Buyer Activity is Up in Charlottesville

Jim,

I agree with you, I think your optimism is well placed. I believe a large part of the increased activity is due to the fact that many sellers are adjusting their prices downward and are coming closer to a more realistic selling price. I still think things have got a way to go. Especially on the higher end market (properties > $1M) I feel there is still room for at least a 25% price correction.

There are many buyers out there that will do a deal if it is the right house and the right price. It also doesn’t hurt that more people are actually starting to do open houses too!

I really enjoy your blog and I find it informative for the local area. I have been a bit surprised by some of the down right bitterness from a few posters on the blog. The funny thing is that those posters appear to be buyers. I would have thought sellers would be more irritated, maybe they are but just not as vocal on your board.

My advice is if you are a buyer you don’t have to be bitter…. all you have to do is wait. Eventually reality catches up with everyone and prices will fall, and they will fall fast.

Increased buyer activity is good news for realtors! Feb has seen a 50% increase in sales MoM!

Sounds impressive, until you realize Jan sales were 57, and Feb MTD are 79. Which is down about 66% since last year and even more since the totally bubblicious 06-07 period. Not so great is that current inventory is sitting at MORE THAN THREE YEARS. Plus Jumbo’s are 200bps higher than conforming, and Obama is looking to reduce the mortgage interest deduction for mortgages greater than ~500k. It’s hard to think higher priced homes will not go down 25% in general, with an extra 15-20% possible if the mortgage interest deduction gets polaxed. At least the government will reduce the incentive to waste tax payer dollars on subsidizing more house than any reasonable person would need.

Thanks Nobody,

I believe my comments are being misinterpreted. If I thought Jim was a propagandist I would not visit the site nor would I waste my time commenting on this site. It is just appearing to me, based on my interactions with potential “buyers” agents, that the local community of realtors have decided to keep the campaign of “Charlottesville was rated the best place to live” alive. It appears to be a last ditch effort to keep the housing prices from slumping and halting the buying (which already happened).

I really enjoy the site and I enjoy reading the comments of all, and what I am really trying to say that this isn’t 2004 anymore, and I don’t believe Money Magazine even rated Charlottesville in the top 100 in the 2008 issue of best places to live in the U.S. I am very frustrated that I cannot even call a “buyers” agent without hearing the speech about how great it is to live here and how now is absolutely the time to buy. I feel as a potential buyer that this does not offer me any potential for good representation.

I was reading the Daily Progress and there was an article about recent activity in the real estate market and it actually listed who bought and sold and it appeared that a majority of the “activity” is actually investors selling properties to other investors. hmmmm….. interesting…

Keep up the good work Jim! And always, enjoy reading your work…. And criticizing it as well… Guess that comes with the territory!

Thanks,
Bill

P.S. I call myself a realist not a pessimist ***smile***

Bill you are right, Charlottesville didn’t hit the map at all on the Best Places to Live in 2008. http://money.cnn.com/magazines/moneymag/bplive/2008/states/VA.html

I would argue one of the top reasons for the real estate bubble deflating here in Charlottesville is the lack of viable employers that can pay over $100K. The workforce is dominated by either Government/Military, University, and Healthcare with a smattering of corporate employers. On average I would say that (excluding doctors and executive management) most make below $100K.

In 2007 the median income for Charlottesville was $50K. (http://money.cnn.com/magazines/moneymag/bplive/2007/snapshots/PL5114968.html). Purchasing power for homes if we follow very strict guidelines of 33% of gross income towards house payments only gives the median buyer the ability to buy up to $290K (assuming 4.5% interest rate and $58K down payment).

Here is the breakdown on required income:

(assuming 4.5% and 20% down)
$250K home – $37K salary
$500K home – $74K salary

(assuming 6% and 20% down)
$750K home – $131K salary
$1M home – $175K salary
$1.25M home – $218K salary

Working backwards means that at $100K salary a person afford to buy a house priced at $678K with a $135K down payment.

