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 3/9/17 with stats available from Jan 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 46.1% we have already outperformed our banner year of 2013 by 4% from this time last year. Sales are up a whopping 15% and inventory is down by 6%. Yet in the field we still see the same properties sitting and not selling. This tells the consumers entering the market that there are more buyers looking *and pouncing* on the properties that are priced right and "show ready." The best 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 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. The absorption rate in Virginia Beach is 3.21 months, and the median list price is up 3.11%, yet the median sold price is only up by a half percent. Given these same factors in their local market, a well-informed seller would be a little more aggressive in their pricing strategy and 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, but I'm pleased to see the absorption rate improved this year and is maintaining below 6%. 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. What was initially labeled the "Trump Dump" quickly reversed to a "Trump Bump" regarding stocks, but that has an inverse effect on interest rates which soared from 3.47 to 4.3% in less than two months but has leveled out at 4.19% for a few weeks. The expectation is that is expected to continue to rise close to 5% through this year. Though this is still a wonderful rate, the drawback is the buyer's purchasing power has been negatively affected. 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. One way to benefit with a lower interest rate is to "buy down" the rate with upfront funding of discount points.
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 166 in November (most current figure), which means that the typical family had 166% of the income needed to buy a median priced home. When the year-end composite is out, it will be lower due to the bump in interest rates, which means homes are becoming less easy to afford.
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 has ticked slightly up to 4.8% nationally in January while there is turnover going on in our capital and seasonal employment ending. In the VB metropolitan area we are steady at 4.3%. VA unemployment is lower at 4.1%, which is a reflection of more jobs in the DC metro area. 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. Last year, layoffs at Newport News Shipyard and BAE Systems hit our area hard. But 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. Geico has announced 500 new jobs in Virginia Beach in 2017. And an overhaul at Military Circle is reportedly bringing hundreds of new jobs by way of Movement Mortgage and Optima Health. Speaking of health--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. 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 23462 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 has halved its foreclosure rates but is the highest in the state at 1 in 669 homes in a state of foreclosure.
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 have fluctuated between 2.6 and 3.5. The rental vacancy rates can project the rent prices and days on the market. If rates are climbing, landlords can expect rent prices to stagnate. Nationally, rent prices have increased 2.7% and in some areas, rent has increased as much as 10%!
In summary, in Hampton Roads in general, we are experiencing a very healthy market and great conditions for both Buyers and Sellers. Buyers can still lock-in interest rates below 4.5% 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!