Why smaller homes in the D.C. area are gaining value faster than large ones

By Jon Coile March 28

There’s a growing trend around the country of smaller houses gaining in price faster than homes with a greater amount of square footage. Even though these residences have a lower price tag compared to larger homes, the rate at which their prices increase has started to outpace that of more traditionally sized dwellings.

A broad combination of forces have combined to get us to this point. The most visible reason behind this shift is simply that many homes with a smaller footprint are condos or co-op buildings that come with a number of luxury amenities. What developers weren’t able to provide in square footage, they make up for with pools, concierge services, wine lockers, soundproof music rooms, free Zipcar or bike-sharing rental, or entertainment rooms with oversize televisions and surround-sound speakers. (All of the aforementioned are actual amenities found in D.C. buildings.)

In addition to these on-site perks, many of these buildings are surrounded by restaurants and retail that attract a large number of buyers. Residents are paying not only for the square footage where they live but also for the opportunities just outside their door.

Of all the possible amenities that drive a price up, public transportation is by far the biggest factor for many people looking to purchase a home in our area. The urban hubs for transportation are almost exclusively surrounded by homes with a smaller footprint because developers have realized how much demand there is to live in these locations and have rehabbed as many properties as they can to fit in greater numbers of people.

The transportation choices don’t necessarily have to be a Metro station, though those are always desirable. The major bus routes and even bike lanes all contribute to huge buyer interest, which in turn contributes to the increase in prices.

[More Coile: Buying a home this spring? Get ready now — the competition may be fierce.]

Both within the District and the close-in suburbs we see smaller homes attracting people of all ages. Buyers want to live centrally without having to own a car, and older people want to downsize from their single-family home and say goodbye to all the maintenance that comes with it. An increase in the older demographics is a force in increasing condo sales in areas such as West End, Georgetown, Rosslyn and Silver Spring.

Many of these buildings and neighborhoods offer amenities that allow people to age in place. Since that age group is also one of the largest, its members make a bigger impact when they start to make real estate decisions. It is both their extra financial reserves and the sheer number of them entering the real estate market at this time that has led to the greater demand for smaller homes.

Recent history is another consideration for today’s buyers. The housing crash, and the subsequent foreclosures, is still fresh in our memories. Since a larger property brings larger expenses, today’s buyers are wary of committing to all the additional costs associated with a bigger house.

Higher utility bills, more spaces that need to be cleaned and maintained, and the possibility of lawn care in some cases are what make people hesitant to sign on to having more living space. Buyers are wary of not only taking on a larger mortgage, but also of the larger time commitment required by a larger home.

[More Coile: Trade-offs to mull when considering a walkable neighborhood]

Ultimately, however, it comes down to supply and demand.

The fact that our area has such a solid job market with high enough salaries to support these home prices contributes to the fact that properties that fit the demands of the new lifestyle-focused buyers are appreciating at a faster pace than the popular McMansions of the past two decades.

Today’s buyers are showing a willingness to pay a bigger premium for location and amenities over square footage.

Jon Coile, chairman of Rockville-based multiple-listing service Bright MLS (formerly MRIS), writes occasional commentary on the Washington area housing market.

Smart locks 101: pros and cons to know

How practical are they, really?

BY KAYLA MATTHEWS MAR 9, 2017, 1:14PM EST

The August smart lock

August

Smart locks have become some of the most popular home tech products in the United States, along with other connected devices like security systems and home-access controls. NextMarket Research predicts that the smart lock market alone will grow to a worldwide value of $3.6 billion by 2019.

Considering how many Americans maintain busy schedules that keep them away from home, it’s not hard to understand why this technology is becoming so popular.

However, even though smart locks have flooded the market, that doesn’t guarantee they are the most practical or safest home security choice.

Let’s take a look at some of the advantages and disadvantages associated with smart locks.

They work with smartphones

For many people, one of the best things about smart locks is smartphone integration. Once a person has downloaded the app that works with a smart lock, they can lock and unlock the door from afar.

That means if they embark on a road trip and don’t remember that they left the front door unlocked until an hour into the journey, there’s no reason to turn around and go home. They can just launch the app and secure their home with a phone.

