Virginians weighed in on their opinions of the real estate market for the first time this year. The Roanoke College Poll interviewed 601 Virginians about their opinion of the current market and their expectations for the future. Additionally, respondents indicated their willingness to buy and sell property today and in the coming year.
The real estate indexes were constructed using the same methodology as the Siena Research Institute. A measure of zero indicates an equal share of respondents feeling both optimistic and pessimistic about the housing market. This is the third survey from IPOR on the Virginia real estate market. The report will be released each quarter after the Consumer Sentiment and Price Expectation report. The next report is scheduled for release in May 2014.
Optimism in the real estate market improves for sellers more so than buyers
Overall sentiments about the condition of the real estate market have improved since November, with more than 30 percent of respondents feeling optimistic about the market today and in the coming year. Figure 1 shows the real estate indexes for the Commonwealth. Over 62 percent of Virginians believe that the condition of the real estate market has improved since last year, a 5- point improvement since November 2013. Also 52 percent believe that conditions will improve over the next year, a 3 point increase since November.
Figure 1. Real Estate Index, Virginia (black line = thriving); current = compared to last year; future = next year
Sale prices and other real estate market outcomes depend upon a variety of factors influencing buyers and sellers. Several positive items are likely playing a role. The Virginia labor market is considerably stronger than the nation as a whole; the December 2013 seasonally adjusted unemployment rate in the Commonwealth fell 0.2 points since November to 5.2 percent, which is well below the national rate of 6.7 percent. Overall prices for goods and services have remained low since the recent economic recession. Housing inventories are low in many areas of the Commonwealth, including Northern and Central Virginia; low inventories are a boon to sellers.
Still, the Commonwealth’s real estate market is facing push backs. Mortgage rates are rising year-over-year in the Commonwealth. On February 19, Zillow.com reported an interest rate average of 4.20 percent in the Commonwealth for a 30 year fixed rate mortgage with at least 20 percent down and a credit score of 740. Figure 2 shows these rates for the nation and the Commonwealth over the past year. Credit markets remain tight, deterring borrowing and buyers. The implementation of the Biggert-Waters Flood Insurance Reform Act of 2012 is driving up the cost of flood insurance. Without a legislative delay, rates will continue to rise to actuarial rates over the coming years. Higher rates increase the cost of buying and owning a home. In 2014, property owners previously not required to buy flood insurance may find their properties inside newly redrawn flood zones. Additionally, uncertainty about future health insurance rates is likely raising questions about the affordability of homeownership.
Figure 2. 30-year mortgage rates February 2013-February 2014, Virginia (downloaded from zillow.com 2/19/2014)
Figure 1 shows sentiments of Virginian buyers and sellers in November and February. Sellers describe growing optimism, while buyers report declining sentiment. Forty-eight percent of respondents believe it is a better time to sell today than a year ago. This share falls slightly to 46 percent of respondents when asked about selling a year from now. Low inventories are likely a driver of this optimism. On the other side of the real estate market, 42 percent of buyers believe that today is a better time to buy than a year ago, although only 33 percent of buyers consider this to be true over the coming year. Concerns over rising interest rates, flood insurance rates, and other economic uncertainties are likely contributors to the growing pessimism amongst buyers.
Sellers optimistic in Northern and Central Virginia, Buyers in Tidewater and Southside
Dramatic differences exist across the Commonwealth. Figures 3 and 4 show current and future conditions, respectively, for buyers and sellers across the six regions of the Commonwealth. These differences are largely influenced by varying inter-regional economic conditions. Northern Virginia sellers are extremely positive about current and future conditions. Sixty-one percent of respondents in Northern Virginia report that today is a better time to sell than a year ago, but this falls to 41 percent when asked about selling in the coming year. A similar story holds in Central Virginia where 54 percent of respondents state that selling conditions have improved over the year. This share rises slightly to 55 percent for the selling conditions in the coming year.
The optimism in Northern and Central Virginia is in sharp contrast to the pessimism in Southwestern Virginia, Southside, and the Tidewater. More respondents in these regions were pessimistic about current selling conditions. The Tidewater is a region seeing rising flood insurance rates which increase the short- and long-term costs of a home, making it more difficult to sell. Current homeowners may be more aware of the impact of the law thus influencing current sellers’ sentiments more than those of buyers. The pessimism wanes in these three regions when asked about selling in the coming year and the future conditions values become positive.
Figure 3. Current Conditions by Region (black line = thriving)
Figure 4. Future Conditions by Region (black line = thriving)
Buyers are more optimistic about current conditions compared to the coming year in four of the six regions. Buyers are the most optimistic about current conditions in the Southside, despite increased prices in the fourth quarter of 2013. In Northern Virginia and the Shenandoah Valley more buyers are pessimistic about today compared to a year ago, a sentiment that persists in the coming year for Northern Virginia respondents. Northern Virginia is an area with low inventories suggesting buyers are concerned about rising prices.
Methodology
Interviewing for The Roanoke College Poll was conducted by The Institute for Policy and Opinion Research at Roanoke College from February 3-5, 2014. The sample consisted of 601 residents of Virginia. The sample of phone numbers was prepared by Survey Sampling Inc. of Fairfield, Conn. and was created so that all residential and cell phone numbers, including unlisted numbers, had a known chance of inclusion. Nearly 30 percent of respondents were contacted via cell phone.