Wednesday, March 13, 2013

Boom, Bubble, Bust, Bounce: The Charlottesville Area Real Estate Market 2013 and Beyond

The Charlottesville Area housing market is having a bounce on the way to a boom.  This, the final data post of C'ville Bubble, explains how the boom will persist--but likely won't turn into a bubble.

The Charlottesville Area housing market, like many others across the nation, has, through a combination of circumstances chronicled in this post, pulled out of its slump.  Sure, there are still some wobbles and worries...but most of the news is good.

After years of declining sales, 2012 showed the largest increase in nearly a decade (see the Wahoo-colored chart, above).  As the 2013 Spring selling season kicks off, optimism runs high that the market will equal then exceed 2012's sales. 

2013 could easily see Charlottesville return to the status of Protected Market -- one that is "different, insulated, and steady."  As the intellectual and cultural center of Virginia and home to several large employers -- UVA, the UVA Health System, State Farm, Centra, NGIC/DIA -- this area is a highly desirable place to live.

Will the Protected Market persist into the future?  Of course, that's the multi-million dollar question.  Chances are likely that it will last at least a few years...and 2012's bounce will lead to a boom.

But why a boom instead of a bubble?  Why will this time be different?

1. There are current and former homeowners who cannot participate in the market.
2. Lending standards are tight.
3. Millenials have different ideas about home owning than previous generations.
4. The college debt bubble will impact all housing markets going forward.
5. The lessons of the Great Recession have been internalized.  We all hope.

Specifically, a buying boom will persist in the Charlottesville / Albemarle area for these important reasons:

1.  This is a highly transient population area, due to UVA and in part to the other large employers that fuel the economy.
2.  Therefore, folks who want control over their environment--folks who want to know their neighbors for years (whether in a condo, townhouse, etc) or have a single-family home with a yard for the kids--have few options except to buy. (Sure, there are long-term renters.  But.)
3.  The newer the neighborhood--and newer means more walkable, better energy efficiency, and often better pricing--the fewer the rentals (subdivisions such as Belvedere and Old Trail are exceptions, since their master plans eventually included apartments).
4.  The higher the price point of the neighborhood, and the more established a neighborhood is, the fewer rentals there are. 
5.  Jobs - No place other than CharlAlbemarle has the well paying jobs in Central Va.
6. Optimism.
7. Confidence.

 The Capstone Post

And so it is that after chronicling the local and national housing downturns for years, this last data post caps the blog with optimism for the housing market, the local economy, and everything creative, entrepreneurial, and forward-thinking that is Charlottesville.

Through the years the C'ville Bubble bloggers have had lively conversations with many buyers, sellers, agents, media reps, and Twitter friends, in the blog's comments section, via emails, and on Twitter.  And to all those folks, and to all the readers, huge gratitude and Thank-Yous.  A blog is nothing without its relationships.

Speaking of: an ongoing interaction came about between C'ville Bubble and Realtor Jim Duncan and his blog.   RealCentralVA offers not only the most comprehensive RE data for the area, but is also a cultural touchstone.  Jim read C'ville Bubble and told his many readers and eventually Twitter followers to read it, and then participated in a series of posts and interviews.

And so it seems logical, and an honor, that simultaneous with this last post, we answered a series of questions that Jim is putting up today.  RealCentralVA's post has the back-story and the meta-data for C'ville Bubble's final post.

More Local Data

Vis-a-Vis the chart at the top of this post, 2010's sales were fueled by the Homebuyer Tax Credit, while 2011's were fueled by low prices, short sales, and foreclosure deals.  2012 saw stunning low mortgage rates--under 4% for 18 months as of this post--an influx of buyers who had waited out the market for years, and a return to optimism and a feeling of prosperity as the Great Recession faded further into the past.

Prices are rising:

Low Inventory 

Low inventory is helping to drive prices up.  It's a national issue.  There are several negative reasons that inventory is low, including underwater sellers who can't get what they paid by selling, and those who can't "move up" or "downsize" because their stock or retirement savings took such a hit during the Great Recession.  But the rise in prices is seen as a positive for private sellers as well builders.

