VA Real Estate Markets Remain Strong – Little Change Over The Year
Sentiment concerning the Virginia real estate market remains strong although little has changed over the year despite falling mortgage rates. Sellers are particularly optimistic about the coming year, while home buyers are more so about the current market. Differences exist by region, with sellers being particularly optimistic about the real estate market in Northern and Central Virginia.
Overall sentiments about the condition of the Virginia real estate market are down slightly since August 2014, with close to 25 percent more respondents feeling optimistic than pessimistic about the market today. More than 30 percent more are optimistic over the course of the coming year. Sixty percent of Virginians believe that the condition of the real estate market has improved since last year, essentially unchanged since August 2014, but 20 percent believe that it has worsened. Fifty-four percent believe that conditions will improve over the next year, a 3 point increase since last quarter. Fourteen percent believe that the market will decline in the coming year.
Sale prices and other real estate market outcomes depend upon a variety of factors influencing buyers and sellers. Several positive items are likely playing a role. The Virginia labor market is stronger than the nation as a whole. The September 2014 seasonally adjusted unemployment rate in the Commonwealth was 5.5 percent, which is below the national rate of 5.8 percent (October 2014), although that gap is closing. Overall prices for goods and services have remained low since the recent economic recession and consumer sentiment in the Commonwealth is at its highest levels since late 2011. Housing inventories are increasing in many areas of the Commonwealth, likely due to fears of future rate hikes. Low inventories are a boon to sellers and drive real estate prices up as buyers compete for the few available listings.
The Commonwealth’s real estate market is facing potential push backs. Credit markets remain tight, deterring borrowing and buyers. On March 21st President Obama signed the Homeowner Flood Insurance Affordability Act of 2014 into law. The law delays, reduces, and repeals some rate increases mandated in the Biggert-Waters Flood Insurance Reform Act of 2012. New flood insurance rates went into effect October 1, with rates increasing by as much as 18 percent. Higher insurance rates increase the cost of buying and owning a home and can present a challenge when selling a home.
Mortgage rates are trending upward year-over-year in the Commonwealth, reducing the potential cost of purchasing a home with credit. On December 3, 2014, zillow.com reported an average mortgage rate of 3.79 percent in the Commonwealth for a 30 year fixed rate mortgage with at least 20 percent down and a credit score of 740-850. This is down from 4.27 percent in early September.
Sellers report growing optimism about the coming year. This perspective has persisted over the last year. Almost 30 percent more respondents believe that the coming year will be a good time to sell a home than those who don’t. Low mortgage rates is the primary reason given for selling optimism, followed by higher housing prices and incomes. Other reasons include an improving economy and labor market. Current selling optimism (compared to a year ago) fell for the first time since the fourth quarter of 2013, although it is still higher than a year ago. Sellers appear to think it optimal to wait to sell next year rather than this year.
Current optimism amongst buyers has been increasing throughout 2014 and is stronger than that for the coming year. The leading sources of optimism amongst buyers includes lower interest rates and prices and higher incomes. Optimism wanes moving into 2015 due largely to beliefs of rising prices. Buyers and sellers agree that real estate prices will increase in 2015.
For the most part, buyers regionally are optimistic today while sellers are looking to the future, following the overall pattern of the Commonwealth. Figures 5 and 6 show current and future conditions, respectively, for buyers and sellers across the six regions of the Commonwealth. Buyers are particularly optimistic about the current real estate market in Southwest and Central Virginia and the Shenandoah Valley. Buyers remain optimistic in Central Virginia through 2015, suggesting inventories will remain high and/or prices low over the coming year.
Sellers are mixed about the current real estate market compared to the past year. More respondents are pessimistic than optimistic in Southwest Virginia and the Shenandoah Valley, supporting the notion that buyer optimism in those regions is driven by price and inventories. Sellers are the most optimistic about current conditions in Northern Virginia, reflecting the low inventories in the region. Sellers are optimistic in all regions looking to 2015. The strong current optimism in Northern Virginia persists in the coming year suggesting inventories are not expected to rise.
Current buyer optimism continues into 2015 in Central Virginia when sellers join the party suggesting an overall strong real estate market in the region. Positive influences on buyers, such as low mortgage rates and rising income, appear to be coupled with positive influences on sellers, such as higher prices. Consumer sentiment, particularly concerning current conditions, is also strong in Central Virginia, suggesting a strong regional economy and labor market.
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