Smart locks from August, a leading brand, even let you use an app to verify whether the door’s locked or not.

Instead of wracking your brain to try and remember the steps you went through just before leaving the house, you can simply depend on the app to verify whether you completed what’s arguably the most important task in securing your home.

You can authorize access for multiple people simultaneously

Maybe you’re about to go out of town on a European backpacking trip for three months and have various people lined up to water your plants, pick up the mail, and petsit during your absence. Smart locks make it possible to provide unique access codes for each person.

If you were using a traditional key-based system, you’d have to go to a key-cutting shop and get physical keys made for the authorized parties or (possibly worse) leave your key in a secret spot outside where anyone could access it.

The convenience of smart locks all sounds great until you realize that some smart locks are pretty easy to hack.

People will understandably wonder, if smart locks are already known as being potentially easy to break into, what’s to stop hackers from staying ahead of the game and up to date about security patches? There have been similar concerns about other connected devices, from connected cars to connected coffee makers and smart light bulbs, so it’s not just a fault found in the smart lock market (Case in point: the massive distributed denial of service attack last fall brought about by millions of compromised smart home devices.) However, this is a valid concern that you shouldn’t brush off lightly.

The technology sometimes fails

People often wisely admit that technology is fantastic when it works properly. When things go wrong, however, they’re often left wondering why they didn’t just stick with tried-and-true methods. Some individuals feel that way after installing smart locks, especially after discovering limitations.

For example, some smart locks only work with deadbolts. Reports have also warned that unless the door is firmly closed, the smart lock may not secure the deadbolt as expected. And even with that issue aside, some homeowners might also not enjoy the fact that most smart locks are only capable of controlling one of your door’s locks, not all of them.

So, if you’re a double door-locker like me, this may not be a piece of tech that’s worth the money.

Folks are sometimes resistant to adopting new technology, and when it comes to something as important as locking down a home, it’s no wonder they balk.

If you’re thinking about equipping your home with a smart lock, make sure to carefully read a wide range of reviews to get a good idea of which ones are most likely to fulfill your expectations.

Some locks enhance security camera functionality

As mentioned earlier, camera-based home security systems have also become popular. If you already have one installed, there may be a smart lock that diversifies the security system’s features.

For example, current technology allows you to see who’s at the door and grant access to your home simply by tapping a button in a smartphone app. This capability would be helpful for someone who is elderly or ill and may not be able to reach the door quickly when someone knocks.

As you can see from this overview, although smart locks have some definite perks, you should only install them after grasping their potential drawbacks.

JOBS, GOOD JOBS, AND HOME BUYING

BUILDER

So far, consumer home buyers are looking at interest rate increases and saying, ‘meh,’ we want the new home more.

By John McManus

Tech pioneer Kodak, headquartered in the upstate New York city of Rochester, employed 145,000 workers in 1988, to manufacture, distribute, and market its film and cameras. Today, there are more photographic images taken in a single hour than were shot in all of the 1800s, many of them on Instagram, owned by Facebook, which employs just under 18,000.

What this case is an example of is how technology may generate wealth and productivity in America in broad strokes on the one hand, but when it comes down to specific places and specific worker groups, they’re worse off than they were.

Now, a positive jobs report this past Friday–235,000 jobs created in February, and a lower unemployment rate of 4.7%— carries with it four key meaningful areas of interest for home builders and developers at present: household wage growth, consumer confidence, good job concentration, and interest rate increases. Let’s take a look at them, shall we?

Wage and income growth:
Calculated Risk blogger Bill McBride explains that household wage growth is trending upward, as evidenced in Friday’s jobs report. Here, McBride looks at earnings growth, employment to population ratio improvement, and declines in both part-time-for-economic-reasons and unemployed for more than 26 weeks groups. He notes:

This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka “Establishment”) monthly employment report. Note: There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation.

The graph shows the nominal year-over-year change in “Average Hourly Earnings” for all private employees. Nominal wage growth was at 2.8% YoY in February.

