Third Quarter Real Estate Market Report
Third Quarter Market Report
Challenges, opportunities and surprises, oh my!
Someone named Anonymous once said, “Many opportunities are lost because a man hunts for four-leaf clovers.” That quote seems to sum up the real estate market: Buyers seem to be looking for some kind of incredible deal when a great opportunity is right in front of them.
The slow pace of sales in the Charlottesville area real estate market is somewhat surprising given the “buyer’s market” we are experiencing. Buyers don’t need a four-leaf clover for home-buying luck right now. Sellers, on the other hand, face a significant challenge.
There are some understandable “excuses” for why buyers hesitate – overblown foreclosure crisis, trouble selling your current home, waiting for the market to “bottom out” – but this market report will show that the best time to buy is NOW! Ben Franklin said that “time is money” and the longer you wait, the more money you leave on the table.
Overview through the third trimester
The current real estate market is much more complex and variable than in previous years. The defining measure of this market is not the slower pace of sales; rather, the most dominant factor is the record level of homes for sale. As of early October, we have nearly 3,500 homes listed “for sale” in the CAAR MLS system, three times the inventory level of three years ago. High inventory levels have kept prices low, “days on market” high, and sellers are seeking Maalox.
houses sold
There were 2,875 homes sold in the first nine months of 2007, which represents a decrease of 647 (-18.4%) compared to last year. All local areas (Albemarle -17.8%, Charlottesville -25.6%, Fluvanna -21.5%, Greene -34.7%, Louisa -18.5%, and Nelson -21.5%) saw more sales lower than in the same period last year. Looking at the last 6 years (see chart below), our region has returned to a level of sales just above 2003, which was a record at the time.
New construction
New to this year’s CAAR Market Report is a look at the number of new homes sold through the CAAR MLS system. It is important to note that many “new” homes are not included in this statistic. It is very common for a buyer to contact a builder directly to build a custom home. As a general rule of thumb, new home statistics tend to lag the rest of the market when it comes to trends. New home sales peaked in 2006, a year after the general market. New construction, both locally and nationally, declined sharply in mid-2006. If record homebuyer traffic at the recent Blue Ridge Home Builders Parade of Homes is any indication, new home sales are ready to recover.
average sale price
It may surprise some that the median home price in our area has increased in the first three months of the year. Surprisingly, the median price for Charlottesville was up 17.2%. Before everyone in the city gets excited, there are some explanations. First, the city sold many modestly priced condos last year, driving down the median price. Second, there has been a significant amount of new construction in the city this year with prices ranging from $300,000 to $500,000. Finally, 25% fewer homes have been sold this year, making the mid-market (also known as median price) more susceptible to drastic changes. It would be wrong to assume that real house prices rose 17% in the city.
Overall, the median price was up $5,100 (+1.9%). Albemarle (-1.8%) and Louisa (-0.8%) were down slightly, but all other areas were up after three quarters. Other area increases were modest: Fluvanna (+4.7%), Greene (+1.9%), Nelson (+3.4%).
Days on Market (SUN)
The high inventory of homes for sale has created a “tale of two cities” for DOM. The homes that sold this year sold quickly, but many homes have been on the market much longer than average. The median DOM for homes that sold during the third quarter is just 59 days. By contrast, the median for homes on the market is 110 days. A third of the homes still on the market have been there for more than 150 days and a quarter of the homes for sale right now have been on the market for more than 200 days. There are many reasons for this DOM dichotomy, but the main reason is probably price. The axiom in the real estate industry is: “Any house will sell quickly if it is priced right.”
Inventory of Homes for Sale
The inventory of homes for sale in the Charlottesville area has been a key factor in the local market for the past several years. Inventory levels are generally a good indication of where home prices are going. In the early part of the decade, we saw extremely low inventory levels of around 4-5 months of supply. This caused home prices to skyrocket as buyers were forced to make aggressive offers to buy the home they wanted. Today we have a 20-month supply of homes on the market, which is very high and possibly a record. We are entering a quieter selling season with the holidays approaching, so it is likely that we will see a continuation of the high inventory in the spring. First-time buyers, who don’t have a home to sell, have an extraordinary opportunity in this market.
We currently have 3,471 homes on the market and the median price for these homes is $329,000. The median DOM for these homes is 126 days. There are 588 homes for sale under $200,000 with an average DOM of 120. There are 262 homes currently on the market priced at $1 million or more with an average DOM of 154.
Condos and Townhomes
The condo and townhome explosion of 2005 and 2006 appears to be over. The majority of townhome sales are in Charlottesville and Albemarle, so this report covers only those areas. The charts below show townhomes sold in the first nine months of 2007 compared to prior years. Inventory levels of townhomes for sale remain high, with 438 for sale in Charlottesville and Albemarle. This excess supply comes in at the average DOM of 151 for attached properties currently on the market compared to 125 days for single-family homes in Charlottesville and Albemarle. The median price for a semi-detached home is $259,500, which is much lower than single-family homes on the market.
Price per square foot (finished)
The average price per square foot of finished space in homes is interesting to look at, but should not be relied on as a scientific number. The averages in this section of the report include the cost of land, which varies widely based on location and amenities. A lot in Wintergreen with fantastic views of the valley costs much more than a lot in other parts of Nelson. That being said, the numbers in this section still reflect the price decline we have seen in 2007.
Nelson County, thanks to its large number of resort properties, has always led the way in price per square foot, with Charlottesville generally coming in second. Homes in the city are higher than other areas, simply because they are more conveniently located to U.Va. and Downtown As the saying goes, there are three things that matter in real estate: location, location and location.
Conclusions and predictions
The seasonal aspect of the Charlottesville area real estate market allows us to draw year-end conclusions based on the first three quarters. The balance of the year is the “slow” time for sales, so unless there is a dramatic turnaround in real estate, the third quarter will reflect the year-end situation. That means we will end the year with the fourth highest year in sales reported to the CAAR MLS. Prices will continue to rise slowly and inventory will continue to be the big news in the market.
Sellers looking to return to the sales pace of 2005 will be disappointed in my prediction for the future. I don’t see inventory levels dropping to reasonable levels for the next 12 months (at least). That means sellers will be challenged by a lot of competition. Sellers should listen to the advice of their REALTOR® and price the property competitively. Buyers will continue to have extraordinary opportunities for the foreseeable future. With any luck, we may all be surprised by the strength and resilience of the local housing market by the time the spring market hits its stride.