By Celeste M. Smucker
Local REALTORS® and national economic forecasts predict a healthy 2017 real estate market. Senior Economist Joe Kirchner at Realtor.com predicts the 2017 market will be characterized by increases in both homes sales and prices, though at slower rates than experienced in the last two years.
A possible damper on sales is interest rates that have increased since the election and “are expected to reach 4.5 percent due to higher expectations for inflationary pressure in the year ahead.” On the other hand, the rate increases will be fueled, Kirchner said, by an expected increase in GDP and a decrease in unemployment both of which can help buyers feel more secure about making such a big purchase. In other words, overall the news is positive.
For example, Kirchner says, “new home sales are expected to grow 10 percent, while new home starts are expected to increase 3 percent.” Locally we saw similar growth in 2016 when new home sales increased by 9 percent, equivalent to 15 percent of total sales in our area, according to a year-end report by Michael Guthrie, CEO and Principal Broker of Roy Wheeler Realty Co.
The biggest players in the market (in 2017 and for at least the next 10 years) are expected to be the Millennials (33 percent) and the Boomers (30 percent), Kirchner continued. Most of the former will be looking for their first homes, while the latter are down-sizing, often preferring one-level living spaces with upgrades, but less overhead. The Millennials will be the most impacted by interest rate changes as many Boomers can pay cash or make larger down payments.
In our area, local agents predict an active spring market and look forward to March, typically the time when more listings become available, and when they expect at least some easing of current inventory shortages. Nevertheless, in the popular, close-in urban areas low inventories, even with these anticipated additional listings, are expected to continue and the potential for multiple offers is strong.
All of this means buyers, especially those who want to live close-in, are advised to do their homework, get pre-approved by a lender and be prepared to make a quick decision if they want to secure a home in this fast-paced market. And if you are a home owner who has been thinking about selling, now is a great time to call your agent about putting your house on the market. It’s definitely a great time to sell your home.
2017 Market Looks Strong
Jim Duncan with Nest Realty Group described Charlottesville/Albemarle as “significantly active,” especially in the city and urban areas of the county. Like many agents he expressed concern about a lack of inventory of lower priced homes in a market that is accompanied by “significant demand across all demographics.” He added that “most good homes go under contract within weeks if not days.”
Duncan’s belief is that serious buyers are keeping informed about the competitiveness of the market and track the activity in areas where they have an interest. They know there will be what he called a “flurry of activity” when the good homes come available in these areas and are prepared to act. He is hopeful that the spring market will bring increased inventory allowing buyers a more reasonable time line when viewing, considering and purchasing a home.
There are a combination of factors at work that are promising for this year’s spring market explained Bill May, with ERA Bill May Realty Co. Part of this is what he described as post-election “euphoria” in that people can now get back to thinking about real estate and its value for building their net worth. In addition, he suggests that Millennials, who had hesitated to buy in the past because of job security, now have more faith in their long-term employment and are willing to move from being renters or living with their parents to home ownership.
“The good weather is also a plus,” May continued, “since it allows people to get out and around.” Finally he noted that interest rates, though a bit higher than they were, are still favorable allowing buyers to purchase their home at historically low rates.
Guthrie compared the real estate market of recent years to a shallow salad bowl that lost momentum in 2006-2007, and bottomed out in 2011-2012. Since 2012 the momentum has shifted to climbing out of the other side of the bowl. A year ago he predicted a gradual increase in sales during 2016, perhaps a 6 to 7 percent increase compared to 2015. In fact this was an underestimate as the actual year over year increase was 8 percent, accompanied by 4 percent increases in both average and median sales prices.
The urban markets in our areas are “substantially under-supplied,” said Rives Bailey, President and Managing Broker of Montague, Miller & Co. He expects multiple offers and rising prices for homes priced under $1 million. On the other hand, in price points over $1 million, inventory is “substantially higher” and, therefore, it is more of a buyers’ market.
Guthrie also addressed the high-end market stating that while sales increased some in 2016, “the wet blanket in those numbers is that sellers have had to reduce their prices to entice buyers to purchase.”
