The Charlottesville Area is More than Charlottesville and Albemarle
September 17, 2007 | Leave a Comment
This is me in the latest edition of Abode in the C-Ville Weekly. The purpose of the article was to expose people to the idea of looking at real estate in the more rural areas that surround Charlottesville and Albemarle as potentially better long-term investments.
Most of the attention in our area has always been focused on Charlottesville and Albemarle (heck, my personal site is titled “Charlottesville Area Real Estate”). Truth be told, however, the outlying counties (Fluvanna, Albemarle, Louisa, et. al.) have always provided a very attractive alternative to living in Charlottesville and Albemarle. They have been attractive because of their relative affordability.
The contrast in price between Charlottesville/Albemarle and its surrounds was quite stark a few years ago. The first buyer client that I ever worked with came to me looking for a home in Albemarle. For the home he was seeking at the price he could afford, Albemarle had 4 homes listed in the MLS. Fluvanna, on the other hand, offered 30 homes. Where do you think he bought a house?
That gap is now lessening, however. As the market became hotter and hotter, prices rose dramatically in the more rural counties. While those rural counties still tend to be more affordable, for a number of reasons, the gap has shrunk to the point that now people have a real choice to make when they come to the area. The spillover from Charlottesville and Albemarle has lead to economic growth in Fluvanna, Louisa, and Greene especially. This growth has made these areas more attractive to people who previously would only have considered living in very close proximity to Charlottesville. Growth on the west end of Richmond has also made Fluvanna and Louisa attractive to people who may work in Richmond, a market that didn’t really exist 3-5 years ago.
Is one area a better long-term investment than another? That question is much more difficult to answer, since there are vast differences within the counties themselves in addition to those differences in relation to each other. The real estate boom that the Charlottesville area has experienced recently has certainly changed the dynamics of the market. That C-Ville Weekly would even do feature story on real estate in the rural counties is just confirmation of that fact.
[tags] real estate, realtor, charlottesville, virginia, fluvanna, louisa, greene, albemarle [/tags]
Don’t Buy a Home From Gordon Gekko
August 28, 2006 | Leave a Comment
In 1987, Oliver Stone co-wrote and directed a very good film entitled, "Wall Street", if you haven’t seen it, I would recommend renting it. One of the main characters in the film is played by Michael Douglas. His name is Gordon Gekko. Gekko is pretty much your average slimy corporate raider who loves to pillage, plunder and make money any way he can, legal or otherwise.
One of the most famous lines in the film comes from Gekko, who stands before a group of corporate shareholders at an annual meeting and declares,
"greed, for lack of a better word, is good. Greed is right, greed works.
Greed clarifies, cuts through, and captures the essence of the
evolutionary spirit."
The fact that Gekko ignores in the film is that greed has a dark side. Greed can be both a positive and negative motivation. I believe that it is greed that is holding back many real estate markets in the country, the Charlottesville area included.
Anyone who has been paying any attention at all knows that the real estate market in most areas has cooled off. There are those out there that talked of the bursting of the real estate bubble, likening the current real estate market to the ".com" stock debacle of the 90’s. The difference between the real estate market of today, and the .com’s of yesterday, is that the real estate market is much more of a true free market. When it comes to publicly traded companies, there are a lot of interests at play. Capital investors, boards of directors, shareholders, customers, etc. When it comes to real estate, it really boils down to only two parties, the seller and the buyer. There is little or no interference from outside parties when it comes to price. The seller chooses a price, and the buyer decides if that price is acceptable or not. The two parties then must come to an agreement. It is free-market economics in its most basic form. That is why I love it.
What does this system have to do with greed and the market slowdown? It is quite simple. The market will continue to be slow, and prices will continue to fall, for as long as sellers choose to be greedy. In many areas, there is no shortage of buyers. I know this to be true in the Charlottesville area. I am working with numerous buyers right now. The issue in many of these markets is that the sellers have tried to set the prices too high. Greed– pure and simple.
Buyers are either unwilling or unable to pay those prices. Prices will continue to fall until they reach a point that buyers are willing to accept. It is just that simple. I have actually spoken with people who, when told what the market value of their home is, reply with, "I don’t want to give the house away." The way that sounds to me is, "I need to sell, but I am a greedy SOB, and my profit won’t be as much as I want." The bottom line is sellers aren’t giving homes away, homes are going to sell for their market value. Whether or not they agree with that value doesn’t matter. Like I said before, the free market is cold. The market doesn’t care what you think.
