Economic Factors: Your Beacon in the Real Estate Business

Performing a monthly analysis of key economic indicators allows me to provide the best guidance and advice to my clients. One could subscribe to a general market report, which although useful, doesn't delve deep enough to keep give you the advantage in your specific market.  All real estate is local, so when you are considering making any decisions about your home or investment properties, contact me for a report specific to your neighborhood. You won't be disappointed in the level of analysis that I will provide for you! 

This Report Dated 1/24/18 with stats available from Dec 2017

Whether you are a buyer, seller, or investor, you must be able to define your marketplace in order to make the best decisions.  By collecting data on the Supply and Demand of homes in a neighborhood, I can determine the absorption rate (the number of months it will take to sell existing inventory at the current sales rate) and the absorption ratio (the number of homes sold as compared to those listed). An analysis of this snapshot can give the seller an idea of the time it should take to sell their home if priced appropriately. It also tells us if it's a buyer's market or a seller's market, which will help us develop our sales or offering strategy.  Statistics are available mid-month for the previous month, so you will note the data I report is for last month. At an absorption ratio for Southside Hampton Roads of 62.5%, we are at the highest absorption ration since I started tracking this in 2011!  Sales are up 4.3% and listings are also up by 2.47%, which is a slow down from this time last year but pending sales are up 15.87% from last month. The spread between supply and demand has narrowed to only one point, which is something I will continue to watch.  The absorption rate in Virginia Beach has dropped to 3.3 months. BUT the median sales price in VB dropped to $246,000 (down from $258K in Nov).  This is also a reduction of 3.53% from last year, which is disconcerting to me. At 60% of homes on the market selling, we should be seeing price increases--and we WERE NOT! I look forward to January's figures to find out if this is an error in data or a trend.  Still, the reining advice that can be given to a prospective seller, given this information, is that if you house is in great condition and you price it right, you should be able to sell quickly and with fewer buyer incentives provided.  If your house doesn't fall into this category, ask me for some tips on getting it there, such as home staging or be ready to accept a discount on the house and wait it out.  Excellent presentation in person and in marketing are extremely important in a Seller's success today.  Given these same factors in their local market, a well-informed seller would be a little less aggressive in their pricing strategy than last month but provide less closing cost assistance (not measured in our available regional data).  A service provided to my buyer clients is that I find out what incentives have been provided on the comparable sales in their market so they can make the best offer.  Portsmouth remains the most challenged city to sell, I have reported this year consistent drops in the absorption rate, and it's down to 5.1.  Examining the market conditions on this level is important for making strategic decisions, for example, a Seller might be influenced to accept a lower offer or provide more concessions to the Buyer.  By knowing the figures above, he or she might choose to hold out for a better price or terms.  On the flip side, a Buyer would be hindered to ask for closing cost assistance when the demand is high and the property fits their needs.  I find it crucial that I consistently watch these statistics so my clients know how to best position themselves. 

Mortgage Interest Rates are important in determining the affordability of a home and is a key ingredient to analyzing buying and selling activities.  This week mortgage rates moved up and the prevailing expectation is that will continue through the year. However, we have been sharing that info for years now and still we are down from 4.3% last year.  At this current rate, you will pay $467.10 of principle and interest for every $100,000 you spend.  Another guideline to know the impact: on a $200,000 purchase, a 1% increase in the interest rate is equivalent to a 10% reduction in the buying power of a purchaser (or $20,000) or $100/month more in payment.  An 1/8th% increase in the interest rate is approximately the same as a $2,500 price increase.   

Another important factor is the Housing Affordabilitly Index (HAI). Three factors yield this composite number: median price, mortgage interest rate, median income.  A composite of 100 is the point where median household income is equal to the amount needed to qualify for the purchase of a median priced home.  The HAI dropped to 132 in Nov (most current figure), which means that the typical family had 132% of the income needed to buy a median priced home. 

The Unemployment Rate is a critical factor in forecasting the real estate climate and consumer confidence in buying a home.  Overall this year, more jobs have been added and wages have grown.  Unemployment is at a fantastic 4.1% nationally in Nov.  In the VB metropolitan area we mirror the national rate at 4.1%.  VA unemployment is a healthy 3.79%, which is a reflection of more jobs in the Richmond, Charlottesville, & DC metro areas. Both buyers and sellers should be aware of the unemployment rate affecting household income as well as buying power.  A factor in our area is port activity.  Container traffic in and out of our ports increased 2.5% to a record high, spurring more hiring throughout the maritime industry. New ship-building contracts have been approved by Congress and the ports are expanding to accommodate larger vessels.  An overhaul at Military Circle is reportedly bringing hundreds of new jobs by way of Movement Mortgage and Optima Health. And Owls Creek Golf Course is now slated for a government contractor of batteries, adding 1100 jobs in the Seatack area.  Also more health care professionals have moved to our area than ever before, an attractive location to raise families, and therefore an incentive for bringing in the best talent.  In the field, I have seen a healthy import of doctors in our area.  An on-going courtship with the maritime and tourism industry will provide an avenue for maintaining our economy, while encouraging more health and research-oriented jobs will help us continue moving into higher-paying professions. 

A positive note is that Distressed Sales (short sales and foreclosures) have seen their lowest levels in four years and are down below 15%.  In the Virginia Beach area, the lowest number of foreclosure activities occurred in the 23451 and 23455 zip codes, while 23453 has the highest volume. Some neighborhoods still have a critical overhang of distressed sales and until this rate normalizes, a full recovery to the Hampton Roads housing market cannot be celebrated. Portsmouth foreclosures have recently increased to 1 in 669. 

The crystal ball of foreclosures is the Vacancy Rates. This factor is an early indicator of the health of the market.  It is a numeric value calculate as the percentage of all vacant housing units.  These can forecast upcoming foreclosures and also effect an investor's decision on purchasing in a particular area. Rates are normal at a factor of 1-2.  Homeowner vacancy rates in Virginia was 2.2 in the third quarter.  Rental vacancies last quarter are up from this time last year to 6.3.  An increase would result in lower rent prices. The new tax laws might have the effect of more listings on the market if investors can't deduct expenses. 

In summary, in Hampton Roads in general, we are experiencing the continuation of a very healthy market and great conditions for both Buyers and Sellers.  Buyers can still lock-in interest rates around 4%  and are jumping on the properties that are in good condition and priced right.  Buyers should be educated early and be ready to act quickly!  Those who are open to seeing the potential in homes that aren't moving as quickly are often able to benefit with closing cost assistance or other incentives to buy.  Sellers are seeing price increases and paying less in closing cost incentives, but they generally must be "show ready!" Unemployment is down, distressed homes are down, and vacancy rates are down.  By reviewing thoroughly these various economic indicators each month, I am able to provide my clients with the information they need to make intelligent choices in their real estate activities.  Real estate is very much a local industry, so knowing the factors affecting your neighborhood are critical in developing your successful sales or purchasing strategy. Contact me for an analysis of the factors specific to your neighborhood so you will have the competitive advantage!


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