RC Poll: Virginia Real Estate Index

Little change in real estate perceptions, Northern Virginia remains strong

Virginians weighed in on their opinions of the real estate market for the second time this year. The Roanoke College Poll interviewed 603 Virginians about their opinion of the current market and their expectations of 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 fifth 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 November 2014.

Optimism in the real estate market continues to rise, sellers more so than buyers

Overall sentiments about the condition of the real estate market have changed little since May 2014, with close to 30 percent more  respondents feeling optimistic than pessimistic about the market today and over the course of the coming year. Figure 1 shows the real estate indexes for the Commonwealth. Over to 60  percent of Virginians believe that the condition of the real estate market has improved since last year, a 1-point reduction since May 2014. Fifty-one  percent believe that conditions will improve over the next year, a 4 point decrease since May 2014.

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 July 2014 seasonally adjusted unemployment rate in the Commonwealth is 5.4 percent, which is well below the national rate of 6.2 percent, although higher than in recent months. 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, including Northern and Central Virginia, likely due to fears of future rate hikes. The Federal Reserve Bank is likely to raise rates in 2015. Low inventories are a boon to sellers and drive real estate prices up as buyers compete for the few available listings.

The Commonwealth's real estate market is facing potential push backs. Mortgage rates are trending upward year-over-year in the Commonwealth. On Sept. 1, Zillow.com reported  an average mortgage rate of 4.27 percent in the Commonwealth for a 30-year fixed rate mortgage with at least 20 percent  down and a credit score of 680-739. Figure 2 shows these rates for the nation and the Commonwealth over the past year. Credit markets remain tight, deterring borrowing and buyers. On March 21^,  President Barack Obama signed the Homeowner Flood Insurance Affordability Act of 2014 into law. The law delays, reduces, and repeals some rate increases mandated in the Biggert-Waters Flood Insurance Reform Act of 2012. The future of the National Flood Insurance Program is uncertain, which  could deter potential home buyers from purchasing a house in affected areas. Higher insurance rates increase the cost of buying and owning a home.

Figure 2. 30-year mortgage rates September 2012-September 2014, Virginia (downloaded from zillow.com 9/1/2014)

Figure 1 shows sentiments of Virginian buyers and sellers in May and August 2014. Both buyers and sellers report growing optimism. Forty-nine percent of respondents believe it is a better time to sell today than a year ago. This share falls to 42 percent of respondents when asked about selling a year from now. Low mortgage rates and inventories and higher prices are the top reasons given by respondents for selling optimism. Other reasons include an improving economy and labor market. On the other side of the real estate market, 41 percent of buyers believe that today is a better time to buy a house than a year ago, although only 32 percent of buyers consider this to be true over the coming year. Both of these values are slightly lower than in May 2014. The leading sources of optimism among buyers include lower interest rates and prices.

Sellers optimistic in Northern Virginia, Buyers optimistic in all other regions

Considerable 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. Northern Virginia sellers are extremely positive about current and future conditions, although sentiments are slightly lower than in May 2014. Seventy-three percent of respondents in that region believe that the housing market improved over the last year. Additionally, 67 percent of respondents in Northern Virginia report that today is a better time to sell than a year ago, while 55 percent are positive about selling in the coming year. Sentiments, which are growing nationally, could be driven by rising sale prices in the Northern Virginia region.

Southwestern Virginia and the Shenandoah Valley show great improvement since May and appear to be thriving. Unlike in May 2014, more respondents in these regions are optimistic about current and future selling conditions than are pessimistic. The improvements in the Shenandoah Valley are particularly strong. The current selling index increased from -12.0 to 40.9. Consumer sentiment has been increasing in the region since November 2013, which appears to be spilling over to the real estate market. According to trulia.com, in Harrisonburg, listing prices have increased in recent weeks as the number of listings has declined.

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 all regions  except Northern Virginia. Buyers are the most optimistic about current conditions in the Tidewater region and in the Shenandoah Valley. The high optimism could be due to the passage of the Homeowner Flood Insurance Affordability Act of 2014, particularly in the Tidewater region. Buyers are largely pessimistic about the coming year in Northern Virginia, Southside, and the Shenandoah Valley potentially due to fears of rising prices, the same force that is driving  optimism among some sellers in these regions, except for those in  Southside. A continued increase in inventories could mitigate the price increases.

Methodology

Interviewing for The Roanoke College Poll was conducted by The Institute for Policy and Opinion Research at Roanoke College in Salem, Va., August 11-15, 2014. The sample consisted of 603 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. Questions answered by the entire sample of 603 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 frequencies may be found here.

Contact: Dr. Alice Louise Kassens

Phone: (540) 375-2428 Office, (540) 816-8830 Cell
Email: kassens@roanoke.edu