At the same time, Bailey continued, the competition for close-in homes pushes first timers and other buyers looking for more affordable houses into outlying areas, which may in part explain recent increases in sales in surrounding counties.
A good example of this process at work is a Millennial and first timer who works in Charlottesville and asked Maggie Gunnels with BHG Real Estate III to help her find a home. While her first choice was something close-in and move-in-ready, she soon discovered that the options in her price range would have required substantial renovations to make them right. As an alternative, she headed to Spring Creek in Louisa County where she now enjoys a brand new house. The deluxe gym, available to all home owners there, is an extra bonus as is the golf course in the event that becomes one of her hobbies.
In this competitive market, if spring buyers see a house they like, they shouldn’t wait to make an offer, and this is especially true of first-timers who may already be forced out of the close-in neighborhoods. Bailey explained that there is traditionally a burst of new listings in January, a trend that trails off some in February. Come March, however, the inventory should increase, removing some of the pressure.
He cautions, though, that he does not expect a “balanced market,” but rather one which continues to be under-supplied favoring sellers.
Mortgage Rates Still Low
While rates have crept up since the election, they remain historically low and expected to remain under 5 percent for some time, which means mortgage money is still more affordable than at most times in history.
Bailey explained that while the higher rates may “put the brakes on a few buyers,” forcing them to settle for a less expensive home, he does not expect them to have a “major dampening effect” on the market. Rather he predicts the market will be “very solid and very brisk,” especially in the urban areas.
Guthrie agrees adding that “borrowing now is still a bargain and will remain so for this next year,” as does Duncan who explained that as long as rates remain less than 7 or 8 percent, “we are fine.”
If you are a first time buyer, be sure to ask your lender about what is available in the way of low down payment loans, some of which allow seller assistance and even 100 percent financing.
One of these, the USDA Rural Housing Services Loans, is for first-timers so long as they are not purchasing a city home, explained Jay Domenic with Movement Mortgage. Qualifying geographic areas include many south of Interstate 64 and east of Pantops. Loans that don’t require Private Mortgage Insurance—which can mean significant savings on a monthly mortgage payment—are also available said Julia Morris with Fulton Mortgage.
New Construction and the Resale Market
New construction will continue to be an important part of the market this spring and beyond.
The new construction market is doing “very well overall,” Duncan said and buyers looking forward to all the benefits of a new home can “make it happen,” if that is what they want.
Guthrie also expresses enthusiasm about the new construction market stating, “as we move ahead in 2017, we can expect new construction throughout Charlottesville and the surrounding Central Virginia area to be strong.” He added that buyers can “expect higher prices: 1) because of the demand and 2) because of higher construction costs both in materials and in labor.”
At the same time that builders are happy about increased sales, competition from new homes is putting pressure on the resale market as buyers opt for energy savings and floor plans not always available in older homes. This is especially so at higher price points where buyers have more money and more options to choose from than at the lower end of the market.
All of this means resale listings will need to be well priced and in great condition in order to compete effectively against new homes which, Bailey said, now offer “a quantum shift in technology,” with regards to energy efficiency and design. Today’s new homes are more open with less formal floor plans. “Their function and functionality are different,” he continued.
While the new technology can make new homes more expensive, many buyers also recognize they will be able to live there longer without replacing major systems like the roof or the HVAC. In addition energy savings associated with a well-built new home can save the owner as much as $300 a month on their utility bill, equivalent to nearly $60,000 more mortgage, Bailey added.
“New construction will continue to be a significant part of the urban Charlottesville market,” Bailey said, though cautioning it will not be sufficient to close the gap between home supply and demand. To do so he estimates that builders would need to produce at least 800 homes per year, whereas last year that figure was closer to 550. And while new subdivisions are coming online, there is a long gap between when they are approved and when construction can begin. For example, the new Brookhill development at Polo Grounds Road is working its way through the approval process but don’t expect to move in for at least another four years.
All indications are that this year’s spring market will be very active. Home owners should not hesitate to call their agents for advice about preparing their house for sale, and if you are a buyer, take advantage now of the opportunity to lock in low rates and purchase a home before prices and interest rates rise even further.
Celeste Smucker is a writer, blogger and author who lives near Charlottesville.