With property values rising in many areas of the country, local residents wonder if that is happening here. There are fewer foreclosures than there were a few years ago. But the question of values rising is harder to decipher. Some neighborhood prices have been going up, and some seem to be flat — or even still going down slightly. So what is the real answer?
First, remember that all real estate is local. There is no connection between Manhattan prices and what is going on here. Las Vegas values have no effect on condo prices in Newport News. And real estate can even be hyper-local; local communities each have neighborhoods and properties that seem to be going up in value, while other areas are not.
Secondly, residential real estate is an asset, while also providing a place to live. We should expect real estate values in our area to rise during an inflationary period (when the value of the dollar is going down). We should expect values to stabilize during a period of little inflation. Where has inflation been lately? Pretty flat, so we don’t see inflation driving prices up right now.
Third, the law of supply and demand regulates anything connected with economic pricing. In terms of residential homes and condos, if the number of buyers exceeds the supply, we should expect to see prices going up. What is happening to the population of buyers, i.e., the “demand?” Well, that is running pretty flat, with a fairly similar number of “leavers” balancing out the “comers.” And we are adding supply, with a modest uptick in new home construction in the area. So the supply/demand equation is not helping to put any upward pressure on prices.
To be accurate, we need to think about “demand” being households headed by a job-holder earning the family income needed to buy or rent a home. Compare with some areas of the Southeast that are seeing significant employment gains. Check out Charleston, SC. Lots of new jobs? Yes. More new jobs than new construction of homes? Yes. Property values going up? Yes, a lot!
So, why do we care about whether prices are going up or staying flat? If you have no interest in moving and envision no trouble making your payments, upkeep and taxes, you may be indifferent. But for those who need or want to sell, there are costs to sell, including commissions and transaction costs. These need to get paid whether the homeowner is moving up (to a larger house), moving out (of the area) or downsizing (to a smaller house or condo). Even a modest increase in real estate value provides some funds to help with these transaction costs and will help provide a little lubrication for the market.
What can local buyers or sellers do to maximize their values and pricing positions, given that we seem to be in a relatively flat market? Part of this thought process goes back to the discussion regarding hyper-local effects on value. My advice would be different for buyers than for sellers. Buyers need to think very clearly regarding whether they are looking for a house or a neighborhood. Real estate professionals can assist with looking at several years of pricing history and absorption at the “micro” (subdivision or neighborhood) level. Properties in flood zones with slab foundations — or areas with declining prices in a stable market — should raise warning flags. Sellers, on the other hand, need to be careful of the money they put into their homes, and they need to make sure that they are keeping up with maintenance. New roofs and HVAC systems need to be replaced as needed just like water heaters and appliances. Don’t spend too much money solely on cosmetics.
So what is the conclusion to the original question? In January, we will have the precise answer for 2019! But with today’s mortgage rates at historical lows, buyers may not want to wait to find out.