Monday, April 20, 2009

Blast From the Past: 2006 Hook Article, "Bubble Trouble? Real Estate Market Slowing"

Here's a trip down memory lane courtesy of local weekly The Hook. It's dejavu all over again as you read writer Courtney Stewart's article from November, 2006, about the slowing real estate market in the Charlottesville area.

In 2006, sales were down 18% from 2005 figures. This must seem like the proverbial walk in the park now, with current First Quarter Sales down:

2009 sales -33.9% in the region (Charlottesville -40%, Albemarle -18.7% ) from 2008.

Sales have been declining for several years:

2008 sales -27.4% in the region (Charlottesville -7.1%, Albemarle -40%) from 2007.

2007 sales -15% in the region (-24% in Charlottesville, -16.4% Albemarle) from 2006.

And yet, some of the article sounds very familiar. This is it in its entirety; the bolding is the BB's.

Bubble Trouble? Real Estate Market Slowing

by Courtney Stewart

Remember the good old days-- last year?-- when you could buy a house in Charlottesville for $100,000 one day and then put it on the market a couple of weeks later for $250,000? Okay, things might never have been that good, but there was a time not long ago when some home sellers made extraordinary profits seemingly overnight, and some real estate agents earned enough in one year to retire.

Take one of the condos at Solomon Court on Hydraulic Road just over the county line. On June 2, 2005, that condo sold for $99,500. Two months later, on August 12, the new owner sold it for $148,000-- an increase of nearly 50 percent. All over town, similar flips were occurring, with double-digit profits padding pockets of speculators.

It doesn't take an economist, however, to see that things have changed in the housing market on both the local and national level. Because local listings have tripled in the last two years while net sales have dropped by nearly 18 percent, the words "bubble," "burst," and "buyers' market" roll off tongues around town-- with dismay or glee depending on the speaker.

Has it really happened? Is it still smart to buy a house in Charlottesville? Will people who paid those princely sums for a house over the last several years ever see their money again?

Everyone needs to settle down, say several market watchers. They acknowledge things aren't as raucous as they used to be, but they insist the market still works.

Yes, there are more listings. A lot more. Eighteen months ago, the multiple listing service offered 1,100 properties, says Charlottesville Area Association of Realtors CEO Dave Phillips, who tracks local real estate statistics. And as of press time this week, there are approximately 3,000 listings in Charlottesville and Albemarle, a nearly [200] percent increase. The number of transactions completed or pending in Charlottesville or Albemarle during the third quarter of 2006 is down about 18 percent from 2005 figures. [Currently, there are 3633 properties for sale, median $266K. Nearly 1000 single family homes for sale in Cville/Alb alone. The other number is all property types in the area, combined.--BB]

Also of note: the days on the market from the time a property is listed to the time it sells have risen from 37 days in Albemarle in 2005 to 63 days in 2006-- a 70 percent increase-- while days on the market for Charlottesville rose from 47 days to 63 days-- a 34 percent increase. [
Average DOM 152.-BB]

But Phillips says those numbers don't add up to doom. When considering days on the market, he explains, "The rule of thumb is that anything less than three months is good. Three months is the dividing line between a market that's slow and one that's still hopping."

Phillips says upper-end properties-- those over $500,000-- are moving more slowly than properties under $300,000, but he says it has always been that way. Then again, one $850,000 house sold in just three days earlier this month.

"It really depends on the property," Phillips points out. He also says that while prices aren't climbing the way they used to, local real estate will hold its value thanks to the economic insulation provided by UVA.

"Are properties overvalued? No, they're not," he says. "If they were, we would see median price go down." The median price of Albemarle homes actually rose almost 7 percent in third quarter 2006 to $309,000 from $290,000 in third quarter 2005. The Charlottesville median price dipped slightly from $256,000 to $249,450, which Phillips attributes to the increasing number of condos sold in the city.

Though the real estate markets in Northern Virginia, the Northeast, and on the West Coast have shown some slippage of median price, Phillips says that overall the market nationally is "flat."

Property appreciation has "moderated" locally, he says, but that had to happen. "We were at an unsustainable growing rate in terms of housing," he says.

