not for long will beamong other topicstouched upon. The emergence, and then stark decline of iBuying, and how that may, or may not impact how millennials buy and sell homes into the future.

Finally, were diving into some luxury lifestyle trends. From wine to NFT'sto handbagsto sneakers, more high-net-worth individualsof all ages--many new to the auction world--are looking to put their money into assets they can enjoy now, with hopesof appreciating value over time.

Duncan Colquhoun

Washington, DC 1

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Introduction

Supply Issues Causing long-term Pressure Interest In Serviced-Apartments Soars

Next Generation Buyers

Is Crypto The Future For Real Estate

Fueled by Millennial Nostalgia, New Collectibles Markets Soar The Market, By The Numbers

Material Supple Issues May Put Long-Term Pressure On Home Prices With delivery schedules delayed and pricesof material goodsrising, pandemic-induced supply-chain issueshave dominated headlines for much of 2021, and are poised to continue into the new year. While the supply-chain issueshave an effet on every corner of the economy, the housing market has felt aparticularly dramatic impact.

"Every part of ahouse ismore expensive today," says Philip A. White Jr., president and CEO, Sotheby's International Realty. "Itsimpacting new-home construction more than anything. We hear the most about lumber, but itseverything. And that ispushing up the average sales price."

People will still build personal homesif, for example, a US$12 million house now costs$13million instead. For developers, asudden spike in the price of construction material, compounded by achronic shortage of labor, can change the entire calculusof aproject. The Achilles' heel in the market right now is construction costs. The delaysassociated with Covid have given every developer pretty significant [difficulties]-- someprojects are facing six-to 12-month delays."

Delayed building deliveriesmean that developers' equity remainstied up in existing projects, rather than invested in new ones, further slowing down the new-construction pipeline and leaving builders to assesswhether new projectsare financially feasible at all.

All of which translatesinto yet another factor putting asqueeze on inventory and upward pressure on home prices. Unfortunately added costsof construction from the supply chain are going to get passed on to the consumer.

Even once the supply chain getsback to running at itsusual pace, the ripple effectsof a construction slowdown could be felt in the housing market for yearsto come. "It could be 2024, or 2025 before we see some kind of pickup in new supply," "The entire economicsof building abuilding has really been turned on itshead, and its going to takeanumber of yearsto get the supply."

Source: Sotheby's International Realty Luxury Outlook 2022

Duncan Colquhoun |

Interest In Serviced Apartments Soars The last couple of yearshave been tough for the hospitality-and-travel industry, with luxury hotel roomsstanding empty acrossthe globe. But there have been unexpected winners, too -- serviced apartmentsavailable for short-term rentals. Fully furnished residences that come with all the bellsand whistlesof your favorite high-end hotel from fresh flowersto an on-demand masseuse, areproving more appealing than ever, even in marketssuch as Europe and North Africa, where serviced apartmentsused to be ararity.

Agentsreport continuing high demand for ultraluxury rental properties including kitchen, living quarters, and space to work remotely. They also cite the assurance of ahigh level of hygiene control compared with, for example, Airbnb properties. Many of those requesting such properties arehigh-net-worth buyerswho want aholiday home combined with the opportunity for high yieldswhen they arent in town.

In London, Guy Bradshaw, managing director of United Kingdom SothebysInternational Realty, sayshis rentalsteam has seen a "massive increase" in people requesting short-term staysin service-driven apartmentsrather than hotels, for vacationsand businesstripsor a combination of both--the so-called "bleisure" traveler.

It hasbeen particularly popular with Canadiansand North Americanswho want easy assessto cultural attractions combined with fully stocked fridge, maid and housekeeping service, driversand fresh flowers. "We've had very top level executives taking fully serviced accomodationsfor $60,000 to $70,000 amonth, who have been considering hotel optionsand private residences, but when spending that kind of money want their own space, outdoors. and privacy alongside hotel-style amenities," Bradshaw says.

Duncan Colquhoun |

Millennials Make Their Mark Millennialsare entering the home-buying market en-masse, shedding their title of the 'renter generation' asthey reach new life milestones, with 4.8 million millennialsturning 30 in 2021. These budding home buyersare increasingly relying on wealth transfers, according to many real estate agents.

"Most millennialsare utilizing atransfer of wealth from their parents, grandparents, or arelative to purchase property. And even when parentsare buying, their millennial kidsare often the onesmaking the decisionsbecause itll be theirsone-day," says Jonathan Spearsagent at Scenic Sotheby's International Realty, based in Destin, Florida.

Nearly $70 trillion will be passed down from older generationsbetween 2018 and 2042m according to datafrom market-research firm Cerulli Associates, and more millennialscontinue to use their share for real estate, with home showingsbecoming more of a family affair.

