Buy now in the Charlottesville market or wait?

Question from a reader:

My sense of the housing market is that we have seen the biggest run-up in prices from the late 1990s to the present in the past 100 years (e.g. this NYTimes graphic). The market has started to soften, but like prior real estate slumps, housing prices will decline or be flat for several years to come. Nothing can go up 15-20% in value each year forever.  The collapse of the subprime mortgage market is just one piece of evidence that the market has changed.  And, I do not think Charlottesville is immune from the nationwide real estate slump; in fact, the data–e.g., record inventories, homes staying on the market for 6-9 months or more, etc.–confirm my suspicions.  So, I am keenly concerned about not overpaying for a house in this market.  I am glad to continue renting if sellers are unwilling to lower their prices to account for the fact that the market has changed and real estate prices are unlikely to appreciate much in the near future (see, for example, the recent New York Times aricle entitled “A Word of Advice During a Housing Slump: Rent“).  Owners enjoyed the run-up in prices/equity during the housing boom; now, they have to endure the decline in prices/equity during the inevitable slump.  However, I am also glad to buy a house tomorrow–if, and only if, the price is reasonable.  The fact that inventories keep growing but that prices are not declining very much leads me to conclude that most prices being offered today are not at all reasonable.  I realize that most sellers are probably not going to accept an offer well below their asking price all at once; rather, they are probably going to reduce their asking prices gradually until someone makes an offer reasonably close to what they are asking. However, many of the homes in the MLS are priced well over assessment–in fact, quite a few are priced $100,000 or $150,000 (or more) over assessment.  I know assessments are a mixed bag, but a quick check of the 2007 sales data for Albemarle County shows that approximately as many homes have sold below assessment as have sold above assessment for the price range we are considering.  The NAR is predicting a decline in home prices this year for the first time in 40+ years.  And, the CAAR market report shows prices declining in the Charlottesville area, as well.

So, my question is this.  Should I not even look at houses that are priced $100,000+ over assessment if I have no intention of paying anything like what is being asked?  Stated differently, is it worth the effort to make (what the seler would perceive as) a low-ball offer in such situations?

First, thank you for the question and for allowing me to post it. The Charlottesville area real estate market has traditionally been moderately insulated from the national market vagaries, primarily due to the influence of the University, but also other factors such as tourism. While we are not immune, we have been less susceptible. That said, we are clearly in a transitional market. Below are the inventory levels for single family homes in Charlottesville/Albemarle for the first quarters of 2004 and 2007 respectively. The last column is the absorption rate, shown as the months of inventory available on the market. The PDF with the full data is here.

Inventory 2004

2007Inventory for Charlottesville and Albemarle

Sellers are starting to come around. So are Realtors. We are all adapting to this new market.

Back to your final question concerning assessments – for the most part, ignore them. The valuations provided this year by the County of Albemarle were forward-looking projections of value that did not take into account the shifting market. They appear to have been projecting forward the same rate of appreciation that the area has experienced for the past several years. My house is assessed for about 12% higher than what market value probably is. Previously, assessments were largely irrelevant because they were significantly lower than market value and now, they seem to be higher than market value. More on assessments at cvillenews.

A brief analysis of homes sold in the MLS between $$500k and $600k since the first of the year comparing their sold price to their asking price and the assessed value found, unfortunately, very little consistent


Right now, when searching for buyers, I tend to search prices 15%-25% higher than their “comfortable” price range (not the maximum they are pre-approved for, but comfortable) because often, price is not the greatest determinant when sellers are considering offers.

The decision of whether to buy now is one that should be made with (far) more consideration than was necessary in the past five to seven years. Buying can be the “right” decision for many, perhaps most of those in the market.

I hope this answers your questions. Thank you – this analysis makes be a better Realtor better prepared to represent my clients – buyers and sellers.

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This may be one of my most favorite emails of late:

Sorry I haven’t gotten back to you sooner, things have been crazy (as always.)  Anyways, I just wanted to let you know that (we) decided not to buy right now.  With input from our parents, the state of the market right now, the small time frame that we’ll be here in Charlottesville, etc, we just don’t think it’s the best move for us right now.

I feel bad because I know that you put in a lot of time and effort for us and we appreciate it very much.  If we change our mind you’ll be the first person to know.  Also, if we hear of anyone looking for a good realtor in the area we will send them your way.

Again, thanks so very much for all you did for us, we learned a ton from you.

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  1. Scott April 27, 2007 at 17:51

    I’ve been watching your blog to see if you would have comments on the degree to which national trends are affecting the local market. It seems to me that we’re in for a national bloodletting, and C’ville has got a reputation for being insulated, but just how insulated can we be from massive national trends, particularly when they’re driven by tightening credit and when we’ve had such a huge runup in pricing locally; according to something I saw in the WSJ, the Central Virginia area has a fair number of the sub-prime ARMs, heading for resets. I’m betting we see significant price pullbacks (purely academic – I’m out of the market). Thanks for the comments.

  2. jmcnamera April 30, 2007 at 14:04

    Part of the pullback will be due to weaker home prices in other locations. People have been moving here and buying based on how much they could sell for elsewhere. Now that they are getting less for their homes in northern VA and other places, then they will be unable to pay as much here.

    Long run though, the best way for affordable housing is to have cheaper housing – not more borrowing. A correction will be good for all (well, most) in the end.

  3. Jim Duncan May 1, 2007 at 07:21

    jmcnamera –

    I couldn’t agree more.

  4. Arthur May 1, 2007 at 08:52

    The cost difference between renting and owning has been out of whack for the last few years. When these come back into alignment, we will have a better sense of where Jim’s more durable, “place to live” market is.

  5. Arthur May 1, 2007 at 08:58

    Checking the rental listings, it does seem that rents in town have gone up some in the last year, but I would be curious to know what the rental market is like from those more directly involved.

  6. Mike Elliott May 2, 2007 at 15:54

    Great analysis, Jim. I operate out of Central New Jersey, in an area that is generally well-insulated from national market forces, but we’re seeing many of the same trends here with DOM and prices.

  7. L May 2, 2007 at 20:15

    The person who left a question about whether to buy a home in Charlottesville when they are over-priced by $100K to $150K sounds like they are in the one home market only, renting currently, and hoping that their investment purchase will be their retirement. If you love the home, there is a vibrant economy with 2% unemployment, a sustainable local economy with diversity (not just the University), and you can afford it, buy now. Otherwise, trying to hit the low of the market, with imperfect information and asking everyone’s opinion means you will again miss the market. Apparently, this individual missed it the last time it was low. A first home, or an up-grade home is never affordable. It is a reach, and one usually buys at the top of their financial ability and then works to keep it and/or rehab it when markets improve. Waiting for the bottom is like trying to sell at the top. According to Jim’s charts, there is a lot of inventory that apparently didn’t get out at the top either. And, market rents are increasing rapidly due to current condo conversions and the high price of homes. Paying almost mortgage amounts without gaining equity or credit is sometimes a waste of money. My theory is the individual is getting way too much advice while attempting to make it rich on the home front, of which they probably can’t afford what they’re looking at anyway. Just my opinion.