Salem, Va. - Sentiment concerning the Virginia real estate market remains strong in the Commonwealth with the Virginia Current Conditions Index hitting a record high. Prices continue to decline, although inventories are drying up, suggesting prices are likely to increase in the near future.
Market remains strong across the Commonwealth, record high sentiment
Overall sentiments about the condition of the Virginia real estate market remain strong, and opinions about the current market are at an all-time high. The Virginia Real Estate Index started in the third quarter of 2013. The first quarter overall Current Conditions index value is 38.7, over eight points above the index average and the highest value on record. This index value means that 38 percentage point more respondents feel optimistic than pessimistic about the market today, up almost eight points since last quarter. Figure 1 shows the real estate indexes for the Commonwealth. Sixty-two percent of Virginians believe that the condition of the real estate market has improved since last year, while 12 percent believe that it has worsened. Additionally, 51 percent believe that conditions will improve over the next year and 17 percent believe that the market will decline.
Figure 1. Real Estate Index, Overall, Virginia (black line = thriving); current = compared to last year; future = next 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 remains strong as does regional production. The December 2016 seasonally adjusted unemployment rate in the Commonwealth is 4.1 percent, which is below the current national rate of 4.8 percent. State gross domestic product is up 2.3 percent (annualized rate.) Overall prices for goods and services remain low since the recent economic recession and consumer sentiment in the Commonwealth remains high.
Housing prices fell over the past six months, as is typical. A cyclicality exists for housing prices in response to inventories and overall interest. The winter months are not an active time in the Virginia real estate markets, but markets are likely to pick-up as we turn to the warmer months. Figure 2 shows for-sale inventories and median list prices in the Virginia real estate market over the past two years. In January, statewide inventories were down 3,241 from a year prior (7.3% drop), 2,635 from July 2016 (5.9% drop), and below the 15-year median value. The average list price was $1,100 higher than a year prior, a 0.4% increase, which is $20,000 higher than the market's nominal 15-year median value, but $23,000 below the July 2016 value. The dwindling supply of homes relative to demand will likely push up prices in the coming months.
Figure 2. Median list price (line) and for-sale inventory (bar), Virginia; (data from zillow.com 3/7/2017)
Real estate markets face potential push backs. Some respondents anticipate rising mortgage rates, an added cost of buying a home. On March 7, zillow.com reported an average mortgage rate of 3.97 percent in the Commonwealth for a 30-year fixed rate mortgage with at least 20 percent down and a credit score of at least 740. Figure 3 shows rates offered under those conditions over the past two years.
Figure 3. 30-year mortgage rates September 2014-September 2016, Virginia (downloaded from zillow.com 3/7/2017)
Figure 4 shows index values for sellers in Virginia over the last year. Seller optimism about the coming year is strong and reversed a 12-month decline. Twenty-eight percentage point more respondents believe that the coming year will be a good time to sell a home than those who don't, which is up more than 10 points since last quarter. Low mortgage rates are the primary reason given for selling optimism (21 percent), followed by higher income (19 percent), prices (16 percent) and falling inventories (8 percent).
Figure 4. Real Estate Index, Sellers, Virginia (black line = thriving); current = compared to last year; future = next year
Figure 5 illustrates index values for real estate buyers in Virginia over the last year. Current optimism remains strong and relatively unchanged since the summer months. Twenty-one percentage point more respondents believe now is a good time to buy a home than believe it is not. That optimism drops into 2017 as buyer optimism about the coming year is almost equal to that of buyer pessimism. The leading source of optimism amongst buyers is rising income. Twenty-five percent of those who believe the coming year will be a good time to buy attribute their sentiments to increased income. Other reasons include lower rates (16 percent) and prices (15 percent). For those who believe the coming year will not be a good time to buy a home, 34 percent cite rising interest rates as the primary cause, while 27 percent reference rising prices.
Figure 5. Real Estate Index, Buyers, Virginia (black line = thriving); current = compared to last year; future = next year
Regional strength, particularly Central and Northern Virginia
Compared with last year, each region of Virginia reported more optimism than pessimism about the real estate market. This is particularly true in Central and Northern Virginia where optimists outnumber pessimists by 51 and 45 percentage-points, respectively. Figure 6 shows list prices and inventories for various MSAs across the Commonwealth. Higher prices are the likely cause of market optimism, particularly in Richmond, Charlottesville and Washington D.C., where January median list prices are higher than the long term average for those areas. Amongst those locations, all but Washington, D.C., show falling inventories, putting upward pressure on prices.
Looking to the coming year market optimism remains strong in most regions. In Central Virginia 58 percent of respondents anticipate improvements in the real estate market. Looking at both sides of the market, the optimism near the nation's capital is driven by sellers as over 38 said they are positive about the coming year. Comparatively, more buyers expressed concern about the coming months. Rising prices are the likely driver in this divide between buyers and sellers.
Figure 6. Select city median list price (blue dot = median list price last 15 years, orange dash = January 2017 average list price, black line = standard deviation average list price; percentage change in inventories over prior 12 months shown in parentheses). Data source: zillow.com
Interviewing for The Roanoke College Poll was conducted by The Institute for Policy and Opinion Research at Roanoke College in Salem, Va. between February 12 and February 18, 2017. A total of 616 Virginia residents 18 or older were interviewed. Telephone interviews were conducted in English. The random digit dial sample was obtained from Marketing Systems Group and included both Virginia landline and cell phone exchanges so that all cell phone and residential landline telephone numbers, including unlisted numbers from Virginia exchanges, had a known chance of inclusion. Cell phones constituted 39 percent of the completed interviews.
Questions answered by the entire sample of 616 consumers are subject to a sampling error of plus or minus approximately 4 points at the 95 percent level of confidence. This means that in 95 out of 100 samples, like the one used here, the results obtained should be no more than 4 points above or below the figure that would be obtained by interviewing all consumers who have a telephone. Where the results of subgroups are reported, the sampling error is higher. Sampling weights were constructed using Virginia Census 2010 data by age, race and gender groups.
Quotas were used to ensure that different regions of the Commonwealth were proportionately represented. The margin of error was not adjusted for design effects due to weighting.
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