Improvement in both the jobs headline number, and in these four sub-narratives which have chronically been more stubborn during the dig-out from the Great Recession, starts to have an impact on another matter of great interest as regards home buyer demand: consumer sentiment.

Consumer Confidence
Both the Conference Board and University of Michigan Survey of Consumers note year-on-year increases in their measures of consumer confidence, and the Conference Board index, which stands at 114.8, remains at a 15-year high. Gallup, too, notes in its Economic Confidence index, that Americans are more optimistic about both current conditions and outlook. Gallup analyst Andrew Dugan notes:

In February, one-third of U.S. adults (33%) described economic conditions as “excellent” or “good,” while 20% rated them as “poor.” This resulted in a current conditions score of +13 for the month — a three-point increase from January’s score and a nine-year high for this component.

Good jobs:
What’s obscured in these national figures, however, is a wide variance in both the timing and trajectory of recovery by metro area, leaving entire regional swaths of the United States out of the good times going on in a few geographies.

Brookings Institution fellows Mark Muro and Sifan Liu look here at good job growth in the tech sector and observe that the data and trends do not suggest geographical dispersion from known tech hubs into “flyover” America. They write:

What is striking is not just that a whopping 46 percent of all U.S. digital services jobs cluster in just 10 of nation’s largest metropolitan areas, ranging from New York and Washington to San Francisco and San Jose to Boston, Seattle, and Atlanta.

Even more striking is the fact that only a handful of metropolitan areas have significantly increased their share of the nations’ digital services jobs since 2010. To be specific, just 5 metros out of the nation’s 100 largest metropolitan areas—San Francisco, San Jose, Austin, Dallas, and Phoenix—accounted for nearly 28 percent of the nation’s 2010 to 2015 tech growth. And only 14 managed to increase their share of the nation’s tech job base in a statistically meaningful way.

Tech, Muro and Liu conclude, is “divergent, not convergent.” A few prosper while the many languish, calling to mind “The New Geography of Jobs” author and University of California at Berkeley economist Enrico Moretti.

A handful of cities with the “right” industries and a solid base of human capital keep attracting good employers and offering high wages, while those at the other extreme, cities with the “wrong” industries and a limited human capital base, are stuck with dead-end jobs and low average wages. This divide — I will call it the Great Divergence — has its origins in the 1980s, when American cities started to be increasingly defined by their residents’ levels of education. Cities with many college-educated workers started attracting even more, and cities with a less educated workforce started losing ground.

Interest Rates Going Up
Irrespective of this lumpy “winners-take-all” economy, interest rates are headed for an increase this week, as the Federal Reserve meets and moves to tighten money supply ahead of an increasing surge of business and consumer confidence. New York Times economics correspondent Neil Irwin writes:

Fed officials seem to believe that the United States economy is nearing its full economic potential, that the expansion is more sturdy than it was just a year ago, and that inflation is closing in on the 2 percent mark that the Fed aims for. The advent of unified Republican control of Congress and the White House also brings the possibility of tax cuts and other stimulative measures that would mean the economy needs less support from low interest rates to keep growing.

Will higher rates kill the mojo builders are seeing in the market? Not so far, according to commentary from a piece in the latest Z Report, “New Home Buyers Barreling Through Higher Rates Thus Far,” from the Zelman & Associates team.

“Our new order price index accelerated 20 basis points to 6.1% in February, the best result of the last 12 months and ahead of the 5.5% average through 2016. With a 30-year fixed mortgage rate up approximately 50 basis points year over year, which is equivalent to a 5% price increase, and income growth of just 2-3%, affordability has deteriorated versus last year–but yet demand has actually strengthened.”

As we detail further below, consumer confidence and a still-favorable absolute level of affordability are the other most important pieces to the puzzle that have helped to bridge the gap. We remain modestly concerned that further upward pressure on long-term interest rates and/or any disruption in macro confidence could cause accelerating new home order growth to retrench, but at this point, the market is enjoying the favorable combination of limited inventory, strong household formation, improved confidence and accelerating entry-level demand.”

You can learn more about the The Z Report or sign-up for a free trial here.

