Housing appreciation in the Charlottesville region – second quarter 2007

The OFHEO has recently released their study looking at housing data for the first two quarters of this year (PDF).

“House prices were basically flat in the second quarter despite tightening credit policies, rising foreclosure rates, and weakening buyer sentiment,” said Lockhart.  “Significant price declines appear localized in areas with weak economies or where price increases were particularly dramatic during the housing boom.”

The data in this release only include price information through June.  To the extent that recent mortgage market instability may have affected housing demand and prices, those effects would be evident in OFHEO’s next HPI release.

Housing appreciation rate for Charlottesville Virginia-1
The chart at the right, courtesy of housedata.info, shows the appreciation rate of the Charlottesville housing market since 1985.
For the Charlottesville MSA,

– Our national ranking is 102
– The one-year rate of appreciation is 4.66%
– The second-quarter appreciation is .71%
– The five-year appreciation rate is 71%

The number that should be of most importance to most people is the five year rate of appreciation – the timeframe by which most people should now be basing their purchasing decisions.

For some context, in September of 2006, the Charlottesville MSA’s 5-year appreciation rate was 79.93% and our national ranking was 64. In 2Q of 2004, our 5-year appreciation rate was 52.86%, 2Q 2002 was 41.93%, and 2Q 2000 was 19.8%

In short, with all the turmoil that is happening right now, housing likely will remain a good long-term investment for most people. Buy smart. Sell smart. Don’t try to time the market.

As Daniel noted yesterday, our weekly Realtor Association email had this nugget:

This probably will not shock most of you, but sales in August took a significant dip. The 304 sales reported to the MLS in August were the fewest since 1998. Until August, the local market was soft, but doing well by historic measures. We had been tracking along with the 2004 numbers which were the third highest in local history. For the year, we are 620 sales behind last year (down 19.2%). As bad as that sounds, we are still on course to have the 4th highest sales year ever. The main concern in the market seems to be the negative press about the mortgage crisis. While our area is not part of the crisis, we are feeling the effects of this national problem.

Two things struck me about this – 1- the numbers aren’t great. 2- a Realtor association is actually acknowledging the market shift! (July’s data for Charlottesville is here)

The figure to the right, courtesy of the OFHEO report, shows the danger in tracking the housing market too closely and the value of looking at more than one data-set. Figure 2 Month-Over-Month Appreciation Reflected In Nar, Fhfb And Ofheo Monthly Price Metrics

*These numbers do not necessarily reflect new-home cancellations.
*The Charlottesville Metropolitan Statistical Area consists of Albemarle, Charlottesville, Fluvanna, Greene and Nelson Counties
*The Case-Shiller home price index does not track the Charlottesville market specifically (PDF) – while it is an excellent source, using the Washington metro area to draw correlations to our market would be silly.

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  1. Anonymous Coward September 6, 2007 at 11:59

    Jim — I follow your blog closely; I think it’s a public service to all of us in C’ville/Albemarle, so thanks! Now, a question about prices. You note that OFHEO has reported a 5-year rate of appreciation for C’ville of 71%. That’s more than 11% per annum for the period, which is a rate in excess of four times the historical rate of growth in housing prices.

    I bring this up because the single strongest characteristic of any financial asset is the tendency for the growth in its price to revert to the historical mean. Given the hugely above-trend growth rate of the past half decade, that would suggest that we are in for a period of substantially below-trend growth — in fact, if housing cycles run for 5-10 years, I wouldn’t be surprised if housing prices lose ground to inflation over the next decade.

    The upshot: there are many reasons to buy a house, but at the moment expected returns on investment are not promising — and that his true even for people who plan to hold for 5-10 years. That is a reality that I think is sinking in now for buyers, and I wouldn’t be surprised to see the number of deals shrink markedly — perhaps by an additional 25-30% — over the next three years. I don’t see any reason not to be deeply bearish on housing.

  2. JR Jackson September 6, 2007 at 17:15

    Interesting data. I would point out that Realtors weren’t complaining about positive press when the market was at its peak, which in part led to a buy-now frenzy that artificially inflated real estate valuations.
    No, this area hasn’t been hit by the subprime crisis, but it’s foolish to continue to believe that the mess is limited to the subprime market – not with the credit markets freezing up and every mortgage firm (including prime shops like National City) cutting way back. Subprime is yesterday’s news. There are plenty of economists predicting that it’s a question of when, not if, the next recession will be upon us.
    Sure, the impact in the immediate area might be muted compared with certain other MSAs, but the idea that home sales and prices are going to bounce back anytime soon would seem to be a product of wishful thinking, not realistic economic analysis.