Spearssaysbaby boomer-aged buyersare bringing their millennial aged kidsto showingsand having them ultimately make the purchasing decision. They factor in attractive featuressuch asdevelopmentsthat include community pools, tenniscourtsand other amenitiesfit for remote-work life, in addition to proximity to townsand entertainment.

The number of young adultsaged 25to 34 purchasing homeswith aco-borrower aged 55and up has increased since 1994, according to asurvey from Freddie Mac'sportfolio of purchase loans. While 1.3% of young adult first-time home buyers listed adults over 55asco-borrowersin 1994, that number increased to 3.2%in 2018.

Duncan Colquhoun |

Where They're Buying Some millennials in the UShave left big citieslike New York, LosAngeles and San Francisco to head west and down south to places like Denver, Colorado; Seattle, Washington; Phoenix, Arizona; and Austin, Texas. Many are looking just outside of big cities, with 47%of millennial homeownersreporting they live in the suburbsrather than urban and rural neighborhoods, according to market data.

More than 33,000 millennial residents moved to Texas; Colorado saw more than 29,500 new millennial residents; and Washington state saw more than 25,000 in 2019, according to the most recently available migration datafrom the US CensusBureau analyzed by Smart Asset. Arizonasaw more than 20,000, while Floridahad around 14,000 millennial residentsmoveto the state, the same datashows.

North Carolina, Ohio, Tennessee, Idaho, and Pennsylvaniarounded out the list of top 10 places where millennialsare moving.

"Millennialsaremaking sure they have agreat home office and accessto amenities, whether itsaprivate pool at the house, or in the community, aclubhouse, or tenniscourt," "We have also found that affluent millennialsare choosing to reside in the more established communitiesthat promote new urban-ism and convenience to world-classamenities including restaurants, shopping, and boutique grocery stores."

Move-In Ready Homes Turnkey propertiesthat are move-in ready and don't require major renovationsor repairsare also increasingly attractive to millennials, particularly those looking in the luxury space. "Most millennials don't want to do work on aproperty to avoid with the challengesof getting permits, paired with the mentality that they're too busy working and value time with friendsover remodeling or taking on big projects.

afew caveats...

Many millennialsentering the housing market are in search of aplace to call home, without breaking the bank. Those millennials who may be financially stable, but lacking a family'sinheritance are turning to homeswith more 'character' so that they can turn apurchase into agreat investment over time.

With inventory so low, opportunity knocksto those willing to sacrifice finishesand an immediate "dream home" for a longer outlook and agreater vision for their future.

Duncan Colquhoun |

Convenience To Jobs, Culture When it comesto factorsinfluencing neighborhood choice, 74%of home buyers aged 22 to 30 and 63% aged 31to 40 say buying homesconveniently located to their jobswasafactor in their purchase, according to recent NAR data. And 34%of buyersaged 22 to 30 and 27%aged 31to 40 say buying ahome in a neighborhood that'slocated near entertainment and leisure activitieswasalso apriority; while more than half (55%) of millennialssurveyed say general proximity wasan influencing factor, according to the same NAR data.

With millennials, the biggest factor in real estate and whatsdriving price is proximity -- to work, restaurants, coffee shops-- that'salwaysbeen adriving factor. What'sinteresting is despite Covid, itsstill an important factor.

Buying With Smart Homes In Mind Having ahome fully equipped with automation systemsfor thingslike lighting, temperature control, entertainment systems, and appliancesis also adriving component in the millennial home-buying experience, with 17%of homebuyers aged 22 to 30 and 10%of those aged 31to 40 saying smart-home featuresare why they purchased new and previously owned homes, according to NAR data.

Duncan Colquhoun |

Whats Next: Gen-Z Home Buyers\ Gen Z, the generation behind millennials, with the oldest members in their early 20's, have their sightsset on home-ownership.

Indeed, 27%of older Gen Zers(aged 18-24) plan to buy ahome in the next two years, compared with 36%of millennials (aged 25-43), according to the most recent data from the Center for Generational Kinetics, aglobal Gen Z research firm. Whatsmore, according to the same data, 71%of Gen Z (aged 13-25) in 2021think they'll own ahouse in the future.

"They want to own their own houses, and they're predisposed to save," saysJason Dorsey, generationsexpert and president, Center for Generational Kinetics. "Before Covid, they were very bullish on the path to home buying. They still want to own houses, itstheir version of financial stability or financial success."

