Thursday, August 26, 2010

Home Price Depreciation: How Much More Will Prices Drop In Charlottesville Real Estate? 10%? 20%? 30%?

Update 8/26 pm: see comments and a note on this post.

According to the following data, the Charlottesville single family home market segment has seen a decline in pricing of 11.47% since the all-time high in the 4th Quarter of 2007.

National sales plunged to a 15 yr low in July, and the Charlottesville Albemarle area did much worse. Across the Country, prices in the most "bubbly" areas have corrected 30-50%.  The expectation is that with sales so low, prices will keep dropping and values aren't going to rebound any time soon.

Charlottesville has had a huge run-up in prices.  While here's been price depreciation for the past five quarters, it's not at a pace that indicates how low sales are.  Other markets with similar rates of appreciation were in the "big bubble" states of CA, FLA, NV, AZ (see fig. 1).  While others are worried about the "double dip," this area hasn't even seen its first bottom.  So...what's to happen?

With the lack of buyers at all price points,  can current sellers hold out for years?  Could commenter  "The Wait" be on to something?  

"The Wait" left the above comment on a post about July's low sales over at RealCentralVA.  

Charlottesville would have a long way for prices to drop in order to get back in line with area median income, let alone to burn through the excess inventory, which grows daily.   And, of course, there's the shadow inventory: foreclosures and owners who become unintentional landlords.

Here's the rate of annual appreciation for the Charlottesville single family homes thru Q1 '10 from using the HPI.  Quoted material begins here:

Last Year  . . . . . . . . . . . . . . . .  -7%          

Last 5 Years  . . . . . . . . . . . . .   13%          

Last 10 Years  . . . . . . . . . . . .   84%          

Last 20 Years  . . . . . . . . . . . +146%       

Decline From All Time High -11.47%

Home Price appreciation rates for Charlottesville, VA are shown above for five time periods through 1st Quarter, 2010 

The all time high in the Charlottesville Home Price Index was in the 4th Quarter, of 2007.  That's a decline of -11.47% below the Charlottesville Home Price Index all time high.  The Home Price Index indicates that the Charlottesville Market is up 84% over the last 10 years.
The Home Price Index indicates that the Charlottesville Market is up 134% over the past 20 years.  Home Prices in the Charlottesville Real Estate Market have lost 6.99% over the last 12 months.

The Charlottesville Home Price Index has declined for the last 5 consecutive quarters.

The highest annual home appreciation rate in the Charlottesville Real Estate Market was 20% in the twelve months ended with the 2nd Quarter of 2005. The worst annual home appreciation rate in the Charlottesville Market was -7% in the twelve months ended with the 1st Quarter of 2010.

The highest home appreciation in the Charlottesville Real Estate Market over a three year period was 50% in the three years ended with the 1st Quarter of 2006. The worst home appreciation over a three year period in the Charlottesville Market was -10% in the three years ended with the 1st Quarter of 2010."

End of quoted material.  Chart, below, copyright same source.  Bolding, emphasis = BB.


Economists say that, going forward, 
"...housing values will only keep up with inflation. A home will return the money an owner puts in each month, but will not multiply the investment." 

Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up.  NYTimesReal Estate's Gold Rush is Gone Forever. 
 Michael Snyder at The Economic Collapse:
"Those waiting for U.S. housing prices to return to the levels of three or four years ago are living in fantasy land.  Absent the onset of hyperinflation (which would cause the price of everything to rise dramatically), housing prices are simply not going to return to those levels."  Read more.
Related Reading:
Median Prices and Increases 2001 - 2009, All Property Types, Charlottesville, Albemarle, Greene, Fluvanna, Nelson


Anonymous said...

Acoording to your statistics, Charlottesville home prices have dropped only 11.47% after 25 straight years of increases. This sharply undermines the whole premise of your blog. So much time, so many words devoted to so little, particularly since you say that "Across the Country, prices in the most "bubbly" areas have corrected 30-50%."

