Sarah Jarvis Team at One South Realty

at One South Realty

Financing

Will it Stick?

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Showings begin at 10 a.m.

By 5 p.m., you have 12 offers — 4 with escalation clauses — and another 10 buyer’s agents are trying to get you to wait one more day so they can bring you an offer tomorrow.

bubble gum on shoe

By 7:00 p.m., your $300,000 listing is now under contract at $319,000 with two backup offers and your seller is absolutely ecstatic! They have been calling their friends, bragging about the price, and thinking about all of the improvements they can make to the next house with the extra $19,000.

And while you are happy, you are also well aware that before $319,000 changes hands, it has to get past the appraisal — and the comps are pretty thin.

Valuing Property in an Accelerating Market

Using comparable sales to price property is like driving a car while looking in the rear view mirror.

We have said it many times — using comparable sales to price (or appraise) property is like driving a car while looking in the rear view mirror. Knowing where you have been is important, but knowing where you are going is even more so.

There is no more frustrating event for agents and their sellers than having the appraisal come in below the sales price, especially when offers have already come in. When an appraisal comes in below the contract price, it unleashes a host of negative outcomes that can vary from annoying (increased payments, a larger down payments) to far more destructive (reducing your sales price to the appraised amount or buyers no longer qualifying).

Missed appraisals are huge issue right now in our industry and as long as values are rising, they will continue to be problematic.

The Appraisal is Fundamentally Flawed

Using the ‘If A, then B’ logic, no home can appraise for more than a previous sale.

The logic of the appraisal goes like this: If Property A sold for $X and Properties B and C sold for $Y and $Y respectively, then the subject property must be worth some average of the three. If pricing was static, then this logic would make sense.

But pricing is not static and if a home can only be worth some average of the comparable sales, how can pricing ever actually go up? Using the ‘If A, then B’ logic, no home can appraise for more than a previous sale.

Luckily, the appraiser is allowed to make adjustments for market conditions. In most cases, the adjustment for market conditions is what allows the appraiser to add value over and above the average of the three sales.

And as you would imagine, the adjustment appraisers make for ‘market conditions’ are extremely inconsistent and wholly subjective.

Dodd-Frank

One of the things Dodd Frank did was place a wall between the different service providers in a real estate transaction.

The Dodd-Frank Financial Reform Act, put in place after the Financial Crisis of 2008, was intended to prevent the next financial crisis from occurring.

One of the things Dodd Frank did was place a wall between the various service providers in a real estate transaction. The thinking was that by creating more separation between lenders, appraisers, and Realtors, professional objectivity would increase and the likelihood of fraud occurring would decrease.

Yeah… not really what happened.

What happened was that banks began to choose appraisers at random from a pool (instead of by their expertise in a specific area) and Realtors were largely verboten from speaking directly with the appraisers. The net result has been less accurate appraisals and no realistic platform from which a poor valuation can be challenged.

For agents, as well as the buying and selling public who already struggle to understand the excessively complex mortgage process, how can a house with 3 competing contracts — with escalator clauses — appraise below the contract price? If three people (or more) are willing to pay a specific price for a home, how can the value be anything less than the contract price?

What to Do?

Appraisers would not otherwise know you got multiple offers unless you make them aware. Don’t be afraid to do so.

In some cases, there is nothing you can do.

Some appraisers refuse to engage in any form of debate about values, even when they have made errors (and you would be stunned at the number of errors on appraisals). We have seen numerous times where an appraiser corrected the error, but didn’t modify the appraised value. Go figure.

If your appraiser won’t engage, the only options are to petition the lender to call for another appraisal (which sometimes you can convince them to do) or you can migrate the loan to another lender. Just know that loan migration is expensive, time consuming, and will likely delay settlement.

But sometimes, when you are lucky enough to have a true professional who is willing to listen to your case, you stand a chance for them to make the adjustment.

Sometimes correcting an honest error on the appraisal (such as square footage or some other feature) can make the difference. Tax records are notoriously inaccurate and when used to populate an appraisal, the bad data can skew the results. When you have an appraisal that missed, the first step is to fact check the data with a fine-toothed comb.

Other times, a similar home may be under contract that will be the perfect comparable, but you will have to wait for it to settle to be used officially as one of the comparable sales. If you don’t have the luxury of waiting, sometimes appraisers will be willing to use this information, despite the fact it has not closed.

And when all else fails, you have to challenge the market conditions adjustment by demonstrating the strength of the demand, the lack of inventory and speed at which the home was absorbed. Appraisers would not otherwise know you got multiple offers unless you make them aware. Don’t be afraid to do so as it is an important indicator of value.