The burning issue for home builders is that household growth, jobs growth, and income growth have all been on positive trajectories when you do the national math, but when it comes to doing the local arithmetic, it’s a decidedly different challenge. Some pent-up demand will be released, and a fair amount of it will remain pent-up because of how spotty and lumpy recovery has been and will continue to be.

What’s the Future of the Connected Home?

As smart devices continue to proliferate across the market, remodelers should start thinking about how they can take advantage

By Laura McNulty

It’s no secret that today’s homeowners, with more information at their fingertips than ever before, are more discerning—and perhaps more demanding—when it comes to their homes. They want products that perform well and look great, with a long, low-maintenance lifespan to boot. And by and large, they’re willing to spend more for premium quality. As technology advances, the question remains: Does that desire for the best of the best extend to the smart home?

Manufacturers and pros in the electronics industry certainly seem to think so. The past several years have seen a plethora of new product introductions with connected capabilities, from one-off additions like a smart lock to systems designed to automate control of the entire home. But many remodelers interviewed for this article indicated that so far, their customers aren’t pushing for the technology.

So why should remodelers care? For starters, consider this stat from a January survey of 1,000 consumers by PricewaterhouseCoopers: While only 26% of respondents currently own a smart home device, 65% feel excited about the future of the technology, and 43% are planning or considering a future purchase. And in a survey conducted by Houzz in collaboration with the industry group CEDIA in September 2016, which polled nearly 1,000 homeowners who are planning, in the middle of, or recently completed a home renovation project, almost half (45%) said they were installing smart devices.

The technology hasn’t reached peak market saturation yet, but the sooner that remodelers start to familiarize themselves with these products and their capabilities, the better positioned they’ll be to serve their clients in the future.

Current Affairs
So far, mainstream consumer demand is concentrated in a few, easily adapted areas: security, in the form of smart locks, doorbells, and cameras; and HVAC, most notably through smart thermostats like Nest, says Dave Pedigo, vice president of emerging technologies at CEDIA. “In general, people are looking for security and comfort,” he explains.

Jack Cutts, director of industry and business intelligence at the Consumer Technology Association (CTA), has seen a similar pattern. He names smart security systems and connected thermostats as the fastest growing segments in the marketplace.

However, one major game-changer right now is the rise of digital home assistants and voice-activated technology, such as Amazon’s Alexa and the new Google Home. “The biggest thing we saw this year at CES [the International Consumer Electronics Show] is the proliferation of integration with Amazon’s Echo device,” says Cutts.

That explosion of available integrations lends itself to consumers looking to expand their smart home capabilities, Cutts says. Of those expansions, both he and Pedigo name smart lighting and switches as an area to watch due to the convenience—and potential energy savings—of being able to turn these systems on and off remotely.

Security and HVAC companies aren’t the only ones making moves in the connected home market, however. Appliance manufacturers are getting in the game, too, with recent introductions ranging from a new suite of connected appliances from Bosch to a Nest-integrated refrigerator and wall oven from Whirlpool Corp.

So far, it’s difficult to say if these sorts of products have had much traction in the consumer market. The relative infrequency and higher cost of appliance purchases in general makes their adoption slower by necessity, says Cutts.

“[Appliances] are really nascent at this point,” adds Pedigo. “You look at the connected fridge and you say, ‘Well, what does a connected fridge do for me?’ … [Then] I’m at the grocery store and no one is home to tell me if I have milk in the fridge, and I’m like, ‘Oh, how handy would that be for me to be able to instantaneously look at and see what the inventory of my refrigerator is while I’m at the grocery store?’”

SEVEN NOTEWORTHY SMART HOME PRODUCTS

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As consumers become more familiar with the technology and its uses, and as it improves and proliferates into lower-priced models, adoption rates will likely increase, Cutts says. “In vehicles, we used to see high-end electronics only in the high-end models, and that has moved down. Now it’s all the way down in the entry-level products,” he adds. “I don’t see any reason why the same dynamic wouldn’t play out with smart [appliances].”