AliG said...

Thanks, Bubble.

Any theories as to why and how this area has been able to resist the natural forces of economics/supply and demand so far? Clearly this area is "different" in that it has not seen the decline that other areas have seen. What accounts for this difference?

One factor that I believe is accounting for the sticky prices is that there are few foreclosures in the >400k that are coming to the market.

AliG said...


what is the premise of this blog?

Humpty said...

Why don't you compare the decline in "existing home sales" stats to the rest of the country?

Foreclosures are typically tied to employment numbers. C'Ville unemployment rates are lower than the Nation's average standing at 6.3%.

So, if and when the sellers are forced to sell because of circumstances we will see prices come down. Conversely, we will not see buyers coming into the market unless prices come down even if employment picks up. Why? Simply because it is much cheaper to rent than to buy at the current market rental rates vs. current asking prices to purchase.

However, remember there are many Sellers on the sidelines dying to sell but are grasping for straws in the hope of finding someone to overpay to cover their mortgage debt. As these hopes feign, which they will, we will see prices come down.

This is not rocket science. This is hard core reality. The glamorous days of high RE prices are over for at least another decade, if not longer.

what is the premise of this blog? So to answer your question, the premise of this blog is to discuss and opine on the reality of the marketplace in C'Ville which is currently in "lala" land.

Anonymous said...

Anonymous, did you read the post? Prices here peaked in the 4th q of 2007. They peaked everywhere else in 2005. This area is slow to correct but there are too many sellers for prices to remain where they are. It's slow but it's coming. Half of all sales here are now Short Sales.

Anonymous said...

Decline is worse in County. This is for City. It's all going down. If anybody had ALL the accurate numbers here they wouldn't be buying they'd still be waiting. This blog is as close as you can get to what's really going on here. The people who bought since 2003 and are trying to sell are under water and HELOC'd and best wishes to them. We've just started to see the seller bleeding in this area.

Anonymous said...

In reply to comments to my post #1above, I stand partly corrected because the rationale for the blog, which you can see at the top of the home page, has changed several times. It was considerably more dire 18 months ago, when I first saw it. In various posts, I fully acknowledged that prices were still going down, but questioned the premise that the situation was as grim here as in many other places. However, I am shocked if it is true that prices in Charlottesville are only down less than 12% from the peak. That said, the situation is worse for Albemarle County, as somebody pointed out. The situation of many people wanting to sell and/or that will only be able to do so at a loss is a national trend.

John Doe said...

Anonymous, you know the market is grim: when you have the most widely-read RE blogger in the area soliciting business by cajoling folks to let him help them bring a gigantic check to closing when they sell their home--or to let him help them in a short sale.

But to address your first comment: SINGLE FAMILY HOMES in the City are covered in this post. There are SO FEW sales in THE CITY at this point. THUS, lack of price "corrections." If the $1M listings were selling at their 2010 prices (for example) you'd see a bigger adjustment.

The condo market is in the sh*****. Why don't you ask your own realtor what the rate of decline is? Financing is almost impossible, and what used to for six figs now sells for five.

You know from experience and observation how poorly it's going out in the County.

We'll have more on pricing in upcoming posts.

BTW, the "rationale" at the top of the blog hasn't changed. However, the narrative details do periodically change. They typically reflect what's going on in this market and the wider world.

Many are hoping / predicting that Q4 2010 will be the bottom here.

IOHO, it won't be. After mid-term elections, and 1st half of 2010 GDP about to be revised downward, with even lower home sales, with buyers on pause due to uncertainties at UVA, Martha Jeff and --supposedly-- other large area employers --the only enthusiastic buyers could be from DIA. But many will skip Albemarle due to pricing and commute....

Thanks to Humpty, AliG, and Anons for explications.

Anonymous said...

@#1 anonymous, the percentage increases in the middle of this decade were insane, here and everywhere else.

Why are they known to be insane and fake elsewhere, but not in this area? Why would you believe this?