Again, there is no guarantee, but if the agent is prepared, objective, and logical, then sometimes a missed appraisal can be mitigated.

Summary

Getting a good price is easy, but getting the home to appraise is when the pro earns their money.

The ‘missed appraisal’ is not going away.

Looking backwards in an accelerating market means a lag before values catch up and those on the leading edge of pricing are the ones who pay.

In order to be not just a marketer of property, but a true advocate for your client, the seller’s agent needs to be keenly aware of the likelihood of a missed appraisal and the techniques available to help lower their client’s risk. Furthermore, when the appraisal does come back low, being able to respectfully debate the valuation with the appraiser and lender is key to minimizing the impact.

In this day and age, getting top dollar for a home requires not only securing a price in excess of comparable sales, but making the price stick. Getting a good price is easy, but getting the home to appraise is when the pro earns their money.

The ‘B Word’ — Bubble

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I’m beginning to hear people whisper the dreaded ‘B Word’ again …

Trust me, I was front row center in 2008. I lived it — and I do not want to live through that period of time ever again. When the market collapsed in the summer of 2008, it was like someone just threw a switch and everything stopped. Phone calls and showings went to nil. Loans got denied with no real explanation. And the worst part was that no one really knew what to do.

a bubble

For the better part of two years, I felt like I had to apologize to panicked sellers who, much like myself, understood neither the reason it had all happened nor when it would all end.

And it was not until well after the fact that the reason the real estate machine stopped became evident.

When the Bubble Popped

when the dust had finally settled, the majority of our marketplace had lost between 20 and 40% of their housing value.

In retrospect, we were all unknowingly playing a giant game of musical chairs. But instead of removing one chair each time the music stopped, someone removed all of the chairs at once — leaving everyone to fight for a place that no longer existed.

The banks had stopped making loans entirely and the market seized up like a Maserati that had lost its oil. It doesn’t matter what asset you own, when no one wants to buy it, it has no value.

Depending on the type and location of your home, the majority of our marketplace lost between 20 and 40% of their housing value. And no one was immune — first time homebuyers, new homes, luxury homes, condos — they all suffered similar fates.

Is There Another Price Bubble?

Markets in high demand where inventory is constrained (i.e. -- urban areas) have actually surpassed values from 2008

So when I hear the word ‘bubble’ being tossed around today, I cringe a bit as the circumstances that led to the hyper-appreciation of 2005-2008 are nothing like the ones that are causing the rapid rise of the values currently.

But since most people tend to focus on price, lets begin there.

Yes, pricing is up substantially from the bottom in 2011.
Yes, pricing has spiked each spring.
Yes, it feels a bit like 2007.

And no one is feeling the pinch of the spike more than the first time buyer, but that is a different article for a different day.

Falling from a high of approximately $260,000 to just above $200,000 in 2011, the average house price in the Richmond region lost 23% of its value, although not each type was affected similarly.

— Newly built properties with every imaginable upgrade, especially ones located 30 minutes or more from the urban core, were most impacted.
— Reasonable housing in established neighborhoods underpinned by the best public schools were impacted less.
— Quality urban housing near public transportation and walkable amenities — and where new inventory is difficult to add — was impacted the least.

So where are we now? When you look at the sub-markets individually, a clearer picture emerges.

— Markets in high demand where inventory is constrained (i.e. — urban areas) have actually surpassed values from 2008.
— Suburban markets that are 30 minutes or less to the urban core are almost back to the 2008 valuations.
— Markets outside of the 30 minute commute are still off from 2008 highs.

The takeaway here is that each market is more localized than ever before and even segments within very short geographic distances from one another will likely behave quite differently. Buyers and sellers need to be careful when trying to apply anecdotal evidence from one market to another without understanding the underlying inputs.

If you expect Midlothian to behave like the Museum District, or Crozier to behave like Church Hill, then you are probably in for a bit of a surprise.

Lending and Homeownership

we increased the buyer pool by not only decreasing the credit standards required to qualify for a mortgage, but the equity required to make the down payment

So lets talk about the state of the mortgage market right now.

Between Dodd-Frank, the collapse of the mortgage insurance industry, and the realization that housing values don’t always go up, the mortgage industry of today looks little like it did in 2008.

Adjustable Rate Mortgages

According to the Federal Reserve Bank of NY, adjustable rate mortgages were nearly 40% (38.5% to be specific) of the mortgage market in 2005. By 2015, that percentage had fallen to just over 5%.

Effectively, 95% of homeowners today will have the same mortgage payment in 2, 5 and 10 years (or more) versus 40% of the market that a mortgage payment that doubled in a 2 to 3 year span before the bubble.