  3. Anon September 7, 2007 at 11:39

    My personal take:
    Put all the subprime, national, macro, bubble talk aside: I cannot afford to own a home.
    Wy wife and I just spent several intense weeks on MYCAAR, and a few parading through (mostly vacant) houses with Jim. I make 60 grand a year. My wife is a stay-at-home mom caring for soon to be 3 kids. We cannot afford to own a home in Charlottesville that:
    1. Has at least 3 bedrooms
    2. Has a garage or some storage space.
    3. Is in a safe neighborhood.
    We could skimp and scrape like we did in Northern Va, and make the $2100/month payment that a $300k home requires, but let’s step back:
    That’s half what I’m taking home!
    I say again: half of my pay! The other half has to cover car payments/insurance, gas, groceries, health insurance…it simply doesn’t add up. And saving for the kids’ college or our own retirement? Forget about that.
    I will leave the big-picture stuff to the experts. All I know is I am a professional and I can’t afford to own a decent home for my family. Yes, we chose to have my wife to stay home, and we chose to have a lot of kids, but there was a time when everyone did that and could still afford a home- what changed?
    I’m renting. It’s a pain to move ever year, but the same place that costs $2100 a month to own will rent for $1200-1400 a month. That equals 30-35% of my pay and several hundred dollars a month of breathing room.

  4. JC September 7, 2007 at 17:43

    Anon raises a really important point — rents and prices for owner-occupied housing are completely out of whack in the C’ville area. I live in a 3-bedroom in a very good neighborhood near the UVA campus. It’s in great shape and has nice property. I rent it for well under $2000/mo. The same property was recently assessed at just above 500k. If I bought it, my mortgage payments — even if I paid 10% less than the current assessment — would be (inc. taxes) more than $600/month more than rent. This is calculated using a 20% down payment and the current rate for a 30 yr. fixed loan. I’m also being conservative by counting the full mortgage interest tax benefit, even though the AMT takes away some of that benefit for me. And I’m not counting the opportunity cost of having my 90k tied up in a house that is likely to appreciate very slowly. I’m also not counting the repair costs that I would have to carry if I owned the house. So, in sum, the $600 extra that owning would cost me probably understates the cost of owning.

    There is no reason why rents and mortgage payments should be so out of kilter, except for the fact that the price of owner-occupied housing is bubbly. Very bubbly. And even if housing prices are sticky and they don’t come down much in nominal terms, I betting that they will fall in real terms — i.e., that people who buy now will suffer long-term losses as inflation eats away at the stagnant value of their house over the next decade.

    And by the way, there is nothing very special about the C’ville housing market. Yeah, it’s a nice place to live, but that only goes so far. I would remind everyone that C’ville median income is pretty low given the price of housing, that job growth here is not spectacular (and there is little growth at the high end of the wage scale necessary to support current housing prices), and — very importantly — that a recession is very likely on the way (see today’s job report — first net monthly loss of jobs in 4 years).

  5. NM real estate September 9, 2007 at 22:54

    Well, I don’t have a lot to say but I really enjoyed reading this post. Thanks!

  6. JR Jackson September 12, 2007 at 10:35

    I really question the value of these median price metrics, since it’s entirely possible that you’re not looking at an apples-to-apples comparison. After a closer look at the VAR’s July numbers, it seems that “median price” is really not at all indicative of market trends, which seem poor and getting worse with each passing month in this area.
    Consider, average days on the market of 86 marked an increase of nearly 50% from the same month in 2006 and 10% from June ’07. Homes sold were down 30% in July and are off 14% year to date. I could be mistaken, but a 30% decline in monthly sales is pretty much the worst number this market has ever seen. It’s the sort of decline you’re seeing in Bubble markets like Orlando and Miami.
    The only thing preventing a full-blown panic might be the continuing efforts of the media to quote VAR members offering reassurance that real estate will still prove to be a good investment. Or, in the case of the Daily Regress, their decision to completely ignore the bad news. (Perhaps not wanting to anger their builder/Realtor advertisers?)
    It makes you wonder why developers seem bound and determined to push through large-scale plans through local governments. Dumping massive supply into a rapidly declining market doesn’t seem to make much economic sense.

  7. Jim Duncan September 17, 2007 at 07:19

    Thank you everybody for the excellent comments. I apologize for neglecting this thread and will try to never let it happen again.

  8. Luke Harms September 17, 2007 at 12:40

    As a real estate amateur and an intelligence professional, I know one thing for certain, the Defense Intelligence Agency is moving a sizable portion of its operations to Charlottesville, creating a significant number of high-paying jobs and likely keeping prices inflated as they have been over the past few years, so I have no fear in buying a house right now, in fact I’m building one. Granted, this may be a rookie move in a seasoned real-estate investor’s eyes, but the addition of 300-400 households to the Charlottesville MSA seems to be indicative of future growth of the housing market in C’ville for years to come. Perhaps this is the reason behind, as one commenter put it, “why developers seem bound and determined to push through large-scale plans through local governments.” Perhaps it is because they are basing their investments on the potential for future growth. Or maybe I’ll just too bullish for my own good.