Jim Faulconer of McLean Faulconer Inc. agrees with Phillips' assessment, and says media reports have fed the public's fear.

"The press has done a number on the housing market nationwide," he says, and that has bred more caution than necessary among buyers. But there are still plenty of people willing to plunk down hefty chunks of change for homes in this area.

"We've had people from Florida, South Carolina, Pennsylvania, DC," says Faulconer. "We're still so attractive a location that we're going to continue to have a pretty good housing market here."

Realtor Jim Duncan says buyers and sellers need to get into a new frame of mind to deal with the current real estate climate.

"There's a lot more on the market this year than last year," says Duncan. "Things are not selling as rapidly." But, he adds, "I don't term this being a bust by any stretch; it's just a return to a more normal state of mind for everyone."

While the last few years saw a flipping frenzy-- speculators buying and selling houses within weeks, often making hefty profits-- those days are over for now, he says.

"In the last several years, people had gotten away from the 'buying smart' mentality and were just buying," he says. "I don't want it to sound like it's a scary thing. It's a really good time to buy, it's just a very different market." [Good advice: "buying smart" remains true.--BB]

Among his tips: if you buy, plan to stay in the house a while. "Buy smart and hold it for three to five years," says Duncan. "If you don't do anything to the house to hurt or improve it, you'll probably make money when you sell."

To those who suspect that agents are just feeding the public a line to keep their own heads above water, George Overstreet, associate dean at UVA's McIntire School of Commerce and an expert in real estate investment, says that's not the case.

"People think we're in some sort of bubble, so they're on the sidelines," says Overstreet, "but interest rates are still down, and the demand has shifted back to the left. So prices have dropped."

Overstreet says he believes real estate in most places in Charlottesville is a good investment, but particularly in neighborhoods adjacent to the university such as the Lewis Mountain area, where several properties have recently sold in the million-dollar range. [Anecdotally, haven't seen a sale, or resale, like this in quite some time in this neighborhood.--BB]

And he says even if the market slips a little further, now isn't a bad time to buy. "I wouldn't try to catch the bottom or the top," he says. "The fewer buyers there are, the better received they'll be."

If all this news is actually good for the real estate market, there's one group who may be doing some teeth gnashing: the agents themselves. In the last five years, the number of realtors in the Charlottesville area has risen from 800 to 1,200, a 50 percent increase, according to Phillips, who says he expects to see that number begin to shrink.

"If you do the math, the number of transactions we do and the number of realtors we have, it's less than two transactions per realtor," says Phillips.

Duncan says a realtor needs to have 15 "sides," or closings, to make a decent living.

"There's a bursting of the agent bubble," says Duncan, who is on the board of directors of CAAR and is glad to see the competition stiffen. Having real estate agents "who do the job as a hobby," says Duncan, "detracts from the professionalism." Duncan would like to see the real estate profession populated with full-time sellers. "It's not something you can do well without doing it all the time," he says. "There are so many changes on a daily basis, you have to do this every single day."

Among those changes are new housing developments that seem to be creeping onto every developable inch of city and county land. So how will planned communities like the south side's Biscuit Run, with hundreds of new homes, affect the market?

"Biscuit Run is years away from even being started," says Phillips, "and as much as a decade away from being a real factor in the housing market." Builders won't build if the housing climate's not right and buyers aren't there, he says: "You're not going to have builders building houses hoping more people move to the area." [Biscuit Run is on hold indefinitely--BB]

Phillips points out that the growth rate in Albemarle County is actually quite low-- under two percent-- compared to the 15 or 20 percent growth in some places in Northern Virginia.

"Right now we have a nice steady demand and sustainable growth rate," he says. "We should be very happy with what we have right now because we're a very healthy economy and a healthy community."

See Courtney Stewart's article in its orignal here. Sales numbers from CAAR.

Several notes:
  • 1. Most people missed the bubble as it hit its peak and started its decline, even experts.
  • 2. Nobody can call a bottom until it's about 18 months behind.
  • 3. That being said, reviewing current data shows this area is still slouching very slowly toward its bottom in inventory and price correction. An upcoming post will explain why.