Foreclosures and Short Sales 

These are now are a smaller part of the market.  Banks are more willing to modify mortgages, cut principal, forgive second liens--but they're also likely to hold foreclosed properties off the market.  The upshot is that bargains may be gone--except for investors buying in bulk.  The following pies are for the Charlottesville market:



Images are copyright the CAAR.  Here's the PDF:  The CAAR 2012 Year-End Market Report.

Caveat Emptor with Carpe Diem.

A Reading List, with Positives and Headwinds

Yes, We're Confident, But Who Knows Why? (Robert Shiller)
"We're in Housing 'Nirvana'" (CNBC)
Monthly Market Activity: Listings, Solds, Prices (via Roy Wheeler Realty)
Charlottesville / Albemarle Population Will Continue to Grow (NBC29)
Actually, Some Lenders Are Easing Their Rules (CNBC)
Pending Home Sales Soar (CNBC)
The #Bubblecovery (TheBubbleBubble)
Why Sequestration Will Hit Housing on Several Fronts (CNBC)
Virginia, and the Charlottesville area, Feast on Federal Funds (NYTimes)
Other Housing Bubbles (OfTwoMinds)
Americans, $$$, and the Future (ZeroHedge)

Tuesday, November 6, 2012

President Obama Wins Second Term...And That's Good For the Charlottesville Area Housing Market

You know the old saying: anything is possible.  But many things aren't probableMitt Romney has an 8% chance of victory.  So we're going with Mr. Obama as winner and heading off to imbibe at some victory parties, and a couple of wakes, right now as the polls close at 7pm.

The good news: Mr. Obama's victory is just fine for the C'ville/Albemarle area housing market. The disastrous national economy that Barack Obama inherited (as he likes to say) has been showing distinct signs of improvement.  And locally, throughout 2012, right up through Q3, the Charlottesville Housing Market has seen some nice signs of activity.  While this isn't technically a "recovery," meaning a return to the pricing and sales volume of the housing bubble, folks are now willing to buy and sell.  As detailed in this long post about the area market, buyers from the bubble-era still face trouble; but buyers and sellers going forward are in much more confident positions.  2012 is the year of the bottom in this area, and 2013 will be exciting.

And we have much to thank Mr. Obama for in this turn of events. This housing scorecard is pretty good.  Since Mr. Obama has been a friend to Wall Street and TBTF banks, the fear that the "shadow inventory" would destroy housing prices with a flood of inventory never happened because banks haven't been forced to mark the devalued homes to market (see #1,2,3).  And with Fed Chair Ben Bernanke and Treasury Secretary Timothy Geithner solidly in place during the first four years, we have QE Infinity and a ZIRP that result in +/- 3.5 30 yr fixed mortgage rates.  Even Freddie is doing better.

So raise a glass and look #Forward....

Photo: The Times of London.

Friday, October 26, 2012

In 2012, the Charlottesville Area Real Estate Market has been trying to form a bottom in pricing, and the number of transactions is up. There are many positives, alongside some negatives and ongoing challenges for bubble-era buyers. Here's a look at the complicated "bottom" process. And for troubled homeowners, here's a reminder. Our next post will appear in early November, and cover Charlottesville's return to Protected Market status. Until then, something soothing.
See the original.

Thursday, August 16, 2012

"Carpe Diem" Trumps "Caveat Emptor" As "Bottom" and "Recovery" Chatter Increase in the Charlottesville Real Estate Market Mid 2012

2011 was a painful year for the Charlottesville Albemarle housing market.  Forget it.  And forget the pain of 2010 and the ancient history of '09 and '08.  Forget "New Normal."  2012 offers a different, unanticipated scenario: and those who want to buy and sell real estate are recognizing the paradigm-shifted, bifurcated, even fragmented nature of the RE market.  Buyers, many who have waited for years, are tempering caveat emptor with carpe diem

Every year since 2007 there have been folks calling the bottom.  And every year they've been wrong. The WSJ has been particularly enthusiastic in this pursuit.  Yet in order to consider that there's a "recovery" taking place, the financial status of the American family as well as these three charts must be ignored.  This is exactly what's happening.