Moving Ahead
Given the early days of the technology and the DIY appeal of many devices, remodelers may think that they don’t need to pay attention. But as usage is forecast to increase, waiting until your customers are ahead of you on the curve may lead to scrambling to catch up. What makes it especially crucial that remodelers get ahead of the game is that providing a quality experience for the homeowner requires more than installing a few disparate products and calling it a day.

“Right now there’s a lot of confusion in the marketplace,” says Pedigo. “You would think that one device or another should automatically work together, and they just don’t.” He recommends partnering with a home tech specialist to ensure a smart home system is well implemented for clients.

One reason to consult with a pro is to gain insight into the more technical aspects of smart home installation that aren’t as exciting as the latest gadget, but are indispensable to making sure the system works properly—namely, ensuring a home’s network is sufficiently secured and properly configured to handle the system’s demands.

Pedigo stresses the importance of installing a high-quality network that can handle the high amounts of data being transferred on a daily basis; a standard wireless router likely won’t cut it. “I always use the analogy of a clothes line: If you put a shirt or two on a clothes line, it holds up just fine. If you start putting a whole ton of clothes on there, that line starts to sag.”

Another capability that will assist in setting up capable home networks is WiFi mesh networking, says Cutts, which allows users to install additional wireless modules in areas of their home where the WiFi signal is weakest. “It’s an expandable system, and it would automatically help those modules communicate with each other and fill in all those dead spots,” he says. This is especially important if homeowners have smart products on the exterior of their homes, where connectivity typically begins to drop.

“A smart home is great, but if you don’t have coverage for all of your connected [devices], then you’re only getting a partial benefit,” Cutts says.

And as with any other product that remodelers install, a positive user experience is the most important element. “You want to make sure that with whatever system [you use], number one, it should be reliable. Number two, it should be easy to use,” Pedigo says. “And then if it’s kind of cool, then that’s your third ingredient.”

For more connected home coverage, check out this Q&A for tips from a home automation installation professional.

WHY PRODUCT INNOVATION MATTERS

BUILDER

We’re seeing product manufacturers map builders earlier into their r&d workflows. That’s a good thing.

By John McManus

Thomas Edison was quoted as saying, “what you need to invent, is an imagination and a pile of junk.”

An innovator of our present day, perhaps Google co-founder Sergey Brin, notes that “an invention discovers what is.”

But before he or she started the process of inventing, investing the time and the brain power in using his or her imagination on that pile of junk, what is might never have been. Often, before that moment of invention, it may have been considered undoable.

Now, it’s widely held that innovation of any sort in home building’s materials or products or processes spends years in a limbo of “development,” “proof of concept,” testing, etc. before it can gain traction. If it ever does.

The reason is that there are plenty of products and materials whose chemical, physical, and integrative properties are proven over time and known, and therefore regarded as safer, more durable, more functionally effective, more aesthetically appealing, or more efficient to install than anything new. Also, there’s experience across the decades that has shown that newly introduced technology sometimes introduces new problems, unintended consequences, and bad experiences for home buyers over the course of time.

What’s more when products, materials, or workflows change from practices that have worked well enough in the past, somebody who’s currently critically involved in the process may lose out. And it gets even messier when the holistic home building process requires parts and pieces of what someone or ones provide, but not the whole.

Progress stops suddenly when those who pay for goods and services to build houses are forced to pay for what they don’t want or need in order to get what they do want or need.

Still, a singular driving force that motivates nearly every home builder in the business is this. They want to make a better home each time they start one. He or she or they want to build better.

To do that requires progress, and fortunately, on the product manufacturers side, progress never stops. Whether it’s convection, conduction, radiation, absorption, fire retardancy, air quality, room comfort, water conservation, durability, automation, connectivity, privacy, security, natural day-lighting, indoor-outdoor rapport, curb appeal, storage space, flexible floor plan, flow, livability, or any other quality or property of a home, building products manufacturers are driving innovation into their offerings at every turn.

What’s particularly heartening is that to an ever greater degree, manufacturers have begun mapping builders earlier and earlier into their research and development process. They’re realizing that the advances they bring to market don’t merely impact the discrete properties of that particular product. Their effect is on an ecosystem of inter-connected materials, products, parts of a system, or structural members of the envelope.

