It's Spring Selling Season, and transactions are happening. But inventory is piling up, and buyers are wary of making money mistakes. More than ever, "asking" prices in this market are sellers' hopes that buyers will not fulfill. 2008 saw the slowest sales in a decade. And then, 2009 ended with even lower sales. 2010 kicks off with Government subsidized mortgage rates and the Homebuyer tax credit. Come April 30, it's anybody's guess how low sales volume and prices will go.
Prices are primed to continue dropping--and drop fast, in some cases. The Virginia Housing Development Authority lays the groundwork for what to expect in the February 4, 2010 presentation to the local Realtors Association: "The Charlottesville area market is likely to remain weak in 2010 and into 2011."
These are the elements putting "downward pressure" on Charlottesville Albemarle area real estate prices right now:
- Short Sales
- Shadow Inventory
- Lack of "short term"buyers
- Lack of "move-up" buyers
- Higher Mortgage Rates - 2(?) weeks away
- Expiring Homebuyer Tax Credit - 5 weeks away
- Declining Tax Assessments
Short sales come about due to unemployment, a mortgage resetting to higher interest rates, lacking enough equity to refinance, etc. Starting in April, the Obama administration is giving homeowners and banks incentives to complete more Short Sales.
That this area has a lot of short sales is to be expected. Charlottesville had a big bubble. Many of these short sellers bought in the past seven years, when Charlottesville was the 64th Largest Bubble in the Nation (see "Appreciation," ca. 2007).
Examples of short sales: here and here.
Foreclosures in the Charlottesville Area rose 57% from beginning to end of 2009.
There's an idea floating around that compared to the rest of the state, this area's foreclosures just aren't that bad. Wrong. Compared to the volume of overall home sales, the volume of foreclosures is staggering. (See "Shadow Inventory," below.)
Currently, one in 10 Virginia mortgages are delinquent or in foreclosure. Foreclosures at all price points, are not going to abate any time soon. The Virginia Housing Development Authority says, "Prices will remain depressed until inventories are reduced and the foreclosure rate declines."
All of these foreclosures create the large Shadow Inventory from 2009 that's exerting downward pressure on prices. These properties return to the market at lower prices than what the bank paid, and much lower than what individual sellers ask. As stated in #2, this is an issue of volume.
Some of the 2009 foreclosures already came back on the market and were resold. But the rest will pop up in 2010. And the 2010 Shadow Inventory continues to grow: check out Google Maps for local foreclosures.
What else is in the "Shadow Inventory"? One big component is homes that sellers would like to unload, but are holding off, waiting for the market to "come back."
This market, with its declining values, is a perilous one for "short term"--
A tax assessment is not an appraisal. But it is an indication of what a buyer paid last year for a similar property. Tax assessments and asking prices are diverging now, sometimes wildly, not just in the tens but the hundreds of thousands. Asking prices are often much more than assessments.
An extreme example of divergence at the high end is 1932 Blue Ridge Road, MLS #474114, Asking $2,485,000. Assessed: $1,390,600.
Update: 3/19 - 20 yr high: Charlottesville City unemployment jumps to 8%; County at 5.9%; Fluvanna 6.6%; Greene 6.7%, Louisa, 9.9% stats from January, released in March.
Update: Jobless rate rose in February, as reported in late March, to 7.2% seasonally adjusted. Virginia shed the most jobs Jan-Feb of any state in the union.
While some will take solace in the fact that unemployment rates are lower here than elsewhere, the glitch in that idea is that home prices are higher. Somebody who is unemployed in this area has farther to fall, faster, than somebody who has a lower mortgage payment. If folks here are paying 6x their income for a house, versus 2.5x historic norm...."look out below."
In conclusion, here's an explication of the obvious, courtesy of the VHDA:
The VHDA Presentation on C'ville Area Housing Market, Feb. 2010
2009 Sales in Charlottesville Area
Graphs and Charts of incomes, sales, prices, appreciation
The Shrinking Pool of Local Buyers