Mortgage vs Income

And check this out: As a country, we now spend far less of our collective incomes on housing, at least in comparison to the period before bubble popped.

So fewer people own houses and they’re using less of their disposable income to do so. That feels healthy to me.

Homeownership Rate

Furthermore, look at how few homeowners there are now compared to 2008.

Homeownership peaked just before the crash and fell to levels not seen since the 1960’s. This implies to me that those who own housing are more qualified to do so and those who do not have the credit, income, or equity to own are electing to remain renters.

Equity

And finally, how does equity in housing look? Much better than only a few years ago.

Credit Standards

Beginning in the middle to late 1990’s, we increased the buyer pool by not only decreasing the credit standards required to qualify for a mortgage, but the equity required to make the down payment. We then artificially dropped the monthly payments to allow those with lower incomes to qualify by giving buyers adjustable rate mortgages where rates sometimes doubled only a few years into the loan.

The system was doing a phenomenal job of artificially creating more buyers — unfortunately, the buyers being created were the riskiest type and the ones least able to withstand a market adjustment. And while more buyers equals more demand and more demand equals higher prices, when the music stops, buyers on the fringe go away. When a highly leveraged market adjusts, really bad things happen.

Fast forward to today — according to Core Logic, the quality of the mortgage credit issued was at it highest since 2001.

So until lending standards allow for the marginally qualified buyer with little to no down payment to enter the market in droves, the likelihood of a 2008-eque bubble remains extremely low. And currently, the buyer credit profile demanded by Fannie Mae, Freddie Mac, and FHA remains far more strict than the loan products so prevalent in the pre-bubble days of 2005-2008.

Inventory

Since 2008, the supply of houses has dropped from roughly 10,000 to just over 3,000.

If you talk to any industry professional about the market, the word ‘inventory’ will be used repeatedly and usually in conjunction with words like ‘crisis’ or ‘lack of’ or ‘we need more.’

See the chart below to get the full impact:

Since 2008, the supply of houses has dropped from roughly 10,000 to just over 3,000.

That is insane.

And when you look at the markets individually, you get an even more pronounced effect:

The Fan District and Jackson Ward had over 300 active properties in February of 2008. There were 30 in February of 2017.

Is ‘insane – er’ a word?!?

The bottom line is that the difference between the pricing increases heading into 2004-2008 and those in 2014-2017 is much more about a constrained supply than an abundance of marginally qualified buyers showing up with highly leveraged adjustable rate loans.

Housing Starts

the tight supply conditions are not going to be solved by new construction.

So how do we solve the inventory problem? By building more housing, of course. All we need to do is get those builders to crank it back up and start building like 2006 again. If we can get the inventory levels back in line with say, 2000 or so, then everything should be fine, right?

Not so fast. Look at this:

I don’t know about you, but this doesn’t appear to be a market that is supplying too much housing to itself, does it?

Why are we not building more? Is it builder confidence? Material price increases? Building codes? Banking? I’m unsure, but housing starts don’t appear to be adjusting to keep pace with demand and are still below historical norms by a significant amount.

At least in the near term, the tight supply conditions are not going to be solved by new construction.

So No Bubble?

what we have been experiencing in adjustment back to trend

I’ll go ahead and say it — No, this is not a bubble. As a matter of a fact, we are still in the throes of recovery.

[ But if you would like to read some differing opinions, here you go … ]

Are we going to have continued years of 5-7% or more appreciation in the market? No, I do not believe we are. Interest rates are beginning to rise and housing prices in many markets are already causing affordability issues. So no, do not expect to see prices continuing to rise unfettered for the next several years.

Remember:

  • We have anywhere from 60-90% less inventory than we did in 2008
  • Pricing is only now approaching 2008 levels
  • Homeownership is still at 50 year historic lows
  • Housing starts are down significantly
  • And the dangerous adjustable rate mortgage is a very small part of the market.

It is not 2008 all over again.

Yes, if you entered the market in 2012, then all you have seen is rapid appreciation. But in reality, what we have all been experiencing is adjustment back to trend. And yes, if you are a renter trying to enter the market, it feels extremely frustrating to see multiple offers on the houses you want to buy and contract prices being bid well above the asking prices. But just because there are bidding wars — just as in 2006 – 2008 — does not mean it is a bubble.

So What Could Cause Another Bubble?

The severity of any potential adjustment will be tempered by the fact that inventory is low and credit standards are far more in line with historical norms.

Could something else derail the housing market? Absolutely.