Anonymous said...

How much of this critical information about the current housing market does your realtor know?

I would wager a substantial amount that most agents in this area know zilch. This "profession" has feasted on good times, and is now due a serious shakeout.

Anonymous said...

people can understand that their stock has lost value because there's a printout saying so. but the house that you love? it's not worth what you paid? or what you hoped it would be? or what you were told it would be worth? harder to swallow.

comps are stalling this market. tthey don't mean anything. some realtors, some sellers, some buyers still believe they mean everything.

tax assessments only mean that somebody else made a poor financial decision in 2007. the tax assessor hasn't been in the house in 99% of cases. tax assessments mean even less.

downtownenvy said...

I agree with Anon #2. We looked last month at a house in Lewis Mountain, and frankly, the comps there are a joke. People are still definitely pricing from 3 years ago and then adding 20% based on the neighborhood.

There is an old saying, "Find the nicest street in town, and then buy the house in the worst shape." Supposedly, you will be getting a good deal that way. Well, if you buy one of the more beaten up houses in this neighborhood, you better be prepared to lay out at least $600,000 and then another $50-100,000 to bring it into the modern era. I know there are tons of people in Cville capable of this kind of investment, but again, this also leaves a lot of average income folks way out of the loop.

Average in this hood means that you better be making at least $200,000+ a year,or you won't get your foot in the door very comfortably. Oh well. JMO.

i looked it up said...

George Overstreet the "no bubble" talking head in the story owns property in the neighborhood he describes as having $1M sales. Of course he wouldn't believe the houses were worth anything less than top dollar or had been overvalued.

Anonymous said...

I just pointed a potential seller to this blog and to Mr. Duncan's yesterday. The family has to sell and their agent is telling them prices will be going up soon so there's no rush to get the house on the market. Someone is painting the decline as a blip on the screen. Didn't ask who was representing them, just want them to get the whole picture not just the emerald city version. When it all comes to pieces I don't know if sellers will be as charitable as Dorthy. The wizards day will come.

cville realtor said...

Any Realtor who is saying prices will soon be going up has different information than me. Whether or not we have hit the bottom is up for discussion. when we do, sales (number of homes sold) will increase but I can't imagine home prices going up significantly until at least 2011 or 2012. That is why we counsel buyers (as has been posted on this blog a few times) to be very careful about buying if they don't plan on being here for at least 3 years unless they are going to hold on to the house as an investment.

C'ville Bubble Blog said...

From the Economist, April 16, 2009:

Home ownership: Shelter or Burden?

Building Castles of Sand

C'ville Bubble Blog said...

BTW, we're nowhere near the bottom.

Anonymous said...

This is why I pointed this family in this direction. We buyers are cautious and investigating everything these days, but sellers are counting on professional expertise. These folks were unaware of hard numbers that show rate and points of decline.

This is almost as bad as what used to happen to some families when a loved one dies. They were in no frame of mind to research and compare coffin prices. When families are in financial or domestic crisis they count on experts to give pertinent information. I figured instead of questioning what they were told I'd give them the tools to educate themselves. After they sell, they will be buyers, and I'd hate for them to still be misinformed and shelling out too much at the hands of the same person.

buyer said...

Why is whether or not this area has hit bottom up for discussion? What are you seeing cville realtor that buyers/sellers are not? Pending contracts?

From the buyers point of view I don't see prices shifting except on the very lowest part of the market. Why would there suddenly be a surge of sales now in the middle of a recession?

Prices aren't where they need to be. There are 100 new properties in Charlottesville Albmemarle that came on the market in the past seven days. People have made this point before but every time somethting sells its replaced by a couple more up for sale.

michael guthrie said...

Nowhere on this blog or anywhere else for that matter have I seen anyone say there has been "a surge of sales". Greg Slater has factually stated that, although properties sold were 34% down in the 1 Q of '09 compared to 1Q of
'08, pending sales in Albemarle County were only 5% less than '08
Given that '08 wasn't as strong as '07, I wouldn't say that data shows a surge but possibly the 1st signs of the market stabilizing a bit. Time will tell if that is true.

workhard said...

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