The longer that sellers try to hold on to the prices of last year and the year before, the longer the homes will sit. Buyers have made it very apparent that they are either unwilling or unable to pay those prices. Sellers must adjust their expectations, or be willing to suffer the consequences of not selling their homes. The red-hot market of 2004-2005 is GONE. The sooner that sellers are able to accept this fact, the faster the prices will stabilize. Granted, sellers may not like the level at which the prices stabilize, but stabilization is better for everyone.
REALTORS have some responsibility in this whole affair as well. As I have pointed out in previous posts, REALTORS must be willing to tell sellers the difficult truth about home values and the situation of our current market. REALTORS must also be willing to turn down the listings of those sellers who refuse to acknowledge reality. The only way to stabilize the market is to have properties on the market that are accurately priced. I know this is true because I watch the MLS and see that there are some homes out there that sell in days or weeks, not months. These homes sell in a shorter time frame because they are accurately priced for the market. While I firmly believe that the demand is sufficient, it doesn’t look this way because the supply is artificially high.
It is in the nature of free markets to find an equilibrium between supply and demand. The real estate market is no different. In fact, it is probably better at doing so than most other market sectors of the economy. The rub lies in the price. As long as the Gordon Gekkos of the world are setting the prices, the path to that equilibrium will be needlessly long and arduous.
National Statistics For 2Q06 Out Today
August 15, 2006 | Leave a Comment
The National Association of Realtors released its national sales statistics for the second quarter of 2006 today. You can read an Associated Press article about the release here.
No surprises, really. Existing-home sales declined 7% compared to last year. I think this is something that just about everyone expected; If not in terms of the number, at least in terms of a decline. The thing I found funny about the report was the following quote from David Lereah, NAR’s chief economist:
“When you look at states with high housing costs or that have experienced a prolonged period of rapid price gains, you typically see slower home sales,” he said. “By contrast, states with moderately priced areas that have experienced healthy job creation are seeing sales gains – the economic backdrop remains favorable for the housing market, which is helping home sales to level out.”
This quote falls under an analytical category I call "Water is Wet." Thank goodness that economists are around to tell us that high-cost areas sell slowly, and affordable areas with expanding economies sell better. I’m pretty sure that was covered in Market Forces 101. I guess they needed some type of quote to make the article more interesting.
As far as the local market goes, if you have been reading the blog, then you know how the Charlottesville area did in 2Q06.
Charlottesville No Longer in the Top 100 Places to Live
July 18, 2006 | 1 Comment
Money Magazine just released their annual List of the 100 Best Places to Live in America. In the 2006 edition, Charlottesville is no where to be found. On the 2005 list, Money ranked Charlottesville #90.
So, why has Charlottesville dropped out of favor with the editors of Money? Well, it would appear that in this year’s rankings, the considerations were much more extensive. The editors looked at a lot of different factors when choosing the list. Among those factors was affordability of housing. The average for median home value among the list of 100 places was $256,659. According to this recent article in the Daily Progress about home values, the 1Q06 median home value in Charlottesville was $277,000. Now this may not seem like a big difference, but the difference becomes much larger when compared to average incomes. The average for the Top 100 list was $62,555. By contrast Charlottesville boasts a median income of around $50,000. That creates an affordability problem. Chances are, affordability of housing is one of the main reasons Charlottesville dropped off the list this year.
Interestingly, other Virginia cities did make the list: Chesapeake ranked 59th, Reston ranked 43rd, and Virginia Beach was ranked as the 4th best big city to live in.
The other cities on the list from Virginia in 2005 (Yorktown, Midlothian, and Vienna) all dropped off the list as well. Vienna suffered the biggest drop, going from #4 to off the list in just one year.
July Real Estate Podcast– Part 1
July 17, 2006 | Leave a Comment
Okay folks, it is time for the first of the regular real estate Podcasts. I plan on publishing these at the middle and the end of each month. I will publish them in MP3 format, so you can play them on your computer in Windows Media Player or RealPlayer. The Podacsts will also be available for download from iTunes.
So without further adieu, please download the first Charlottesville Area Real Estate Podcast. Make sure that you right-click on the link and choose "save":
Infrastructure Concerns Come Home to Crozet
July 13, 2006 | Leave a Comment
If you haven’t done so already, check out the post I have below about infrastructure concerns in the state of Washington. At the end of that post, I mentioned that infrastructure is quickly becoming a major concern in this area as well. Then, as if from my keyboard to God’s computer, I read this article in the Daily Progress about the most recent subdivision approvals in the Crozet area. What interested me most was the following passage from the article:
[. . .] but plenty of talk about the other hot-button issue in Crozet: infrastructure.
