Housing prices on the Virginia Peninsula are definitely in a modest uptrend. Some of us may tend to think of rising housing prices with some concern, because two of the most prominent periods of rising prices corresponded with subsequent collapses that resulted in recessions: in 1988, resulting in the collapse of the savings and loan (S&L) businesses, and the 2007-2009, the “real estate recession.” While the latter was far worse, both resulted in foreclosures, crashing prices and the closure or buyout of some financial institutions that were previously thought to be top quality.
I would argue that for Southeast Virginia, the bump up in housing prices is not something that should discourage buyers. “This time” is different from both the S&L crisis and the more recent crash in four fundamental ways:
1. Housing is still relatively affordable. A higher percentage of Americans can afford a median-priced house than was the case in either 1988 or 2008. What we hear more frequently around here today is that there are not enough homes to choose from — not that the homes are too expensive. In fact, the “inventory” of homes for sale on the Virginia Peninsula is about 38 percent lower than has been typical in recent years. I would love to list more properties in this market!
2. Lenders have been very responsible in screening creditworthiness of borrowers. Credit scores, debt to income ratios and income verifications are being treated responsibly. They are not in any way setting up for a future “foreclosure crisis.” And since we have not seen any significant higher-paying additional employment coming to the region, lender pre-approval for loans puts a cap on what buyers can afford to pay.
3. Loan rates are among the lowest in history, at least in the six+ decades that I have been around, and most buyers are opting for fixed-rate loans. Lower rates mean that buyers can afford more house — or — buy the house that they want and still have some monthly extra income for upgrades, maintenance or savings. As an example, a buyer with a $250,000 loan (30-year) at 6 percent interest will pay about $1,500 a month in principle and interest (P&I). At 3 percent interest, that same P&I payment will service a $350,000 loan! With fixed rates, there is certainty about the payment amount from year to year.
4. New home construction has not kept up with demand. This is admittedly less of a factor than the three above for our area, which has a pretty stable population. Our new home construction serves to replace “lost” housing stock, and, of course, appeals with “something new” to a segment of the market. In growing areas of states such as Florida, Texas and the Carolinas, builders simply cannot keep up with the demand. Have you looked at homebuilder stock prices lately?!
Now that we are solidly in a “seller’s market” for housing, what does that mean for buyers who want to purchase a home? Should they wait until activity slows down? I would argue against waiting. It is just doubtful that houses will become substantially more affordable than they are now (at least in the next few decades). Buyers need to be prepared with their pre-approval letters and deposits in hand, and will need to be working with Realtors® to be able to get access to the new and best listings. New listings that are move-in ready and priced right will generally go quickly. Buyers should be prepared to pay some or all of their closing costs, as “closing cost assistance” from sellers becomes less frequently negotiated in a seller’s market. Buyers looking for a “deal” should be prepared to invest some time and money in paint and cosmetic repairs after purchase.
For sellers, now is a great time to list. That being said, the market will not love a house that suffers from significant deferred maintenance — nor will such a house sell quickly except with a discounted price. For many sellers, a six-month preparation to listing window is not unrealistic. Talking to a realtor at the beginning of that process can help you develop a strategy for preparing to sell — especially if precautionary inspections or repairs are indicated.