What did the “Amazon effect” do to home prices in one American city?
Written by Aarthi Swaminathan
Amazon’s headquarters has raised concerns about rising home prices in Northern Virginia. A new study examines the effect.
Amazon’s (AMZN) announcement that it intends to build a second headquarters in Northern Virginia has boosted home prices and sales, albeit temporarily, according to a new report.
This finding is based on an analysis conducted by Bright MLS, a real estate database company. In an article titled “Five Years Later: Amazon’s Impact on the Local Housing Market,” Bright MLS analyzed sales trends, closed prices, and trends in descriptions of for-sale listings in the greater Washington, D.C., area over an 18-month period.
The authors found that after Amazon announced it would build its second headquarters in Arlington in November 2018, home prices rose faster and homes sold faster in Arlington than in surrounding areas.
“The announcement itself has led to a significant rise in property values,” Lisa Sturtevant, chief economist at Bright MLS, told MarketWatch. “But it was very short-lived.”
Bright MLS’s report answers some of the questions that arose when Seattle-based Amazon first chose Arlington for the company’s second headquarters.
The news immediately sparked expectations that home prices would rise as a result of the tech giant’s presence, especially since Amazon said it would eventually create 25,000 jobs with an average salary of $150,000. The report shows that Amazon has had an impact on local real estate, but not necessarily a lasting one.
“Amazon’s headquarters had a temporary impact on the housing market and gave home prices a boost,” the report stated.
Amazon did not respond to a request for comment.
Home prices rose 17% in the National Landing market.
Single-family home prices rose an average of 17% in the National Landing market — which includes ZIP codes 22202 in Arlington and 22305 in Alexandria — between the fourth quarter of 2018 when the second headquarters was announced and the first quarter of 2018. Find Bright MLS.
But housing prices rose only 10% nationwide over the same time period.
A separate 2019 report from Realtor.com also found that home prices rose 17.3% in the six months following Amazon’s announcement. That was much higher than the increase in the national average list price during that period, which was just 5.5%.
“Demand for housing in Arlington, Virginia surged after the announcement of the second headquarters,” Hannah Jones, chief economic analyst at Realtor.com, told MarketWatch.
She noted that demand for mid-priced homes, priced between $300,000 and $750,000 in particular, had increased, meaning buyers were finding fewer affordable homes for sale during the period immediately following the HQ2 announcement.
“Home sales rose immediately after the announcement, but limited affordable inventory stifled sales growth. Sales prices rose over the course of the year following the announcement,” Jones added.
In October 2018, before the second headquarters was announced, the typical sale price for a home in Arlington was $591,000. A year later, that amount had increased to $653,000.
Today, the median price of a single-family home in Arlington is $761,000, according to Realtor.com.
(Realtor.com is operated by News Corp.’s Move Inc., and MarketWatch is a unit of Dow Jones, also a subsidiary of News Corp.)
Real estate agents used Headquarters 2 as a marketing tool
Sales also increased after the announcement of the second headquarters.
In December 2018, the ratio of pending to new listings was 1.34 for condo sales in Arlington, a Bright MLS report found, “indicating unusually high buyer interest.” Pending sales also outpaced new listings for townhomes and attached homes.
Some consider the ratio of pending to new listings an indicator of how “hot” the real estate market is. The ratio tracks the balance between the number of homes that have gone under contract and the number of new homes that have come online. In a hot market, there may be a few new listings and a rise in the number of homes going under contract due to high demand from home buyers.
But the dynamics of housing markets in Virginia — and everywhere else — have rapidly shifted due to the onset of the coronavirus pandemic. During the pandemic, many have taken advantage of extremely low mortgage rates to purchase homes, which has increased demand for homes.
“The market has kind of gone back to being driven by these basic fundamentals of demand and supply” and Amazon’s influence has faded, said Sturtevant, the former Arlington resident.
However, before the pandemic, the impact was clear, as home sales appeared to be directly driven by the second HQ announcement. For example, real estate agents have begun using Headquarters 2 as a “marketing tool,” Bright MLS found, with two out of every five single-family homes listed in 2019 in ZIP code 22202 — the area that includes Headquarters 2 – Headquarters 2 is explicitly mentioned in the property description.
Concerns about the second headquarters have now been replaced by declining housing affordability in general
Although she couldn’t rule out mom-and-pop investors and house flippers, Sturtevant noted there wasn’t enough evidence to prove that large-scale investors swarmed in and bought a large number of homes after Amazon’s announcement.
When news first broke that Amazon was coming to Northern Virginia, there was concern about whether the market would see an influx of Amazon employees, some of whom would earn well and could crowd out less affluent local buyers. He said.
At the time of the announcement, heavy criticism was leveled against the company by affordable housing advocates who were concerned that the project would worsen the ability of current residents to find a place to live. Amazon said the second headquarters will create 25,000 jobs over the next decade, and thousands more indirectly throughout the metropolitan area.
“The concern was that these people would raise prices and rents because they were coming in with higher wages. The fact of the matter is that although the number of new employees was expected to reach 25,000, so far only 8,000 employees have been hired, and because “With remote work, there are still relatively few workers in the office every day,” he said.
The HQ2 range has changed since Amazon first announced it. The company said in March this year that it had temporarily halted construction on some buildings at its second headquarters, as part of a broader effort to slow its growth. It also cut thousands of jobs at the beginning of the year to cut costs.
Moreover, with housing affordability at its lowest level since 1984, homebuyers face fundamental problems of low inventory and high borrowing costs, with mortgage rates at their highest levels in 23 years.
The bottom line is that while Arlington is still feeling the “Amazon effect” from the second headquarters announcement, the tech company was not ultimately responsible for the sharp rise in home prices in the past five years, Sturtevant said.
“There were concerns that Amazon would make Arlington and surrounding areas unaffordable,” Sturtevant said. “But those (neighbor) markets were already (expensive) before Amazon. So it’s a bit of a chicken-and-egg problem.”
She added: “Although the announcement had an impact in the short term, it is certainly not the reason why house prices are as high as they are in the province.”
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