Rising interest rates are the obvious threat, but so is the potential dismantling of Fannie Mae and Freddie Mac. And we should not discount our friends at the Federal Reserve, either. They totally missed on the last one and are probably hyper-sensitive to finding a new one. If they decide that they think there is a bubble and begin to take steps to stave it off, they could probably cause the very adjustment they fear.

And then there is Wall Street. Left to its own devices, it could figure out a way to game the system again. But at least for now, I don’t see their fingerprints on predatory lending like I did a decade ago.

And if it isn’t the Fed or Wall Street, it could be our elected officials in Washington DC. While Wall Street takes a lion’s share of the blame for 2008, DC deserves as much, if not more, for putting it all in motion. May argue the real roots of the crash begin in the early 1990’s with the rewriting of the Community Reinvestment Act. Is the CRA a direct cause or more of an unintended consequence? Probably a bit of both.

Regardless, as 2008 so powerfully demonstrated, the nation’s lending practices are the primary driver of housing values. Both government, at all levels, and Wall Street are inexorably intertwined with housing. If rates spike to 10% or suddenly the 30 year mortgage is no more, then yes, prices will adjust and it will be painful. But the severity of any adjustment will be tempered by the fact that inventory is low and credit standards are far more in line with historical norms.

Lets Tap the Brakes on the ‘B Word’

So before we start dropping the ‘B Word’ on the housing market, lets make sure we pull back the curtain and look at the cause for the recent price increases. Those who predict doom are all eventually correct.

Here is what to watch for:

  • When you begin to see a bevy of new ‘Mortgage Insurance’ companies enter the market, make a note.
  • When you begin to see 1 year adjustable rate mortgages being used, especially for first time homebuyers, start paying closer attention.
  • When you begin to see the ‘interest only’ mortgage product being offered for long term purchases, get nervous.
  • When you begin to see loan products that offer 100% or more leverage, get really nervous.
  • When you see homeownership levels approach 70%, you might want to put some cash under your mattress.
  • And when you see the 125% loan product make it back into the lending lexicon, hunker down as it is going to be a long winter.

For now, we are safe, at least in comparison to 2008. Something else might get us but just know that none of the root causes that almost killed us all in 2008 exist currently.

The Emerging Desperation in Buying

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In the past several springs, the market was pretty insane — full price offers in hours, multiple contracts, bidding wars — and do you know what? It is coming again.

happybirthday

While an insane spring market is not overly noteworthy (the springs are always busy), it is the intensity of the insanity that is worth mentioning.

And it’s getting worse.

The inventory issue

This is the least balanced market since the 2008 - 2010 market, albeit in the reverse ...

Each of the past three years, the market seems to begin earlier and become more focused on the months of February through May. See the chart below and look at how much of the transactional volume is being done in the front half of the year.

And then notice how each spring has gotten worse. In April 2014, 1,700 contracts were accepted by sellers. In April 2016, the number jumped to nearly 2,300 — which is an increase of 35% in a two year span.

Okay, so we’re expecting more people to buy earlier this year than last. Whats the big deal, you ask?

Well, when you layer on the inventory issue, demonstrated in the chart below, the issue comes into focus more clearly.

The bottom line is that substantially more people are buying, but there are substantially fewer houses to go around.

The number of people seeking housing in a market becoming increasingly starved of options is contributing to our least balanced market since 2008 – 2010, with the exact opposite scenario.

Buyer desperation abounds

Recently, we have begun to see many more instances of home seekers running ads, canvasing communities, and otherwise announcing that they are looking for houses in specific neighborhoods and trying to intercept the home before it comes to market. I have heard of people looking for ANY indication of a potential listing (painting, landscaping, photographers, PODS, and even Realtors’ cars in the driveway) and soliciting sellers with offers in an attempt to find a home, especially in the most inventory constrained neighborhoods.

Personally, I think it is a dangerous development.

First, a disclaimer: I recognize that, as a Realtor, of course I would not like to hear about buyers going directly to sellers to purchase homes. So anything I say from here needs to be filtered by the fact that I am an agent and any ‘agentless’ transaction undermines my existence. 

A word to sellers

Disclaimer aside, instances where a buyer directly approaches an unrepresented seller, especially in a hot neighborhood, and pays anywhere near market value are pretty much non-existent. The entire reason that a buyer is walking around and trying to find a home to buy is that they don’t want to pay market value for the home and are trying to intercept the home before it becomes publicly available.

The same competitive pressure that drives price also drives terms...

Don’t anticipate that the value you can command for your home has been set yet. It has not. When exposed properly and demand enhanced (as all good agents know how to do), you will get at least market value for your home, if not more. Selling a home before exposing it to the market leaves money on the table.