We’re seeing innovation take hold, not only on the atoms of a house–its chemistry, physics, and biology–but on the data, the 0s and 1s that go into how it lives, how it works, and how it lasts and morphs over time.

In order to build the next house better, builders once upon a time would build a house on paper before they built it on a site. Now, they build homes virtually, sometimes two or three times over, to get design, engineering, costing, and performance to where they want it before they do it on-site.

What’s happening now is that manufacturers are fully integrating themselves in this pre-build virtual build, this engineering pre-build process to support innovation in both the envelope and systems, toward building each house better, one at a time.

Here’s analysis from the National Association of Home Builders that focuses on how builders have embraced the use of “green” products and practices.

Energy efficient windows ranked at the top of the list, commonly used by 95 percent of the builders, followed by high efficiency HVAC systems (at 92 percent). On average builders reported commonly using 10.2 of the green products and practices on the list.

Yes, they may be “green” products and practices.

They’re also better products and practices.

Home Equity Reaches A New Peak

BY MICHAEL NEAL on MARCH 14, 2017 • (0)

According to the Federal Reserve Board’s fourth quarter of 2016 release of its Financial Accounts of the United States report, household holdings of real estate, measured on a not seasonally adjusted basis, totaled $23.102 trillion in the fourth quarter of 2016, $1.535 trillion higher than its level in the fourth quarter of 2015.

Home mortgage debt outstanding, $9.754 trillion in the fourth quarter of 2016, rose by $218 billion over the same four-quarter period. As the change in the total value of household-held real estate exceeded growth in the aggregate amount of mortgage debt outstanding, total home equity held by households grew.

Over the year, total home equity held by households rose by $1.317 trillion, 10.9 percent, to $13.349 trillion. Households’ home equity is now 57.8 percent of household real estate.

The current level of owners’ equity in real estate held on households’ balance sheets, $13.35 trillion, now exceeds its previous peak level of $13.27 trillion that was accumulated by 2005 (on a nominal basis). As a result of the housing downturn, the total amount of housing equity fell by 54 percent from its pre-recession peak to a low $6.16 trillion in 2010. The total amount of housing equity in 2010 was close to its level in 1999, $6.21 trillion. In the years following 2010, housing equity began to recover, expanding by 117 percent between 2010 and 2016.

Although housing equity in aggregate has eclipsed its pre-recession peak level, the distribution of holdings among those with a mortgage has changed. According to a previous post, tight credit standards on purchase mortgages partly reflect the historically high credit score needed to obtain a mortgage and purchase a home. Analysis by researchers at the Federal Reserve Bank of New York (FRB NY) demonstrates how this restriction correlates with the changing composition of housing equity. They find that “for homeowners who have debt…equity has shifted more substantially over time.”

Prior to discussing their results on the shifts in housing equity held by mortgage borrowers, the FRB NY researchers point out that homeowners with mortgage debt account for one portion of homeownership and housing equity, but another, smaller component of housing equity resides with those households that own their home free and clear. Using data from the American Community Survey, the FRB NY authors find that “about one-third of owner-occupied homes corresponding to 44 percent of total net housing wealth is held free and clear.”

For homeowners that also have a mortgage, those borrowers with a current FICO score below 700 were the largest class in 2006 and borrowers with a score above 780 accounted for the smallest proportion of borrowers. However, by 2016 the composition switched. Borrowers with a score below 700 are the smallest share of borrowers while those with a score exceeding 780 are now the largest.

According to the table above, copied directly from their blog post, the correlation with housing equity is not reflected in a change in ranking, but rather in the change in the share of equity held by each category. For homeowners who have mortgage debt, those with a score above 780 accounted for the largest portion of housing equity held by mortgage borrowers in 2006 and that did not change in 2016. Instead, as with its proportion of borrowers, its share grew, largely at the expense of the total housing equity held by borrowers with a score below a 700. By the first quarter of 2016, borrowers with a score above 780 hold half of the housing equity that has accrued to borrowers with a mortgage while approximately $5 out of every $6 in the housing equity associated with mortgage borrowers is held by those borrowers with a 700 and above.