In short, we have a housing shortage, as do many cities our size and larger. And, like everybody everywhere, we are somewhat at the mercy of whatever forces COVID-19 brings to our housing economy. Even though we won’t understand the total effect of those forces for some time, it is obvious they are further compounding the housing shortage.
The further down the economic spectrum you look, the more noticeable and profound the housing shortage is. We often hear about the need for “affordable housing,” but what does that mean exactly? For most of us, the term is interchangeable with “housing affordability,” but it’s important to make a distinction between the two. When we wonder what size mortgage we can swing at a given salary, or whether we have to look for houses in surrounding counties to get both the square footage and lot size we want — that’s housing affordability.
But for governments, nonprofits and the housing industry, “affordable housing” has a specific definition — to be considered affordable, housing should cost no more than 30 percent of the consumer’s gross household income.
Median household income in our area is about $55,000. At that level, for housing to be affordable, the total cost should be no more than $1,375 per month — that includes the total of rent, mortgage, insurance, taxes, utilities, etc. But “median” means half of all households in the area fall below $55,000. For a household earning $30,000 per year, housing costs would have to be at or below $750 per month all-in to be affordable — a level that is increasingly difficult to find.
A sizable portion of housing stock that might previously have been available at the $750 level have been purchased and improved to meet the growing demand for homes in the $150,000 to $200,000 level. The types of starter homes once built in abundance in neighborhoods like Masterson Station, Polo Club and Kearney Ridge are no longer being built at all. In fact, we are only building a few hundred new homes in Lexington per year, with almost none of them at the starter-home price point.
The types of starter homes once built in abundance in neighborhoods like Masterson Station, Polo Club and Kearney Ridge are no longer being built at all. In fact, we are only building a few hundred new homes in Lexington per year, with almost none of them at the starter-home price point.
Of the approximately 150 newly constructed homes sold so far in 2020, only two sold below $199,000, and the median price was $330,000. That’s compared to 10 years ago, when the median sale price for new construction was $206,000.
In 2009, the median sale price for all single-family homes, both new construction and existing stock, was $149,000. By 2019, the median price had risen to $189,000, a significant 27 percent jump, but well short of the 60 percent increase in the price of new homes over the same decade.
Zooming in to measure COVID-19’s impact on the local housing economy is not a simple calculation. And even if it was, the impact would not be the same across the entire economic spectrum nor in every neighborhood. Anecdotally, we know fewer potential sellers are bring their homes to market, and that the reduced supply is negatively impacting an already historic lack of inventory of homes available for sale. All things equal, the laws of supply and demand suggest prices would rise due to the lack of inventory. But logic would also suggest the threat of impending economic calamity would limit major purchasing.
Perhaps more insight could be gained by looking at just the period in 2020 since around the Ides of March, when the realities of COVID-19 began to settle in, and compare those numbers to the same period in 2019. Between March 15 and June 30, 2019, there were 2,138 single-family home sales with a median sale price of $199,000. During that same period this year, only 1,714 homes sold — a drop in the number of transactions of almost 20 percent year-over-year.
However, the median sale price during that period in 2020 was $210,000 — a 5.5 percent increase over the same period last year. At the county-wide level, the economy and other external forces have reduced the volume of sales, but the strong demand, particularly at the lower price points, have kept prices climbing.
Continuing with a look at the period of time influenced by the pandemic, let’s switch focus to the specific neighborhoods featured in the accompanying chart, all of which trend higher in price points than the county at large.
The medians in these neighborhoods range from $245,000 in Kenwick to a high of $472,000 in Chevy Chase. In 2019, between March 15 and June 30, the median sale price for these six neighborhoods combined was $361,000, but for the same period in 2020, the median sale price was only $337,500, a decline of 6.6 percent.
It would appear at the higher end of the market, we are experiencing the type of moderation one would expect in times of such economic uncertainty, but at the lower end of the market, which is already under significant supply and demand pressures, economic uncertainty is outweighed by a very strong demand for houses.
Click here to read the trends local real estate agents are seeing in the Lexington market.