“I really think the applicant has done a good job of responding to what we told him,” Commissioner Calvin Morris said. “It bothers me, though, that we’re continuing to approve building without the infrastructure in place.”
Morris’ comment came after several Crozet residents shared their concerns on the matter. “I think this project is a good project if the infrastructure supports it,” resident John Russell said, pointing to the need for better roads, curb, gutter and sidewalks and improved access to downtown Crozet and the nearby Old Trail Village development.
Haden Lane resident Kevin Markey questioned the typical routine of waiting until after such infrastructure is needed before moving forward with improvements. “I understand things are going to catch up, by why can’t we catch up first?”
The commission responded to that request by asking that the developer consolidate all of the cash proffers - about $70,000 originally dedicated for schools, fire and rescue, greenways and other county needs - to go specifically toward capital improvements for transportation in Crozet. “I personally would rather see all this money … go toward the infrastructure that this community so desperately needs … to make the master plan work,” Commissioner Bill Edgerton said.
The commission also drew attention to issues regarding affordable housing and connector roads, among other things, which should be resolved before the project goes to the Board of Supervisors on Aug. 2.
So, it looks like infrastructure and affordability are on the minds of local residents as well. At least it would appear that the residents of Crozet and the Planning Commissioners of Albemarle are thinking about the issues and how to possibly resolve them. Incidentally, the subdivision that was approved is proposed to be 34 homes and commercial area on 6.7 acres south of Jarman’s Gap Road (I am assuming the homes are going to be attached homes, since 6.7 acres divided amongst 6.7 acres equals .2 acres/home, which doesn’t even factor in the possible commercial space).
In terms of affordability, if the current new construction listing in the Crozet are any indication, I’m not sure that these homes are going to meet most people’s definition of "affordable." At least not if you are in need of more than 3 bedrooms or 1200 sq. ft.
Time will tell if Crozet is able to meet the need for both improved infrastructure and increase affordability. As we have previously discussed, perhaps one can offer a solution for the other.
Increased Infrastructure May Increase Affordability
July 12, 2006 | Leave a Comment
Please read this article from REALTOR Magazine regarding the real estate market in the state of Washington. In case you are wondering how this article relates to our market in the Charlottesville area, consider the following quotes from the article:
Ignoring growth doesn’t prevent it, anymore than ignoring traffic will make it go away,” he says. “By not addressing the challenges that growth brings, legislators are consigning Washington residents to sprawl, leap-frog development, more traffic congestion, and higher property taxes. “
In a study published earlier this year, WAR identifies lack of funding for infrastructure improvements and upgrades as a critical obstacle to new development.
“Infrastructure is key for us. Without roads, water, and sewer, we aren’t able to provide more homes for our clients,” says Bryan Wahl, WAR’s government affairs director. With the state “already behind in infrastructure spending on both state and local levels,” Wahl says the association needed to come up with a number of alternatives for policymakers to consider for funding infrastructure improvements. (WAR refers to the Washington Association of REALTORS)
If the above passage sounds familiar, it should. Growth and infrastructure are two issues that our area has been dealing with for many years, and will continue to address in years to come. And if you want proof that this is more than just a Chicken Little scenario, look no further than my home county of Fluvanna. The county has been growing very rapidly, and its infrastructure has changed very little in that same amount of time. As the growth continues, the county is now trying to play catch-up by starting work on a water pipeline. As a result of the growth and a lack of alternative funding sources, property taxes in Fluvanna recently increased 20%, and are slated to increase another 20% in the near future. If tax increases aren’t enough, there has also been talk of the new assessments increasing as much as 40% for next year.
The following quote should also sound very familiar:
Washington’s housing affordability is at its lowest point in 12 years. "People drive farther and farther to find an affordable home, and that creates problems for the quality of our roads, our air, and our quality of life in general,” says Francks (CEO of WAR), charging that cities and towns have dramatically underestimated population growth and the resulting need for housing.
I have personally helped families find homes outside of Charlottesville and Albemarle in a search for greater affordability. As that affordability starts to dwindle, surrounding counties will be forced to address the issue, not just Charlottesville and Albemarle.
