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 5/26/17 with stats available from April 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 49.9% we have already outperformed April of last year by 3% points. Sales are up almost 5% and inventory is down by 2.7%. The spread between these two factors is starting to narrow, which is something I will continue to watch. As this narrows, the market tends to get less competitive. My experience in the field reflects this as many transactions have felt like win-wins for all parties. We do still see the same properties sitting and not selling. 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, 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. The absorption rate in Virginia Beach is up from January to 3.76 months, and the median list price is up 3.77%, yet the median sold price is holding steady at $250,000. 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, but I'm pleased to see the absorption rate continues to decline, now at 5.52%. 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. We had a bit of a roller coaster this week on the mortgage interest rate front. This year has seen a steady rise to 4.3% and then slight decline to 4.18% followed by a rapid drop after the terrorist bombing in Manchester last week, we closed out the week at 3.82% for a 30 year loan. 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 158.2 in March (most current figure), which means that the typical family had 158% 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 has dropped to 4.4% nationally in April while there is turnover going on in our capital and jobs still being created. In the VB metropolitan area we are steady at 4.3%. VA unemployment is a healthy 3.8%, 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. 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. 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 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 and is up to 1 in 801 homes (1 in 662 in January).
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 4.25% 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!