Virginia Real Estate Index: Consumer sentiment rebounds from modest dip
February 23, 2015
Contact: Dr. Alice Louise Kassens, Senior Analyst, IPOR
(540) 375-2428 Office (540) 816-8830 Cell kassens@roanoke.edu
Consumer sentiment concerning the Virginia real estate market remains strong, accelerating after a modest dip at the end of 2014. Respondents are split over the direction of mortgage rates in the coming year, leading to an ambiguous impact on the market. Sellers appear concerned about the coming year in Southwest Virginia, potentially due to an anticipated surplus of homes from residents who are relocating as a result of Norfolk Southern's closure in Roanoke.
Market sentiments rebound across the Commonwealth
Overall, sentiment about the condition of the Virginia real estate market has rebounded since the final quarter of 2014, with close to 33 percentage point more respondents feeling optimistic than pessimistic about the market today. Over 34 percentage point more are optimistic over the course of the coming year. Figure 1 shows the real estate indexes for the Commonwealth. Sixty percent of Virginians believe that the condition of the real estate market has improved since last year, unchanged since December 2014, while 16 percent believe that it has worsened; 52 percent believe that conditions will improve over the next year, a 2 point decrease from last quarter. Twelve percent believe that the market will decline in the coming year, down two points since last quarter.
Figure 1. Real Estate Index, Overall, Virginia (black line = thriving); current = compared to last year; future = next year
Sales prices and other real estate market outcomes depend upon a variety of factors influencing home buyers and sellers. Several positive items are likely playing a role. The Virginia labor market is stronger than the nation as a whole. The December 2014 seasonally adjusted unemployment rate in the Commonwealth was 4.8 percent, which is below the national rate of 5.7 percent (January 2015). Overall prices for goods and services have remained low since the recent economic recession and consumer sentiment in the Commonwealth is at its highest levels since late 2011. Housing inventories are increasing in many areas of the Commonwealth, likely due to fears of future rate hikes. Low inventories are a boon to sellers and drive real estate prices up as home buyers compete for the few available listings.
The Commonwealth's real estate market is facing potential push backs. Credit markets remain tight, deterring borrowing and buyers. On March 21, President Barak Obama signed the Homeowner Flood Insurance Affordability Act of 2014. The law delays, reduces and repeals some rate increases mandated in the Biggert-Waters Flood Insurance Reform Act of 2012. New flood insurance rates went into effect October 1, 2014, with rates increasing by as much as 18 percent. Higher insurance rates increase the cost of buying and owning a home and can present a challenge when selling a home.
Additionally, some respondents anticipate rising mortgage rates, also an added cost of buying a home. Mortgage rates are trending downward year-over-year in the Commonwealth. On February 17, 2015, zillow.com reports an average mortgage rate of 3.67 percent in the Commonwealth for a 30 year fixed rate mortgage with at least 20 percent down and a credit score of 740-850. This figure is little changed since the last quarter and is lower than one year ago. Figure 2 shows these rates for the nation and the Commonwealth over the past two years. 
Figure 2. 30-year mortgage rates February 2013-February 2015, US (green), Virginia (blue) (downloaded from zillow.com 2/17/2015)
Figure 3 shows sentiments of home sellers in Virginia over the last year. Sellers are optimistic about the coming year, although the share is down slightly from last quarter. Twenty-three percent more respondents believe that the coming year will be a good time to sell a home, compared to those who don't. Low mortgage rates are the primary reason given for selling optimism, followed by higher housing prices and falling inventories. Current selling optimism (compared to a year ago) rebounded from the dip at the end of 2014. Sellers appear equally optimistic about selling today versus a year from now. 
Figure 3. Real Estate Index, Sellers, Virginia (black line = thriving); current = compared to last year; future = next year
Figure 4 illustrates buying sentiment over the past year. Current optimism among buyers has increased throughout 2014 and continues into 2015. The leading source of optimism among buyers is lower mortgage rates. Almost 39 percent of those who believe the coming year will be a good time to buy a home attribute their sentiments to lower rates. Other reasons include lower home prices and higher incomes. Optimism wanes moving into 2015 due largely to beliefs of rising prices. Close to 44 percent of respondents who report that the coming year will not be a good year to buy a home attribute it to rising prices.
Figure 4. Real Estate Index, Buyers, Virginia (black line = thriving); current = compared to last year; future = next year
Potential concerns in Southwest Virginia
In four of the six regions, home buyers are optimistic today while sellers are looking to the future. Figures 5 and 6 show current and future conditions, respectively, for buyers and sellers across the six regions of the Commonwealth. Buyers are particularly optimistic about the current real estate market in Southwest Virginia and the Shenandoah Valley. Buyers are less optimistic for 2015, particularly in Northern Virginia, suggesting inventories will fall and/or home prices/interest rates will rise over the coming year.
Sellers are largely positive about the current real estate market compared to the past year, especially in Central and Northern Virginia reflecting the low inventories in the region. Inventories in December 2014 were up 31.5% from a year earlier. Sellers are optimistic in all regions looking to 2015, except Southwest Virginia where pessimism is potentially due to the anticipated increases in inventories in the Roanoke area from the recently announced Norfolk Southern job losses. A surplus of houses from from those leaving the area will drive down the price of homes in that price range. The strong current optimism in Northern Virginia persists in the coming year suggesting inventories are not expected to continue to rise in that region. 
Figure 5. Current Conditions by Region (black line = thriving)
Figure 6. Future Conditions by Region (black line = thriving)
Methodology
Interviewing for The Roanoke College Poll was conducted by The Institute for Policy and Opinion Research at Roanoke College in Salem, Va., February 2-5, 2015. The sample consisted of 605 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.
The Roanoke College Poll interviewed 605 Virginians about their opinions 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 optimistic as those who feel pessimistic about the housing market. This is the sixth survey from IPOR on the Virginia real estate market. The next report is scheduled for release in May 2015.
Questions answered by the entire sample of 605 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.
A copy of the questions and all toplines may be found on the Roanoke College website.
Contact: Dr. Alice Louise Kassens
Phone: (540) 375-2428 Office, (540) 816-8830 Cell
Email: kassens@roanoke.edu