"Traditional" buyers and sellers exist in one market while underwater or unemployed owners, banks, and investors exist, for the most part, in another.

So buyers and sellers are taking note.  What is currently being touted as the "bottom" and the "recovery"--whatever they are-- may be all there is.  In Charlottesville Albemarle, which have suffered big drops in sales and prices  since the bubble's burst (graphs, below),  informed sellers with equity are hopping off the proverbial fence and listing.  And buyers who see what they need, or like,  are inking deals.

Of course, in certain segments prices aren't finished declining or hitting "bottom."  And true "recovery"--a return to the way things used to be--isn't possible.  But what experts and amateurs expected, hoped, and feared would happen, just didn't.  For today's buyers and sellers, the past and the "other" market matter less than ever. 

Below is a look at persistent housing market myths and the current "reality" as selling season 2012 comes to a close. 

Myth #1When the Shadow Inventory is released on the market, home prices are going to plummet.

Reality:  The landslide of listings were expected after settlement of the "Fraudclosure" scandal.  But the shadow inventory is never going to be released en mass, so the correct answer here is False.

There may be nearly 10 Million homes in the US in distress and owned by banks, which need to be relisted and marked to market value.  The optimistic WSJ hopes the number is far lower, asserts that there will be tornados but not floods, and that low levels of new construction will help the problem.

In Charlottesville, the number is absolutely unknown and possibly significant (podcast: listen to minutes 18-28).

Analyst Josh Brown, The Reformed Broker, explains why the shadow inventory means little to today's market:
[T]he Fed is making it so the banks can keep millions of foreclosed properties on their books forever and never mark them down.  Elsewhere, there's also been some accounting changes that allow the banks to mark-to-make-believe to some extent....They put the banks in a position of flexibility in terms of pricing and the timing of when they sell them off.

There are buyers for foreclosed homes - Wall Street is raising billions of dollars in new vehicles to scoop them up.  Hedge funds are buying them up as well. 

The typical housing permabear [doesn't] get it - [the inventory] won't be coming to market at all.  At least not until such time as the banks want to offer it.  And now there are hungry buyers, negating that aforementioned stale thesis even further. [emphasis added]
The good news: Whatever the number, keeping all that junk off the market has preserved equity for some folks, and has helped prevent the United States from sinking into a lasting Depression.

And the result of this is:

Myth #2The United States has hit a housing "bottom" and is now in a housing "recovery."

Reality: Yes, the exclusions make it look like we are in a housing recovery.     Fake, engineered, manipulated--whatever it can be called, it's the current market.    

Read this.  And this.
Click on image for larger version.

More data on the "bifurcated market": to call current conditions the "bottom" or the "recovery," one ignores, locally and nationally, all the negative equity numbers and effective negative equity numbers and fails to recognize that even many of 2010's buyers took a hit.

There are segments of, and buyers and sellers in, this market who are permanently hobbled, at all price points.  Many of these folks won't buy again for years, if ever.  Included among the walking wounded are the most spectacular demises, ever, in Charlottesville: Patricia Kluge; and Halsey Minor; and failed development and developers of Biscuit Run; and failed Western Albemarle subdivisions; and failed development Bundoran Farm.

Without the shadow inventory, and all those underwater "owners" who can't move up, there are fewer houses available.  

Which leads to:

Myth #3Lower Inventory = A Healthy Market With Higher Prices.

Reality: True and False.  It's not a "healthy" market.  But prices will indeed rise and have already in certain segments. 

This blog started to cover the lower inventory issue back in October 2011.  The WSJ reported the national trend that month.  It is an ongoing phenom.  Here's a plethora of charts on low inventory from the Matrix.   Lower inventory may in certain sectors  drive up prices and lead to multiple offers.  See this post from Twin Cities Real Estate Blog. 

But, again, for current buyers and sellers, the "health" of the overall market doesn't matter.  The important point is the rising prices.

Myth #4 The Charlottesville Albemarle real estate market is "protected."

