Virginia Real Estate Index: Low mortgage rates, strong state labor market, rising consumer sentiment drive real estate market optimism

Salem — Sentiment concerning the Virginia real estate market remains strong, sustaining the strength from the first half of 2015. The seasonal dip in market optimism is less than the prior two years. Poll respondents also remain split over the direction of mortgage rates in the coming year, leading to an ambiguous impact on the market. Median listing prices continue to rise in Northern Virginia, where inventories are up over 11 percent in the past year.

Expected seasonal declines, market remains strong

Overall sentiment about the condition of the Virginia real estate market remains strong, although index values are down slightly from last quarter. As temperatures fall and we head into the holiday season, demand for homes wanes and sellers pull back on listings. Close to 27 percentage-point more respondents feel optimistic, than pessimistic, about the market today, down three points since last quarter.

Figure 1 shows the real estate indexes for the Commonwealth. Fifty seven percent of Virginians believe that the condition of the real estate market has improved since last year, while 20 percent  believe that it has worsened. Additionally, 50 percent believe that conditions will improve over the next year, down two points since August. Fifteen percent believe that the market will decline in the coming year, up 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 factors are likely playing a role. The Virginia labor market is stronger than the nation as a whole. The preliminary October 2015 seasonally adjusted unemployment rate in the Commonwealth is 4.2 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 remains close to its highest levels since late 2011.

Figure 2 shows for-sale inventories and median listing prices in the Virginia real estate market. Housing inventories are down slightly in Virginia but no more than is seasonally expected. In October, statewide inventories were up almost 223 from a year prior and well above the 15-year median value. In October, the average listing price was almost $15,000 higher than a year prior and higher than its 15-year median value. 

Figure 2. Median list price and for-sale inventory, Virginia; (downloaded from zillow.com 11/22/2015)

Real estate markets face potential push backs. Some respondents anticipate rising mortgage rates, which are an added cost of buying a home. Over 21 percent of sellers who believe that markets will worsen in the coming year cite anticipated rising rates. Mortgage rates are trending downward in the Commonwealth. On Nov. 23, Zillow.com reported an average mortgage rate of 3.79 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 these rates for the nation and the Commonwealth over the past two years. 

Figure 3. 30-year mortgage rates February 2013-February 2015, US (green), Virginia (blue) (downloaded from zillow.com 9/2/2015)

Figure 4 shows index values for sellers of real estate in Virginia over the last year. Seller optimism about the coming year is strong and continues the upward trend of 2015. Twenty-eight percentage point more respondents believe that the coming year will be a good time to sell a home, up slightly since August. Low mortgage rates are the primary reason for selling optimism, followed by higher housing prices, higher incomes 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. Twenty-two percentage point more respondents believe that now is a good time to buy a home. The leading source of optimism for buyers is lower mortgage rates. Twenty nine percent of those who believe the coming year will be a good time to buy attribute their sentiment to lower rates. Other reasons include lower prices (20 percent) and higher incomes (17 percent). Twenty six percent of respondents who report that the coming year will not be a good year to buy a home attribute the sentiment to rising rates, while 29 percent cite rising overall prices.

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

Prices and inventories continue to rise in Northern Virginia

Figures 6 and 7 show current and future conditions, respectively, for buyers and sellers across the six regions of the Commonwealth. Buyers are optimistic about the current state of the real estate market across all regions of the Commonwealth particularly in the Shenandoah Valley, Tidewater and Southwest regions. Buyers are least optimistic in Southside and Northern Virginia, but more buyers are optimistic than pessimistic.

Figure 8 shows the mean listing price for homes relative to the 15-year median value for select cities across the Commonwealth. Buyers' concerns in Northern Virginia could be due to the higher than normal listing prices in areas, including Washington, D.C. Moving into 2016, buyers are less optimistic, particularly in Northern Virginia, suggesting home prices and interest rates are anticipated to rise over the coming year. Sellers are optimistic about the current real estate market compared to the past year, except in Southside. Optimism in Northern Virginia and Central Virginia is strong and persists into the coming year reinforcing buyers' concerns that prices will continue to rise. 

Figure 6. Current Conditions by Region (black line = thriving)

Figure 7. Future Conditions by Region (black line = thriving)

Figure 8. Select city median list price (blue dot = median list price last 15 years, orange dash = November 2015 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., November 9-13, 2015. A total of 603 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 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.

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.

The Roanoke College Poll is funded by Roanoke College as a public service.

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