Real estate market remains strong, buyer concerns about the future in Southwest Virginia
Sentiment concerning the Virginia real estate market remains strong, sustaining the strength from the first half of 2015. Respondents remain split over the direction of mortgage rates in the coming year, leading to an ambiguous impact on the market. Home buyers in Southwest Virginia are growing concerned about the market, particularly for the coming year. Although buyers are largely optimistic about the current market, the index fell dramatically in the region from last quarter. Potentially the anticipated surplus of homes from households leaving the area after the departure of several business did not come to fruition.
Real estate market sentiments remain strong into second half of 2015
Overall sentiments about the condition of the Virginia real estate market remain strong. Close to 31 percentage-point more respondents feel optimistic about the market today, statistically unchanged from May 2015. Also, 30 percentage-point more respondents say they are optimistic about the market for the coming year, which is down slightly since May 2015. Figure 1 shows the real estate indexes for the Commonwealth. Sixty-four percent of Virginians believe that the condition of the real estate market has improved since last year, up from May, while 17 percent believe that it has worsened. Additionally, 52 percent believe that conditions will improve over the next year, statistically unchanged from the first half of the year. Fourteen percent believe that the market will decline in the coming year, up slightly from last quarter.
Figure 1. Real Estate Index, Overall, Virginia (black line = thriving); current = compared to last year; future = next year
A variety of factors influence home buyers and sellers and the real estate market. The Virginia labor market is stronger than the nation as a whole. The preliminary July 2015 seasonally adjusted unemployment rate in the Commonwealth is 4.7 percent, below the national rate of 5.1 percent. Overall prices for goods and services remain low since the recent economic recession, and consumer sentiment in the Commonwealth remains at its highest levels since late 2011. Housing inventories are increasing across Virginia, likely due to fears of future rate hikes. In July, statewide inventories were up almost 1,600 from a year prior and well above the 15-year average. In February (the most recent value), the average listing price of a home was about $20,000 higher than a year ago and higher than its 15-year average value.
Real estate markets also face potential pushbacks. Some respondents say they anticipate rising mortgage rates, which is an added cost of buying a home. More than 31 percent of sellers who believe that markets will worsen in the coming year cite anticipated rising rates. Even so, mortgage rates are trending downward in the Commonwealth. On Sept. 2, 2015, zillow.com reported an average mortgage rate of 3.78 percent in the Commonwealth for a 30-year fixed rate mortgage with at least 20% down and a credit score of 740-850. Figure 2 shows these rates for the nation and the Commonwealth over the past two years.
Figure 2. 30-year mortgage rates February 2013-February 2015, US (green), Virginia (blue) (downloaded from zillow.com 9/2/2015)
Figure 3 shows index values for sellers in Virginia over the last year. Seller optimism about the coming year is strong and statistically unchanged from last quarter. Twenty-seven percentage point more respondents believe that the coming year will be a good time to sell a home, which is up since May. Low mortgage rates is the primary reason given for selling optimism, followed by higher housing prices and falling inventories.
Figure 3. Real Estate Index, Sellers, Virginia (black line = thriving); current = compared to last year; future = next year
Figure 4 illustrates index values for buyers in Virginia over the last year. Current optimism continues in the second half of 2015. The leading source of optimism among buyers is lower mortgage rates. More than 43 percent of those who believe the coming year will be a good time to buy a home attribute their sentiments to lower mortgage rates. Other reasons include lower prices (19 percent) and higher incomes (15 percent). Close to 36 percent of respondents who report that the coming year will not be a good year to buy a home attribute it to rising prices, while 30 percent cite rising rates.
Figure 4. Real Estate Index, Buyers, Virginia (black line = thriving); current = compared to last year; future = next year
Prices continue to rise in Northern Virginia
Figures 5 and 6 show current and future conditions, respectively, for buyers and sellers across the six regions of the Commonwealth. Buyers are optimistic about the current state of the real estate market across all regions of the Commonwealth, particularly in the Shenandoah Valley and the Tidewater region. Buyers are least optimistic in the Southside region and Northern Virginia, but the index value remains strong. Figure 7 shows the mean list price for homes relative to the 15-year median value for select cities across the Commonwealth. Buyers in Northern Virginia may be concerned about the higher-than-normal home listing prices in areas that include Washington, D.C. Rapidly declining inventories are the likely reason for concern in Southside, where Martinsville saw inventories fall by 50 percent in the past year. Moving into 2016, home buyers say they are less optimistic, particularly in Southwest Virginia, suggesting inventories will fall and/or prices/interest rates will continue to rise over the coming year.
Consumers who are selling real estate say they are mixed about the current real estate market, compared to the past year. They show concern in several regions, including Southwest Virginia and Southside where a surplus of houses from those leaving the area could drive down the price of homes in that price range. Optimism in Northern Virginia and Central Virginia is strong and persists into the coming year, reinforcing buyers' concerns that prices will continue to rise.
Figure 5. Current Conditions by Region (black line = thriving)
Figure 6. Future Conditions by Region (black line = thriving)
Figure 7. Select city median List Price (blue dot = median list price last 15 years, orange dash = February 2015 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., Aug. 10-20, 2015. A total of 608 Virginia residents 18 or older were interviewed. Telephone interviews were conducted in English. The random digit dial sample was obtained from ASDE Survey Sampler and includes both Virginia landline and cellphone exchanges so that all cellphone and residential landline telephone numbers, including unlisted numbers from Virginia exchanges, had a known chance of inclusion. Nearly 30 percent of respondents were contacted via cellphone.
Questions answered by the entire sample of 608 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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