RC Poll: Virginia Real Estate Index shows Optimism about Current Market, Concern about the Future

Sentiments concerning the Virginia real estate market remain strong showing a reversal of a yearlong decline in current market optimism. Still, buyers and sellers show increased caution about future markets, citing concerns about rising mortgage rates and real estate prices. Central and Northern Virginia show particular strength, which is driven by sellers' anticipation of higher prices.

Market remains strong with substantial growth in current market optimism

Overall sentiments about the condition of the Virginia real estate market remain strong, and opinions about the current market reverse a year-long decline. Close to 32 percentage-point more respondents feel optimistic than pessimistic about the market today, up six points since last quarter. Figure 1 shows the real estate indexes for the Commonwealth. Sixty-two percent of Virginians believe that the condition of the real estate market has improved since last year, while 16 percent believe that it has worsened. Additionally, 52 percent believe that conditions will improve over the next year, up two points since February. Fifteen percent believe that the market will decline in the coming year, down one point from last quarter.

Figure 1. Real Estate Index, Overall, 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 stronger than the nation as a whole; the April 2016 seasonally adjusted unemployment rate in the Commonwealth is 3.9 percent, below the national rate of 5.0 percent. Overall prices for goods and services remain low since the recent economic recession and consumer sentiment in the Commonwealth reversed a six-month slide. Figure 2 shows for-sale inventories and median list prices in the Virginia real estate market over the past two years. In April statewide inventories were down 1,601 from a year prior and below the 15-year median value. In April, the average listing price was $13,000 higher than a year prior, a 4.7 percent increase, and $45,500 higher than its nominal 15-year median value. Housing prices are rising considerably faster than overall prices and wages.

Figure 2. Median list price (line) and for-sale inventory (bar), Virginia; (data from zillow.com 5/28/2016)

Real estate markets face potential push backs. Some respondents said they anticipate rising mortgage rates, an added cost of buying a home. Almost 20 percent of sellers who believe that markets will worsen in the coming year cite anticipated rising rates, down over 10 points since last quarter. Mortgage rates are low, and down four basis-points since last quarter. On May 29, 2016, zillow.com reported an average mortgage rate of 3.46 percent in the Commonwealth for a 30 year fixed rate mortgage with at least 20 percent down and a credit score of 740-850. Figure 3 shows rates offered under those conditions over the past two years.

Figure 3. 30-year mortgage rates May 2014-May 2016, Virginia (downloaded from zillow.com 5/29/2016)

Figure 4 shows index values for sellers in Virginia over the last year. Seller optimism about the coming year is strong although off both its value compared with last quarter and a year ago. Twenty percentage point more respondents believe that the coming year will be a good time to sell a home than those who don't. The primary reason given for selling optimism is low mortgage rates, followed by higher housing prices and income and falling inventories.

Figure 4. Real Estate Index, Sellers, Virginia (black line = thriving); current = compared to last year; future = next year

Figure 5 illustrates index values for buyers in Virginia over the last year. Current optimism remains strong and is up considerably since last quarter; twenty-seven percentage point more respondents believe that now is a good time to buy a home than believe it is not. That optimism wanes heading into the coming year. The leading source of optimism among buyers is lower prices; twenty-five percent of those who believe the coming year will be a good time to buy attribute their sentiments to lower prices. Other reasons include lower mortgage rates (24%) and higher incomes (14%). For the 21 percent who believe the coming year will not be a good time to buy a home, 30.5 percent cite rising rates as the primary cause, while 26.7 percent reference rising prices.

Figure 5. Real Estate Index, Buyers, Virginia (black line = thriving); current = compared to last year; future = next year

Regional strength, particularly Central and Northern Virginia

Figures 6 and 7 show current and future conditions by region. Compared with last year, each region reports more optimists than pessimists about the real estate market, particularly in the Shenandoah Valley, Central Virginia, and Northern Virginia. These regions cite improvements since May of 2015. Figure 8 shows list prices and inventories for various MSAs across the Commonwealth. Higher prices are the likely cause of market optimism, particularly in Richmond, Charlottesville, Washington D.C., and Winchester where April median list prices are higher than the long term average for those areas. In all but Washington, D.C. inventories are down, putting upward pressure on prices.

Figure 6. Current Conditions by Region (darker hue = greater index value)

Looking to the coming year market optimism remains strong in most regions, particularly Northern Virginia, Central Virginia, and the Tidewater. In Northern Virginia, over 65 percent of respondents anticipate improvements in the real estate market. Looking at both sides of the market, the optimism is driven by sellers as over 45 percent cite positivity about the coming year; comparatively, more buyers express concern over the coming months. Rising prices are the likely driver in this divide between buyers and sellers.

Figure 7. Future Conditions by Region (darker hue = greater index value)

Figure 8. Select city median list price (blue dot = median list price last 15 years, orange dash = April 2016 average list price, black line = standard deviation average list price; percentage change in inventories over prior 12 months shown in parentheses). Data source: zillow.com

Methodology

Interviewing for The Roanoke College Poll was conducted by The Institute for Policy and Opinion Research at Roanoke College in Salem, Va. May 9-17, 2016. A total of 601 Virginia residents 18 or older were interviewed. Telephone interviews were conducted in English and Spanish. The random digit dial sample was obtained from asde Survey Sampler and includes both Virginia landline and cell phone exchanges so that all cell phone and residential landline telephone numbers, including unlisted numbers from Virginia exchanges, had a known chance of inclusion. Nearly 30 percent of respondents were contacted via cell phone. Because most surveys undersample younger males, we ask to speak to the youngest male over 18 when we call landlines. If there is no young male in the household or if he is not available, then we conduct the interview with the person who is eligible and available.

Questions answered by the entire sample of 601 consumers are subject to a sampling error of plus or minus approximately 4 points at the 95 percent level of confidence. This means that in 95 out of 100 samples, like the one used here, the results obtained should be no more than 4 points above or below the figure that would be obtained by interviewing all consumers who have a telephone. Where the results of subgroups are reported, the sampling error is higher. Sampling weights were constructed using Virginia Census 2010 data by age, race and gender groups. Quotas were used to ensure that different regions of the Commonwealth were proportionately represented. The margin of error was not adjusted for design effects due to weighting.

A copy of the questions and all toplines may be found here.

For more about the Institute for Public Opinion Research, click here. 

Contact Name: Dr. Alice Louise Kassens, Senior Analyst, IPOR
Contact Phone: (540) 375-2428 Office, (540) 816-8830 Cell
Contact Email: kassens@roanoke.edu