Everyone has questions about the Charlottesville – Albemarle, Central Virginia, national real estate markets. While I’m a huge fan of the phrase, “I don’t know,” I also know that my clients tend to seek more insight than that.
“We have been keeping an eye on the market and have been watching various houses that are listed. It sure seems like things are slowing down a little. While pricing still seems slightly higher than usual it doesn’t seem that things are selling as quickly or possibly even for as much as previous months. We have also noticed price drops more frequently and sooner rather than later.
Our plan was to start seriously looking again in January as we were planning to buy early next year if we found the right property of course. With that being said we also aren’t opposed to buying something now if the right thing came along as well.
My question to you though, do you think prices will continue to go down significantly in the next 3-6 months? Obviously with rates continuing to rise that changes things for a lot of people I assume. It doesn’t look like it’s over yet either which makes me wonder if prices will drop even further or just hold somewhat steady because inventory will be low yet still sell just sit longer. Thoughts? ”
Today, I’m going to briefly share my thoughts on inventory, new construction, and home prices.
So Many Thoughts
My short answer was this:
- Interest rates
- Cost of buying now at 7% or so, and then refinancing hopefully in 2024 … is buying that house now worth – to you – the increased monthly cost until you refi?
- What’s going to happen w/ resales, and with people keeping inventory off market as they have below 3.5% rates?
- New construction
- Too much, too little? What if sales stagnate and builders drop prices?
- State of the economy, stock market effect on cash buyers and market?
- Fed funds rate
- Some tech companies are changing how they pay for remote workers
Basically, this image from the Charlottesville MLS shows a somewhat balanced market – same number of new listings as pending ones, and about the same number of solds. The price changes and the homes that have come back on the market, whether for financing or inspection reasons, is interesting.
More buyers are willing to walk away from homes based on inspection deficiencies now, versus the previous two and a half years. Sellers need to recognize the value of a buyer willing to move forward in this market.
Inventory & New Construction
I think we’re going to see an increase in housing inventory, driven by the normal cycle of life. People need to move because of life events — marriage, divorce, new kids, kids leave, families blend, people die, job changes.
The big shift that I see is that there are going to be fewer discretionary sellers, and a lot of sellers are going to choose to keep their home whenever they move, because of the enormous value of having a home financed at under 3.5%. This – the keeping of the home when buying another – is going to keep a significant amount of inventory off of the market.
We have a lot of new construction currently under construction and other contract in the Charlottesville area.
A lot of these buyers wrote their contracts when interest rates were below 4%. Now we’re touching 7%, they can’t lock their interest-rate yet, and their budgets are now being blown up. I’m very curious to see what builders are going to do to hold these contracts together. Some of the national larger builders are offering more incentives, and I’ve seen more price reductions for new homes that are already under roof.
I suspect this is going to drive prices down for existing homes, and because some resale sellers won’t be able to get the price that they were hoping for, they will keep their homes off the market.
I think we’re going to see more inventory coming to market, lower asking prices, more aggressive price reductions, but still with healthy buyer demand, because we have not built enough homes in the United States for a long time. That said, I think there are some long-term demographic shifts that are underway that will lead to a very different housing market in the next 25 years. More on that in another post.
We’re going to look back at the 2020 through early 2022 real estate markets as anomalies. Housing prices increasing between 10% and 25% year over year is obviously unsustainable and not healthy. If we can get to housing prices increasing between 3% and 5% a year, I think that would be reasonable. With interest rates rising and rising and rising, there’s going to be more fear, caution and hesitation and trepidation — and above all, the greatest enemy – uncertainty.
It’s OK to have a slower than we’ve seen real estate market. Buyers know that the market has changed. Sellers are going to have to come to terms with that as well; if you’re thinking about selling now or in the spring, I’d love to have that conversation; please reach out to me.
A homebuyer on a $2,500 monthly budget has lost nearly $120,000 in spending power since the end of last year as mortgage rates have nearly doubled.
That buyer can afford a $399,750 home at today’s mortgage rate of roughly 6%. That’s a staggering $117,750 less than the $517,500 home the same budget could have bought at the end of last year when rates were at a near-record-low of 3%. To put it another way, the monthly payment on a $399,750 home would rise more than $500 with the higher mortgage rate, from $1,931 to $2,500.
My advice remains the same as it’s been for a long time.
Buyers: If you have the life stability and need and want to buy a home, and you need shelter, let’s have that conversation.
Sellers: The market has shifted from the one where you could ask any price and probably get at least that price, and where buyers are willing to accept any and all deficiencies because yours is the ninth house on which they have made an offer. Let’s talk.
A house is an asset, obviously, but for most of my clients, a house is a home where they live their lives, where they raise their kids if they have them, or take care of their pets.
I have not yet met anybody who is able to accurately time the market.
- That said, if you can and want to buy a home, maybe the time is right.
- If you are considering selling, now might be the last best time to sell before the market turns. Or not. (September 2022 update: it’s turned)
I tell my clients that I don’t want to advise them based on fearful predictions. We make the decisions when we need to with the best, most relevant, and applicable information available to us in hand.
We can play the “what might happen” game all day long, but at the end of the day, my clients need to decide what’s right for them at that particular moment in time. Again, almost that simple.
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