Reality:  From the days of Thomas Jefferson to 2006, True.  2007-2011, False.  

2012 onward is ???.  For homes priced between $250k-$575k and proximal to the center of the City, and easy access to UVA, the answer may well be True.  And now that the  recent unpleasantness  is resolving (though not quite over), things are looking forward. That old "protected" mantra referred to the buffer offered by UVA, defense, biotech, the hospitals, insurance company.  It was annihilated for years.  But now...?

The City of Charlottesville is the flower of Central Virginia, and Albemarle County is its handmaiden in ease of access.  There's a lot of progress here that looks like economic health: A major new outdoor shopping mall (though it ironically comes just as the death-knell sounds for brick-and-mortar stores); a Wegman's and Fresh Market supermarkets; a luxury hotel may finally be completed on the historic Downtown Mall; the (ok, controversial) Western Bypass may be built; and there may be more biotech growth.  Nothing to sneeze at.

Myth #5 - Albemarle Exceptionalism

Reality:  True.  Albemarle County actually is exceptional.

And not just for the conservation tax credits for millionaire faux-farmers.  Scroll through the St. Louis Fed pdf "The Afermath of the Housing Bubble" linked here, notice, beginning on pg. 27, what happens to Albemarle County.  The foreclosure rate is remaining consistently low. 

Myth #6 At some point, sales are going to return to the high numbers they were at the peak of the bubble.

Reality: False.  But they don't need to jump for prices to go up.  See #3 and #7.

Despite 100's and 100's and 100's of new units of all types being built in Charlottesville and Albemarle County, and thousands of new citizens, sales are not going to keep climbing.  Besides declining prices and negative equity, there's the issue of the sluggish American economy, as well as the issues of the disappearance of the short term buyer and the curtailing of the move-up buyer.

But sales don't need to return to those levels to have a "stabilizing" market.  This year's sales are up:

Albemarle County


Sales increases year-over-year from RealCentralVA:

Sold in Albemarle County
1/1/11 – 6/30/11 – 588
1/1/12 – 6/30/12 – 654 — Up 11%

Sold in City of Charlottesville  
1/1/11 – 6/30/11 – 212
1/1/12 – 6/30/12 – 252 — Up 19%

Myth #7 : Prices plunged, but now they're going to shoot back up.

Reality False.  It could be another decade or so.  "Incremental" and "seasonal" are the watchwords here.

Buyers still are reluctant to pay for the financial mistakes of others.  Despite the coming job opportunities mentioned in #4, the income of local folks just isn't shifting.  Enough.

At the moment there has been a small increase in prices.  "Move-ups" are back: after waiting for prices to stop plunging, those who wanted larger homes are transacting.  Additionally, the local cost of new construction is rising; and new construction is turning into the choice of many buyers who know they will be there long-term and/or desire "going green."  But the "seasonal component" must be kept in mind, where  prices go up in the warm months and will decline again  for Fall and Winter.

Longer term: In certain sectors--such as close-in and move-in ready--prices may continue an incremental riseBut for the surrounding counties; old and unimproved homes; those priced under $200k; and above $600k; --these prices are not finished declining.  The $3M+ market is standing still.  At the lower and higher ends of the family market, the problem is the same:  lack of buyer capital, but for different reasons.

Peaks: Here's a recap of pricing, as an example of how far prices have dropped.  This is for Q1's:

Those are some big drops. 

Conclusion: A Market Bifurcation Into "Traditional" and "Distressed" Plus Low Inventory Results in a New Housing Paradigm.  But This is the "Reality," Right Now, For Those Who Want to Buy and Sell

In this age of the "personal," where folks are FBing and Tweeting and Pinning and Google+ing, decisions are more idiosyncratic than ever.  It's been a hard landing.  The loss of equity and, worse, homes, isn't finished locally or nationally.  Charlottesville and Albemarle will remain a fragmented market for some time to come, with a distinct divide between the haves and have-nots.  And the local is part of the national where 95% of new mortgages are owned or backed by the US Government.  There's still lots of trouble--foreclosure starts are rising again.

