There’s now strong proof of something known as the “Amazon effect.” That’s what happens when a big company like Amazon moves into an area, creates thousands of new jobs, and launches the housing market into the stratosphere. The result is clearly seen when you look at the housing market in Arlington, Virginia, which is Amazon’s new East Coast home base, and compare that to Queens, New York, which pushed Amazon away.
A new study by realtor.com says that home prices and sales continue to surge in Arlington, one year after Amazon announced the results of its search for a second headquarters on the East Coast, or HQ2. (1) New York City was also supposed to reap the rewards of an Amazon HQ2 presence because the retail giant decided to split the headquarters location between the two cities. Unfortunately for New York, there was a huge backlash from people worried about gentrification and the displacement of low income residents. Amazon ended up cancelling its plan for New York City, and making Arlington the sole winner of the HQ2 contest.
Housing Market on Fire in Arlington
A year later, it’s clear that Amazon has had a tremendous impact on the Arlington housing market. According to the report: “Massive inventory shortages, sky-high price spikes, and a blistering pace of sales are now the norm in the metro surrounding Amazon’s second headquarters.” It says that kind of activity is turning the city into one of the hottest housing markets in the nation.
The New York City story is the opposite. Although it experienced a 50% surge in home sales right after the announcement, year-over-year sales and home prices are now showing a 15% decline.
Senior economist at realtor.com, George Ratiu, says: “The ‘Amazon effect’ has branched out of its home base of Seattle and it has clearly stamped its fingerprint on the Northern Virginia housing market.” He calls the impact dramatic, saying that homeowners are experiencing “noticeable equity gains” and that buyers are feeling “the sting of higher prices.” He also says it’s been great for investors and speculators who knew they would reap big gains because Amazon would boost the demand for housing as it hired thousands of new employees.
Home sales also started to surge in Arlington right after the announcement. They were up 21%. That’s less than half the surge that the Queens area experienced. But the New York market is now languishing while Arlington County, Virginia, is mushrooming. Realtor.com says the median list price is up 33% from a year ago, to $863,000. Active listings are down about 50% and homes are selling in less than 28 days. The national median for days on the market is 38.
Housing Demand Depends on Job Market
This is valuable insight for real estate investors because it emphasizes the impact of a strong job market. Where there are big companies creating lots of jobs, there will be growing demand for housing, including rentals.
Amazon isn’t the only company that can do this. Investors should look at the local economy and find out what companies are there, whether they are hiring, and to what extent this is happening.
When you buy into a market it’s important to know whether people want to live there and why. You want to see that there’s population growth, but you also want to see lots of job opportunities, as well, to keep them there. Those are both critical for an investor’s due diligence list, to be sure you are buying into an area with strong housing demand.