Growing up asdigital nativeshas translated into how they browse, search and purchase homes, particularly asfirst-time buyers, statisticssuggest. The majority of Gen Zers(67%) said they would consider using an online service or app to buy a home, compared with 39%of millannials

What is an iBuyer and what is the real cost Asthe world around usbecomesmore technological - new servicesoffering 'easier', 'lesscostly' and 'fool proof' waysto buy and sell real estate are becoming more and more popular, and prominent.

Hereswhat you need to know: What is an iBuyer?The 'i" standsfor "Instant Buyer". Thisiseffectively areal estate service much like Zillow and their 'Zestimate' which offers'instant' cash offers to those looking to sell online. Run through an algorithm, the services typically ask that you upload afew photos, adescription of your house and within afew daysmake you an offer. When taking into account aperceived savings on Broker commission, which industry standardsdictatesto be 6%split between buying and selling brokers, you could be looking at asavings of both time, energy, and money.

There is acatch however. It isimportant to note that the convenience of selling quickly doesn't come cheap.

Whether working with aBroker, or iBuyer there is no denying being willing to take alower price for your home will get it sold quicker. iBuyer programsrely on that, and take account for it. Typical iBuyer programswill offer between 7-10% below market value for ahome. (Zillow acknowledgestheir algorithm hasan average error rateof 6.9%) You may be thinking that the convenience of selling 'instantly' makesthe lower value seem appealing, after all, you are saving 6%on commissions. The catch here however, isthat Zillow and many other iBuyershave built-in fees compiled into what they call a'service fee' which often timesamount to asmuch as9.5%of the sales price.

Taking an average salesprice in Washington, DC's Logan Circle neighborhood last year of $800,000 the net lossesto Brokerscommissionswould be $48,000 compared to $76,000 in iBuyer fees.

Breaking down the numbers: Assuming two scenarios, one where you work with an experienced agent at TTR Sotheby's International Realty, and another where you opt for the speedy route of an iBuyer. Say your home sellsfor 500,000 with aSotheby'sbroker, you would receivean average of 7.5%($37,500) lesswith an iBuyer. Meaning asales price of $462,500. An outstanding mortgage balance of $300,000 you are looking at netting $200,000 with aSotheby's Broker, and $162,500 with an iBuyer.

Commissionswith aSotheby's broker would cost you $30,000, while the iBuyer service fee (@9.5%) would cost you $43,937.50.

Here in Washington, the DC government makes1.45%of the sales price regardlessof how you sell for all their hard work. So transfer tax would cost $7,250 if you use aBroker, and $6,706.25for an iBuyer.

Final Net Earningsafter both scenarioscome to $162,750 with aSotheby's Broker, and $111,856.25from an iBuyer.

WhoYouWorkWithMatters| Choosinga topBroker likea TTR Sotheby'sInternational Realty agent canall thedifference.

Duncan Colquhoun |

A Look At The Action House SNEAKERS In April 2021, Sotheby'sauction house sold arare pair of Nike Air Yeezy 1prototypes, worn by Kanye West at the 2008 Grammys, for $1.8 million to Rares, astart-up that allowsusersto buy and trade sharesof the highest valued sneakers. At $1.5million, apair of game worn Michael Jordan Air Ship sneakers, which sold in October, became the priciest game-worn footwear from any sport sold at auction.

CARS Thisyear marked the first time aLewisHamilton F1car has been offered for public sale. During aunique event, conducted immediately following the Formula1Pirelli British Grand Prix 2021, and featuring demonstration lapsin front of 140,000 spectators, Sotheby'ssold LewisHamilton's2010 Turkish GP race-winning McLaren MP 4-25A for a record GPB $4,836,000

Fueled by Millennial Nostalgia, New CollectiblesMarketsSoar The collectiblesmarket has exploded in the last year, ashigh-net worth individualslooked to invest in alternative asset classes. Trading cards, retro video games, sneakers, and handbag are expected to continue the growth fueled in recent yearsby ayounger generation of buyers.

"Acrossall markets, we're seeing abroader theme of nostalgia,' saysBrahm Wachter, vice president and head of streetwear and modern collectibles, Sotheby's. "Asthisnew generation is coming into wealth, they're prizing things like perfect-condition video games and Pokémon cards and sportsmemorabilia." Certain collectibles, such as sneakers, have gained in value asauction housesenter the game and formalize trading. "It'sopened up the market to a whole new group of potential clients," Wachter says. Most resale buyers are in their 30's to 40's and grew up in the 1980'saround the birth of sneaker collecting and "sneakerhead" culture.

