Western Albemarle Second Quarter Real Estate Report
Mortgage Rate Trend Clouds Improving Crozet Housing Market
By David Ferrall
Whoa. Was it just last month that Fannie Mae was predicting 4.5 percent interest rates by the end of 2014? The interest rate market must have missed the memo, as 30-year mortgage rates have jumped nationally from 3.37 percent to 4.53 percent in the past three months (Barchart.com). Most market watchers believe that rapid rise won’t be sustained and was mainly a reaction to talk of the Federal Reserve tightening the money supply.
But most economists also suspect that the mortgage market has seen its low. In fact, the chief economist for Fannie Mae, Doug Duncan, is on record as stating, “I don’t think the Fed ultimately would be troubled with a 6.5 percent mortgage rate.” Freddie Mac chief economist Frank Nothaft went further, stating, “as the economy continues to improve, we expect to see continued upward movement in long-term interest rates.” Boy, a world class Fannie flip-flop from last quarter’s comments! It shows that even “experts” have no idea where interest rates are going, nor the probable timing of rate moves.
The housing market tends to lag a bit when rates move up. Will this sudden surge and seemingly new rate uptrend hamper our local market? Only time will tell. Meanwhile, recent sales in Crozet are pretty hearty.
The second quarter of 2013 saw almost a doubling of sales from the first quarter, which was mostly in line with the performance of last year. Eighty-seven sales were recorded in Crozet between April and June this year, a 6 percent increase over the same time period last year. This is pretty consistent across Albemarle County as a whole, which saw a 7.3 percent increase in sales quarter-to-quarter (see chart provided courtesy of Nest Realty). Of these 87 sales in Crozet, 62 were for detached houses, 25 for attached housing. Sixteen of the detached sales were for properties of an acre or more, which generally indicates properties in the rural areas. The ratio of rural to development/subdivision sales remains pretty consistent at around 25 percent. Fifteen of the detached sales were for new construction, the majority being split between Wickham Pond and Old Trail. There was one sale of more than $1 million, the 137-acre Pea Ridge Farm on Dick Woods Road, which sold for a tad under $2.3m. Of the attached sales, 17 were in Old Trail, and 5 were in Wickham Pond. Thirteen were new construction.
For the past few quarters, builders have been experiencing quite significant cost increases in building materials. This translates to higher prices for new construction, which in turn starts to escalate prices on pre-existing housing. This trend is continuing in Crozet. Prices across the board are higher year-to-year over 2012. Total price per finished square foot is up 8 percent to $159. Average price of a property is up 13.5 percent to $412,000, the median price being up 12.3 percent to $356,000. The average price for a detached home (leaving out the Pea Ridge Farm sale) rose to $411,000, up from $363,000 this time last year. Attached houses averaged $335,000, up from $278,000 last year. Total short and lender-owned sales were down to four in the quarter, a figure indicating that the worst of the housing recession could be behind us.
Going into the third quarter, there are 86 contingent and pending deals ready to close, which is only slightly higher from the same time last year. Inventory is down 13 percent to 9.09 months, edging ever closer to the 5 to 7 month level that defines an ideal balanced market. Inventory for vacant land is down quite significantly year-to-year. Vacant lots seem to be selling at a faster clip than at anytime in the past 4 or 5 years.
So where are we heading in the second half of the year in Crozet? Probably higher. Higher sales numbers and higher prices, driven by steady demand, decreasing inventory, and decreasing short and lender-owned sales are among other reasons. All the indicators point to continued robustness.
If there is a killjoy in the market, rising interest rates could be it. The latest jump in rates will cost the average buyer in Crozet—assuming a 30-year mortgage on 80 percent of the average $412,000 sales price—an additional $220 per month in interest payments. That is up 15 percent in the last three months alone!
Increases like this are not sustainable. And the impact of every rate tick higher will be felt. Decreasing buying power could stall demand across all segments of the market. Real estate market followers continue to predict strength, but they caution sellers not to get greedy.
Experts like Ken Johnson of the Journal of Housing Research advise sellers that a house that comes onto the market appropriately priced will sell faster and for more than if it is originally overpriced. Buyers should note cautionary words out of Fannie Mae that suggest that if buyers wait, their purchasing power may be diminished by rising rates.
For now, the real estate seesaw is becoming pretty balanced. So if you are buying or selling, the current market is pretty good.