Unless you are able to buy with cash, the banks are going to be very picky on the assessment. Which means that sellers have to get real if they want to transact sooner as opposed to later. Better to take your price cut early and sell before everyone starts taking the price cut and the new “lower” high gets set.

My thought as far as transactions go is that prices need to fall at least 30% across all ranges in order to meet the needs of the buyers. Unfortunately at those price points it doesn’t usually fit the needs of the sellers… but some cash is better than negative cash or foreclosure.

“Bubblicious” is the best way to describe these comments, so we feel right at home. Jim’s blog has educated lots of buyers. It’s a testament to his blogging that so many are commenting on pricing, IOHO. (BTW, don’t miss the “Are You Kidding?” link in the sidebar, which is bubbleblogging at its finest.) If these comments are any indication, there will be lots of buyers/lookers this Spring/Summer. The season is here: there are more than 30 open houses in Cville/Alb alone tomorrow (Sun. March 1). But these are buyers who have their financials worked out down to the last penny.

FWIW, sellers do need to take into consideration that economists and analysts are saying what Scott posted, which is that it may be better to get the house sold sooner rather than later when other sellers who are “waiting out the market” can’t wait it out any longer (since it’s not “coming back” for years) and the unsold inventory will only grow larger. This is certainly true in this area, where as Nobody pointed out, the inventory is huge. Three years, by Craigger’s calculations.

Scott’s math is on the right track, but possibly optimistic. Median income for a family of four in Cville is $68K; in Albemarle it’s $63K (US Census, 2007). That’s four people who need to be fed, clothed, schooled, entertained, etc., in addition to housed. Too, you have to toss in car loans, credit cards, and student loans when calculating a Debt to Income ratio, which can lower the amount of mortgage $ available. And since US savings rate over the past decade has hovered around zero, how many have a 20% downpayment? (But that’s what an FHA loan is for, a 3.5% downpayment. Capped at $437K, though.)

Besides lack of buyers who actually earn good livings in this area, there’s the income to price ratio. Back in the “old days,” buyers paid 2.5x annual salary for a house. For a gross of $68K, that means the median price in this area would be $170K.

What do you get in this area for $170K? It’s shocking, and not in a good way. “Starter homes” for a family of four, or a couple planning on children, run more like $290-$450K. And in many cases haven’t been updated since the era of Reaganomics.

We have more on this in a future post. But this is the short version of why the lower end of the market is basically frozen. Why Jumboland is frozen makes for interesting reading, too….

I was wondering about this too. I know that we are certainly interested with the interest rates and tax incentives. We have been waiting for 5 years, and are continuing to do so. It is all because of the prices in the neighborhoods that we would prefer. I know of two other couples who have said the same thing. One of them has been waiting 2+ years and the other couple have been waiting for over 3. They both still think prices are too high by at least 30%. Just our humble opinions though. The open houses are fun to check out, so you can cross things off of your list, or leave them in the running:)

A few thoughts.

Cville is an interesting market and has many varied ‘microecosystems’. It is not an easy market for outsiders to ‘learn’- that takes time. The per sq. ft. prices within city boundaries are currently a function of mispricing in the 2002-2006 bubble and are not likely sustainable if unemployment increases locally. Scott P is pointing us in the right direction. The most significant item he noted was down payment- 20%. Despite the recent rise in the US saving rates, the likelihood of a critical of prospective buyers accumulating a 20% chip for the game any time soon is low.
My wife and I moved here in 2004 and had the money for better than 20% on a home, good credit etc but the flood of NY, NJ, MD etc retirees and others into the area was a strong signal that the market was overbid and that the assets were being wildly mispriced. Very few properties in Cville are worth $200 sq.ft. IMHO, 110 to 120 is a sharper price. After the owners at inflated prices are re-accomomdated in the market, a process of price discovery will ensue. The banks are trying to hold back something that can’t be detained.

Fun Times, why don’t you list your MLS # here and let Scott price the place, and all the other buyers tell you their opinions. Seriously.

We don’t have to sell before buying and Downtownenvy is per comments a longterm renter. Don’t know about Scott or Serious Buyer or Mregan or Nobody, etc., in terms of answering your question about percentages.