But for those who have been waiting to buy and waiting to sell, there's more clarity than ever.  The 30 year fixed rate mortgage is currently at 3.6% (Aug. 15).  Buyers who have waited for years and are well-cushioned financially aren't looking at a house as an investment but as a home.  For those with stable jobs and a 7-10 year event horizon plus a capacity to absorb price wobbles, buying looks attractive.  And there are many equity sellers getting off the fence, realizing that they'll never get that dream of the missed bubble price: but acknowledging that moving on or moving up and getting things settled has a value greater than money.

Wahoowa!  It's going to be an exciting year here.  


*There's always the chance of a Black Swan.  Or something lesser to cause reversion to 2011.

**Additionally, rising mortgage rates could cause home prices to drop again.  There's only so much the strapped consumer can afford.  The Fed isn't expected to change its ZIRP practices until 2015.  While there are other issues that impact mortgage rates, the consumer can only afford so much.

***A Romney Administration could negatively impact housing.  The Obama Admin is a known quantity, at least.

****A huge headwind in most housing markets is the lack of younger buyers.  College Bubble etc.

******This post is an observation of market conditions at the moment. This post is not investment advice, particularly since this blog does not view a consumable that requires constant upkeep and tax payments as an "investment." 



A Recap of the First Seven Months of 2012: RealCentralVA
The Obama Administration Housing Scorecard: HUD
Buying Beats Renting in Many Cities: Zillow
The Break-Even Horizon in Charlottesville is 4.2 Years [Really?]: Zillow
The Economic Impact of An Increase in Home Prices: CalculatedRisk

Reliable Sources Analyzing the National and World Economics
Naked Capitalism
The Big Picture
The Automatic Earth

Wednesday, July 18, 2012

Mid-2012: Would Your Decision to Buy or Sell Real Estate Change If You Believe Prices May Not Recover In Your Lifetime? - Video

If housing's not going to recover any time soon, and is likely to keep struggling, is now a good time to sell?  And if interest rates keep hitting new historic lows, is now a good time to buy?

The latest mid-year Charlottesville data indicates that home sales are up in 2012 over 2011: see Nest Realty and the CAAR report.  While that's progress, consider the historic numbers for context2011 sales were at a decade low, and 15% lower than 2010's.

Home prices are still declining in many segments of the local market, but sales figures in some segments are starting to stabilize.

Nationally, despite cheerleading stories like this one (which presumes not only that the reader is a simpleton but that s/he is not going to make it to paragraph 12) the market is bleaker.  Not everybody lives in a company town like we do.

That home prices may never recover is the concern of Yale economist Robert Shiller, also of the eponymous Case-Shiller Price Index.  Though it tracks just 20 major metros, the index influences buy/sell decisions all over the USA. When asked to compare the current housing crisis to a baseball game and pick the inning, Shiller stated "Maybe we're in the fourth."

So what about C'ville?  Where are we?  Apropos the bigger picture, Shiller says, "A lot of people have the mistaken impression that we must be at a bottom."  But if C'ville is now in its own little bubble--in a good way--we may have the New New Normal: we may be insulated by the big employer(s), the major acceleration in price declines may be behind us, and we may be seeing a low but stable volume of sales.  So what should a buyer or seller do?

Watch the video as Robert Shiller discusses housing with USAWatchdog's Greg Hunter.

Tuesday, June 19, 2012

Charlottesville Area Real Estate Update, May 2012: The Last Days of Housing Market "Stability" For the Year

April was a cruel month.  May muddled (see below).  Closings in June and contracts written in June (which will close in Jul/Aug) will suffer, since the University has been hijacked by a real estate developer from Virginia Beach and Charlottesville has been thrown into chaos. Did. Not. Need. This.

From Nest Realty Group.
Nest Report May 2012

Landmark Creditors Owed $17+M; Hotel Shell Goes at Bankruptcy Auction For $6.25M

As mentioned in January, pennies on the dollar.  Specialty Finance alone had a lien worth $13+M, and the City was owed nearly $200K in RE taxes.  But the good news is that the awful blight on the Downtown Mall may eventually be finished.

