Sentiments concerning the Virginia real estate market remain strong in the Commonwealth. The Virginia Current Conditions Index hit a second consecutive record value for the most recent quarter. Sellers of real estate are more optimistic than in the past four years. Real estate prices took a sharp turn up as inventories remained flat.
Second consecutive record high in sentiment
Overall sentiments about the condition of the Virginia real estate market continue to rise, and opinions about the current market are at an all-time high. This marks the second consecutive record value. The Virginia Real Estate Index started in the third quarter of 2013. The first quarter Overall Current Conditions index value is 43.0, twelve points above the index average and the highest value on record. This index value means that 43 percentage-point more respondents feel optimistic than pessimistic about the market today, up over four points since last quarter. Figure 1 shows the real estate indexes for the Commonwealth. Sixty-five percent of Virginians believe that the condition of the real estate market improved since last year, while 53 percent believe that conditions will improve in the next year.
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 factors are likely playing a role in the most recent optimism. The Virginia labor market remains strong as does regional production. The seasonally adjusted unemployment rate in the Commonwealth is 3.8 percent and state gross domestic product is up 1.5 percent (annualized rate.) Overall prices for goods and services remain low since the last economic recession and consumer sentiment in the Commonwealth remains high.
Housing prices are rising, as is typical heading into the summer months. A cyclicality exists for housing prices in response to inventories and overall interest. Figure 2 shows for-sale inventories and median list prices in the Virginia real estate market over the past two years. In April, statewide inventories were down 4,478 from a year prior (9.8% drop) and below the 15-year median value (41,152 vs. 47,439.) The average list price was $10,100 higher in April than a year prior, a 3.5 percent increase. This is $51,000 higher than its nominal 15-year median value, and up almost $31,000 since the start of 2017. If inventories remain flat relative to demand, prices will continue to rise over the summer months.
Figure 2. Median list price (line) and for-sale inventory (bar), Virginia; (data from zillow.com 5/29/2017)
Real estate markets face potential push backs. Some respondents anticipate rising mortgage rates, an added cost of buying a home. On May 30, 2017 zillow.com reported an average mortgage rate of 3.74 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 mortgage rates offered under those conditions over the past two years. Comparatively, rates in Tennessee are the lowest in the nation (3.65%) and are the highest in Alaska (3.90%).
Figure 3. 30-year mortgage rates May 2015-May 2017, Virginia (downloaded from zillow.com 5/30/2017)
Figure 4 shows index values for sellers of real estate in Virginia over the last year. The Virginia Current Sellers Index is at a record high of 37.6, continuing its growth from last quarter after a 12-month decline. Fifty-six percent of respondents believe now is a good time to sell a home. Low mortgage rates are the primary reason given for selling optimism (27 percent), followed by higher prices (27 percent) and income (20 percent) and falling inventories (18 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 buyers in Virginia over the last year. Current optimism remains strong but is lower than last quarter. Eighteen percentage point more respondents believe that now is a good time to buy a home than believe that it is not. The leading source of optimism among buyers is rising income. Forty-four percent of those who believe the coming year will be a good time to buy real estate attribute their sentiments to increased income.
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 in Virginia reports more optimism than pessimism about the real estate market. Figure 6 shows list prices and inventories for various MSAs across the Commonwealth. Higher real estate prices are the likely cause of market optimism, particularly in Richmond, Charlottesville, and Washington D.C., where April median list prices are higher than the long-term average for those areas. All MSAs graphed reported falling inventories and strong seller optimism. Buyers in a few regions are tepid about the future markets, likely due to rising prices.
Figure 6. Select city median list price (blue dot = median list price last 15 years, orange dash = April 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 May 7 and May 12, 2017. A total of 605 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 31 percent of the completed interviews.
Questions answered by the entire sample of 605 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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Contact Name: Dr. Alice Louise Kassens, Senior Analyst, IPOR
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