CAAR Blog

Real Estate Market is as Hot as ANWR

Just about everything in life is relative to your perspective. Based on that theory, you could say the real estate market in the Charlottesville area is as hot as ANWR (the Alaskan National Wildlife Reserve). If you are not familiar with ANWR, you only need to know that it is a great example of being “relative� to one’s perspective. Depending on which pundit you ask, ANWR is either the last bastion of American wilderness, or the key to returning to $2.00 per gallon gasoline. The high temperature in ANWR in early July 2008 is in the mid 40’s. Using ANWR as a reference point, the local real estate market is hot.

Link to 2008 Mid-Year CAAR Market Report
  Podcast of Mid-Year Report 

 

A Recipe That’s Hard to Swallow

Have you ever stood in your kitchen, felt a creative surge and decided to “invent� a new recipe that will land you a “celebrity guest� spot on one of Rachael Ray’s shows on the Food Network? Okay, maybe that’s just me. Sometimes the recipe turns out well, like my yogurt-mustard sauce to accent a tuna steak, but other times, like my Pumpkin Meatloaf, the recipe is a bit hard to swallow.

The local Charlottesville area real estate market is a lot like my Pumpkin Meatloaf – a combination of ingredients that don’t work well together. Like a good recipe, a good real estate market is one that features a good balance of ingredients. If you put in a little too much of one ingredient, the dish may not taste very good; however, if you put in way too much of that ingredient, the dish becomes unpalatable. The recipe for the Charlottesville area real estate market has way too much of one ingredient – supply of homes for sale – and that has created an unbalanced recipe that is hard to swallow.

Read the Entire 1st Quarter Market Report

 This is, by far, the best time for a first time homebuyer to jump in and buy a home.  There are 590 homes on the market for under $200,000 and interest rates are low.  But where are these 590 affordable homes and what can you expect?  Here’s a quick breakdown.

399 of the 590 homes under $200K are detached, single family homes, so that should debunk the myth that ALL affordable home are condos.  27 of the detached homes are in Albemarle and 26 are in Charlottesville.  While those are not large numbers, they are much higher than just two years ago.  Of the 53 homes in Char/Alb, only 1 of them was built in this decade.  The other interesting breakdown is that only 4 of the Albemarle homes are in the growth area.

Most of the affordable units in the MLS are in Waynesboro, Fluvanna, and Louisa.  See chart below…

 

It is also imporatnt to note that the two best places to find affordable “new” homes are Louisa and Waynesboro.  See the chart below for the breakdown…

 

 Condo are centered in three places - Albemarle, Nelson and Charlottesville.  Clearly, the marketplaces in these three localities have determined that condos and other attached homes are important in providing affordable housing.  These three localities are the three highest priced parts of our community.  Here is a breakdown of where the affordable attached homes are located.

 

Does the subprime crisis that is often talked about in the national media affect Charlottesville? Here are some facts that can only lead to one clear conclusion - maybe. That is, maybe it affects us and maybe it doesn’t. It all depends on what happens going forward. Virginia is better off than most states and the Charlottesville region is better off than many other areas in the state because the state economy is reasonably stable and the Charlottesville economy is better than many areas of the state. The hardest hit areas around the country are areas that have declining economies AND declining home prices. First, let’s define “subprime” loans. These are loans that are generally made to borrowers with weak credit (605 ave. credit score in our region). Because of the higher risk of default, these loans carry a higher interest rate. As of October 2007, there were 1,015 subprime loans in our region with an average current interest rate of 8.9%. Most of these loans were issued since 2004. In our region the average loan to value (LTV) ratio was 79% and less than 20% of our subprime loans were considered to be a “high” LTV when they were originated - We are “best in the state” for both of these LTV stats. Of the 1015 subprime loans in our region, 628 are “current” with their mortgage payment and 149 are more than 30 days late with their payment. That’s 7.8% of these loans that are seriously delinquent compared to a state average of 7.3%. Only 25 loans have been to foreclosure (2.9%) which is lower than the state average of 3.5%. Both of these default rates are well below the distressed areas where I have heard default rates around 40%. The defining moment will come when these loans reset (balloon) to a higher interest rate. Only 27% have already reset. The key months to watch are March and October when many of these subprime loans will be reset. So, will the subprime crisis affect us? It all depends on what happens when the loans reset in March and October. Assuming that our local economy stays solid and that the feds take some action to “help” the situation, we should be okay. Although our local home prices (except the city) have gone down, they have not plummeted like other areas. Worst case is that 10% of the local subprimes (approximately 100 loans) go into foreclosure. Currently only 3.5% of the subprimes are being foreclosed, so 10% would represent a significant, but not catastrophic increase. We’ll just have to wait and see how this plays out locally.