Of course, all this optimistic hotel planning came while UVA was still one of the most respected "Public Ivies" in the country....One day later, and Charlottesville is a different world.

Wednesday, June 13, 2012

UVA President's Ouster Could Bring Another Headwind to Charlottesville Area Housing Market

June 10 could very well be the exact date that began the next leg down in the Charlottesville Area's ongoing home price slide.  It was on June 10 that a seemingly capricious, secretive decision, tantamount to a putsch, was unveiled: the UVA BOV, Rector Helen Dragas, and President Sullivan have a "philosophical difference of opinion" and Sullivan will no longer serve.

The Charlottesville Area housing market has continued to suffer price declines and weak sales (see April's price slide, and this and this from Q1 2012).   But there has lately been a growing acceptance of the "New Normal"--knowledge that prices will continue declining, and sales volume will remain low--that has led those with secure jobs to get off the proverbial fence and buy.

Now what? With the area's largest employer in turmoil? How many buyers will rethink that major purchase?  Forego the first-time pad, or decide the current house is just fine, and stay put?

With the current opaque chaos at Virginia stemming from President Teresa A. Sullivan's "resignation," the greater Charlottesville area is facing an unanticipated--and very unwelcome--period of economic and psychological instability.  And all thanks to--apparently--just three members of UVA's Board of Visitors.

Confusion, anger, and instability rule as the leader of the area's largest employer seems to have been ousted in a secret plan arranged by a handful of people:
"I have never seen a board act so recklessly, arrogantly, and secretly in my entire life," says [prominent UVA media scholar Siva] Vaidhyanathan, who calls Sullivan's ouster "very scary" and "deeply embarrassing" to the University. "Everything they've done," he says, "is 180 degrees away from the scholarly tradition that had made UVA great."
The chair of the Board of Trustees of the Darden School Foundation, Peter Kiernan, sent a letter to other trustees, assuring them that Board of Visitors Rector Helen Dragas "has thing well in hand."
But the UVA community, and the general public, has only received this reassurance through leaked emails.

As outrage grows, Chairs and Program Leaders from the College and Graduate School of Arts and Sciences have sent a letter of protest to UVA's Board of Visitors, which includes this:
Our surprise and concern arise directly from the fact that we have been very pleased with the direction in which President Sullivan and her administrative team have been leading UVA and with her accomplishments thus far. She is an extraordinary academic leader, with superb administrative abilities, the heart of a faculty member, and evident strength of character.
UVA impacts this entire region, and this event could ripple outward--economically--for months to come.  It could have an immediate and dramatic impact on the local housing market, as well as on area commercial establishments--stores, restaurants, services.  This could well be tantamount to a local Black Swan event.

Let's hope that last sentence proves to be hyperbolic and false....

UVA is--once again--receiving much unwanted local and national media attention.
Washington Post:  What Happened? and Anger
The Chronicle of Higher Education: Overview and Faculty Seek Answers
WINA - June 12 podcast of former UVA President Robert O'Neil on Sullivan Ouster

Orig posted 6/13 3.23 pm; revised 6/14 2:12pm.

The Housing Crisis Wipes Out Two Decades Of American Prosperity--A 40% Decline in Net Worth Between 2007-2010.

 This post contains detailed charts. 

Wednesday, May 30, 2012

(F)ailing Wintergreen Resort Rescued By Magnate Who Paid Top $ For Albemarle Acreage, and Rescued WV's Greenbrier Resort

Jim Justice is rescuing the 11,000 acre resort in Nelson County, which has been slammed by the Great Recession as well as by Mother Nature: lack of snow.  As The Hook reports,
Wintergreen Resort– stung by a pair of weak snowsports seasons, challenged by state officials over tax credits, and losing its credit line– has found salvation in the arms of one of the region's richest people, James C. Justice II, the billionaire who yanked the venerable Greenbrier resort out of bankruptcy by building a glitzy casino.
Justice also paid $23.75M for 4,500 acres of Albemarle County in April 2011; plans have not yet been revealed for the Albemarle County acreage, in the historic "viewshed" of Monticello.