Market Matters: 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. Copy and pasted data provided by our local MLS to some industry newsletters and websites, encompasses all of Hampton Roads rather than the specific market that you are in. In the below summary, I refer to both national and southside Hampton Roads data. Make sure you are working with an agent that is well-versed in your local market for the best service. 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 8/28/18 with stats available from July 2018
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 59.68%, 4 percentage points higher than this month last year. This means that 60% of the homes on the market are selling. Listings (supply) are higher than this point last year, but by only a half point and they are on a typical seasonal decline. Sales (demand) were up 7.75% over this month last year! Pending sales rose by double digits in both April AND May AND June AND now July too, but the margin is lower. Typically we see a rise in sales in August and then the remainder of the year shows a steady decline. II am projecting the same based on what I am experiencing in the field and my instincts are that there will be unexpected late season activity in the last quarter of 2018.
On a national level, you will read headlines that resale US homes fell by 0.6% in June after 3 straight months of decline and 2.2% lower than this time last year. New home sales fell by 5.3%. With higher lumber costs (due to hurricanes, fires, and now volcanos), we should expect building starts to slow in response.
Last month we saw a rise in the absorption rate almost across all SSHR cities which means properties were taking a little longer to sell. In VB it remained relatively unchanged at 3.76. In Chesapeake, it dropped to 3.53 and in Suffolk it rose slightly to 5.15. Norfolk and Portsmouth were 4.21 and 4.38. In an appropriate response to the tighter inventory, median sales prices rose in VB from $261,400 to $269900. I'm seeing longer market times in the $500K up price points and in talking with colleagues and getting responses for listing follow up, there is a slowing in the market even though the data shows strong sales. So, I spoke with a trusted appraiser (Robert J. Bell) this week at our 30th high school reunion and his experiences were the same. Should you be in the market as a buyer or seller now? You bet! There are many reasons why you can benefit. You should be fully prepared AND fully, professionally represented by a career Realtor! If you are considering marketing your home, ask me for some tips on getting it "show ready", such as home staging. 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 more aggressive in their pricing strategy than last month 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. Examining the market conditions on this level is important for making strategic decisions. 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 held steady around 4.5% and the prevailing expectation is that will continue to increase through the year. The Fed expects to raise the benchmark rates 3 or 4 more times this year and reaching 5%. On a $100K loan, each quarter point increase will cost about $15/month more. 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. If a buyer qualified for a $300K purchase in January, he/she qualified today for $291,600. An 1/8th% increase in the interest rate is approximately the same as a $2,500 price increase.
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 rate has been fun to watch lately. The US rate is down to 3.9, VA is down to 3.2, and in VB, we have outperformed the US rate (we usually mirror) and are down to 2.8%. 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. 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. Just today we learned that a new CHKD mental health facility will be built. And two new international fiber optic cables will land in VB. 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 years and are down below %. 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.
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 healthy market, with signs of the typical seasonal slowdown. 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 who heard "it's a sellers market!" from salespeople might be experiencing some frustration and might need to consider some improvements to their home or marketing. For Sale By Owners will likely start considering the benefits of professional marketing and advice. With unemployment down, distressed homes are down, and vacancy rates are down, we remain in a very balanced market. 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!