In the USalone, the sneaker-resale market is estimated at more than $2 Billion per year. Sotheby's sneaker business hasmore than tripled since it launched in 2019, Wachter says, and isexpanding worldwide. Other new collectors have entered the market through new fractional-investing platformssuch asRally and Collectable, which allow investorsto buy astake in acollectible, rather than the entire item. Where previously , collecting was reserved for high-net worth individualswho had the ability to maintain, insure, and store acollection, now investorscan buy astake in asneaker or vintage guitar for aslittle as$5.

In 1973, aSotheby's decision to auction 50 contemporary worksof abstract and pop are unsettled traditionalists and stoked critics. Asit turned out, the auction wasaresounding successand became amajor inflection point, raising the visibility, marketability, and appreciation of the worksof living artists.

Fast forward to today. In April, Sotheby's sold acollection of non-fungible tokens(NFT's) by adigital creator known asPak for a total of $16.8 million. By the end of October, itsNFT salestotaled more than $95million.

NFT's, which are digital tokenscertifying the authenticity of digital creations, surged in popularity beginning last year, prompting adebate among art-world observersover whether they were apandemic-fueled craze of alegitimate new facet of the market.

Wesley Heights

Recent NFT saleshave quieted many naysayers. Salestotaled $2.5billion in the first half of 2021and astunning $10.7 billion in the third quarter, increasingly attracting abroader audience to the art market and drawing the attention of traditional collectors. While NFTs' unique aspects could potentially sustain adivide between digital and traditional collectors, the entrance of large auction housesinto the market hasgone along way toward stitching the two together.

Displaying NFTS Exhibitionsof digital workshave been an effective way to broaden appreciation.

Sotheby'shosted physical exhibitionsof NFTs on screensin gallery-like settingsin London, Hong Kong, and New York City during itsfirst Natively Digital sales.

'People who couldnt grasp the impact on a small screen walked in and said they couldn't really see how it worked. The future of digital art will be shaped by these digital exhibitions.

There are discussionsabout opening digital museums," Sebastien Fahey, managing director, Sothebys.

Capitol Hill +9.48%

$1,031,204 Average Sold Price

+22%

728 HomesSold

100.7% Avg Sold Price to List Price Ratio

Brookland

Home Sold in Adams Morgan

Trinidad $578,509 +5.49%

+10.6%

$703,129

Average Sold Price

Average Sold Price

+4.08%

357 HomesSold

102.1% Avg Sold Price to List Price Ratio

+10.43%

254

Avg Sold Price to List Price Ratio

HomesSold

Bloomingdale

99.9%

Shaw

+7.29%

+ 8.84%

$950,791

$976,939

Average Sold Price

Average Sold Price

+14.29%

112

HomesSold

100.4% Avg Sold Price to List Price Ratio

+20.6%

199 Homes Sold

99.9% Avg Sold Price to List Price Ratio

Park View

+12.55%

$703,255 Average Sold Price

+9.41%

93

HomesSold

101.0% Avg Sold Price to List Price Ratio

Townhouse Sold in Takoma Comparison based on 1/ 1/ 2021 - 12/ 31/ 2021 / Source Bright MLS. Data deemed reliable, but not guaranteed.

Adams Morgan/Dupont +2.40% $744,447 Average Sold Price

+19.4%

1226 HomesSold

99.2% Avg Sold Price to List Price Ratio

Petworth

Townhouse Sold Kalorama Triangle

$715,083

Mount Pleasant $860,859

Average Sold Price

Average Sold Price

+2.40%

+9.23%

497

HomesSold

101.4% Avg Sold Price to List Price Ratio

+9.41%

186

102.1% Avg Sold Price to List Price Ratio

HomesSold

Columbia Heights +2.40%

$695,110

Average Sold Price

+ 5.87%

685 HomesSold

99.7% Avg Sold Price to List Price Ratio

Condo Sold on U Street Comparison based on 1/ 1/ 2021 - 12/ 21/ 2021 / Source Bright MLS. Data deemed reliable, but not guaranteed.

Duncan Colquhoun | C 2021Sotheby'sInternational Realty. All Rights Reserved. The Sotheby'sInternational Realty trademark is licensed and use with permission. Each Sotheby'sInternational Realty office isindependently owner and operated, except those operated by Sotheby'sInternational Realty, Inc. The S0theby'sInternational Realty network fully supportsthe principlesof the Fair Housing Act and the Equal Opportunity Act. This material isbased upon information which we consider reliable but because it has been supplied by third parties, we cannot represent that it isaccurate or completeand it should not be relied upon assuch. All offeringsare subject to errors, omissions, changesincluding price or withdrawal without notice. If your property is listed with areal estate broker, please disregard. It isnot our intention to solicit the offeringsof other real estate brokers. We are happy to work with them and cooperate fully.