Perhaps a focus on infrastructure could actually help increase affordability. The help would come from creating space for more well-planned subdivisions that may be able to offer more affordable housing. Right now, it simply isn’t cost-effective for a builder to offer affordable housing due to the fact that the costs of preparing the land are so high. It is very difficult and expensive to put 100 or 200 homes in an area that has no public water or sewer and is accessed only by small country roads.
Even if better infrastructure doesn’t increase housing affordability right now, it will certainly help the area’s residents in years to come. If you think it sounds crazy, consider this. . .15 years ago, the Meadowcreek Parkway sounded unnecessary and perhaps even a bit crazy. If it had been built then, would we be having the same discussion about the traffic in Charlottesville today?
New Study Cites Affordability Concerns
July 11, 2006 | Leave a Comment
To follow up on what I posted yesterday in my answer to Friday’s Big Question, read this article from REALTOR Magazine. The article starts by mentioning the results of a survey of renters and how they feel about the rising interest rates. To the surprise of no one, most voiced concern. The most important point in the article, however, is the following:
Particularly challenging for first-time buyers in many income brackets is finding a home they can afford. Affordability pressures are now spreading as median house prices in a growing number of large metros exceed median household income, concludes The Joint Center for Housing Studies of Harvard University in the “2006 State of the Nation’s Housing.”
Additionally, more than one-third of Americans, according to NAR’s Housing Opportunity survey, worry that the cost of housing is so unaffordable that they’ll never be able to buy and home, and more than 58 percent are concerned that the cost of a home is becoming so unaffordable that it’s hurting their local economy.
I covered the Harvard Housing Report in a previous post. The fact that 58% of Americans believe that the cost of housing is hurting the economy is something that should draw attention. Affordability is obviously on the mind of the National Association of REALTORS as well. Read the following quote from a press release by David Lereah, NAR’s chief economist:
In the wake of the real estate boom, there are a number of large metropolitan areas whose housing markets are now fragile and vulnerable to higher interest rates. To the point, these markets have an inordinately high market share of speculative investors and variable-rate mortgage loans. Over 70 percent of all mortgages originated in California during the past two years were variable rate loans. And most of those loans were interest-only loans. It is easy to explain why: affordability. A median income household living in San Francisco had to stretch its credit with an interest-only mortgage to afford a home in a metro area where the median price was over $740,000. And California is not alone. Metros such as Miami, West Palm Beach, Orlando and Washington, DC also have a high composition of variable rate mortgage loans. The bottom line? If rates continue to increase, the higher monthly mortgage payments from the re-pricing of variable rate mortgages could result in higher delinquency and foreclosure rates, which could aggravate already sluggish local housing markets. (emphasis added)
Lereah seems to just gloss over the affordability issue. He cites it as a cause, but offers no solution to the problem it has created. Think about this, if we could somehow address affordability, than there would be less need for ARM loans, and therefore less of a threat posed by their possible foreclosure.
Lereah uses his "bottom line" assertion to bolster his final position:
My vote (and I know I have no vote): postpone a rate hike at the Fed’s June FOMC meeting. This is not the time to gamble on a weakening economy. I urge the Fed to digest more information about some of our nation’s fragile housing markets and as well as gather more evidence about inflationary pressures and the long-term negative effects of a prolonged period of high oil prices on consumer spending. It is better to wait a bit longer and make a more informed decision at a later time, than to rush to judgment.
Keep in mind that Lereah is the Chief Economist for the NAR. His concern is housing, or more accurately, his concern is how a change in the housing market affects his trade group, i.e. REALTORS. Obviously, a further slow down in housing creates problems for some REALTORS. Fortunately, the Fed is concerned with a much larger picture. Housing is just one sector of the economy. Granted, it is a sector that has gotten larger and larger, but it is not the main concern of the Fed. Will the Fed pay attention to housing markets? I hope so, since ignoring it was one of the areas in which former Chairman Allen Greenspan could have improved. Paying attention to housing is very different from allowing it to determine the economic policy of the entire nation.
Let the Fed worry about interest rates, inflation and price stability. Right now, the focus of real estate industry professionals and consumers alike should be on affordability.
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Disclaimer
My name is Daniel Rothamel. I am a licensed real estate agent in the Commonwealth of Virginia and a member of the National Association of REALTORS. As such, I adhere to a strict code of ethics and all laws with regard to equal housing, which is reflected in the content of this blog. My broker is Strong Team REALTORS, 86 Joshua Lane, Palmyra, VA 22963; (434) 589-5800. My VA Real Estate License number is 0225 077325. All of the opinions in this blog are mine, unless otherwise noted.