It is also important to note that your typical residential contract has about 3 paragraphs dedicated to price and about 10 pages dedicated to terms. The terms of a contract are hugely important in shifting risk from one side to the other. A contract with a good price and weak terms is not a good contract. The same competitive pressure that drives price also drives terms.

Yes, the allure of selling your home direct and saving the commission are strong, but the savings are fool’s gold when compared to a properly marketed home where competition is high.

A word to buyers

Well over 90% of the homes that are transacted flow through MLS ...

As a buyer, when you don’t involve an agent, you risk of missing the largest source of homes for sale; the MLS. Does the MLS have every available home in it? No. But by most counts, well over 90% of the homes that are transacted flow through MLS and alienating those who curate housing availability information (Realtors) is a poor strategy.

As an agent, when I know that a buyer is also attempting to go direct to a seller and not include me, I will reallocate my time to finding housing for clients who have officially engaged me in a formal advocacy role, and I am pretty sure I speak for my peers on this issue, too. Simply put, we’re going to work with those who want to work with us.

Buyers, you are more than welcome to approach sellers directly, but when you do, you cannot expect that the agent community will put you in front of the clients with which they are formally engaged.

We are frustrated, too …

If ever there was a time to involve a pro, it is now...

There are many more reasons over and above the ones discussed above — lending best practices, client-friendly contract structures, appraisal management — but we will save those for a later date.

Just to be clear, I am not arrogant enough to suggest that if you don’t use a Realtor, something bad will happen. Frankly, going direct might work for both parties. But the likelihood of a positive outcome is far lower than the tried and true, century old method of transacting a home.

As agents, we fully recognize the extreme market conditions. And much like yourselves, we are as frustrated with the inability to make the perfect home appear as much as you are. But if ever there was a time to involve a pro, it is now.

Being able to secure the perfect home involves using all of the existing resources and databases, especially given today’s skewed balance. Find an agent who is diligent, hustles, and understands how to write a winning offer in a competitive offer situation, and you will have found the best way to navigate the market conditions that will define the 2017 spring season.

What I Learned From Flipping Houses

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Flipping.
Renovating.
Fixer-Upping.

via GIPHY

No matter what name it goes by, buying a home, fixing the problems both large and small, and reselling it is something that we all love to do. Taking what was old, dilapidated, run down, dated, and/or under-improved and making it cool, hip, and modern is pretty much every real estate person’s dream.

But all of the HGTV mojo aside, flipping houses teaches you a lot — mostly through the mistakes you make — and I can honestly say that the number of times I have bought/renovated/sold houses has made me a far better agent for my clients than anything else I have ever done as a Realtor.

Here are just a few of the lessons I have learned:

You Make Money When You Buy — AND When You Sell

The old adage goes something like this — “you make money when you buy real estate, not when you sell.” Which is another way of saying that you have to acquire the property correctly in order to make the money when you sell it. Paying too much when you buy a home prevents you from making any money when you sell it.

But a great deal of effort goes into selling a property, too. From staging to timing to negotiating, knowing how to maximize value on the sale side can be equally important. Often times, those less versed in the art of selling leave significant monies on the table unnecessarily. Spending some time understanding the fundamentals of marketing a property correctly can increase the yield by 2-5%.

HGTV is the Devil

Yes, I watch it — and yes, it is addicting. Everyone in my family, including the 5 year old, loves the before and after shots and seeing the tearful homeowners when they walk into their new, completely rebuilt, award winning and fully furnished renovation.

But it is a total fantasy being passed off as an easy reality.

The expectations that are set about a) how easy it is to find properties to renovate, b) how inexpensive it is to renovate the homes, c) how risky it is to do so, and d) how hard it is to find great contractors is borderline criminal.

The reality is that finding — and acquiring — good deals is extremely difficult. Likewise, renovation is both more time consuming and far more expensive than most understand. The number of horror stories I hear versus the number of fairy tales has got to be 10 to 1 (or worse!)

Don’t let HGTV set your expectations.

The Market Overestimates the Costs of Cosmetic Repairs and Underestimates the Cost of Structural Repairs

If I had a nickel for every time a client was scared off by a home that needed paint and carpet or thought that a basic kitchen renovation would cost $50,000, I would have a lot of nickels.

Conversely, if I had a nickel for every time thought it would cost $500 to ‘open up the kitchen into the living room,’ I would have quite a few nickels then as well.

For whatever reason, people tend to see damaged sheetrock, stained carpet, and kitchen cabinets from the 1970’s and assume the worst. In reality, these items can be purchased and installed with relative ease and at low costs. But when you begin to open and/or move walls, things get expensive quickly. Anything structural requires all of the trades in order to complete the task. Moving a wall  is only somewhat complex, but when you move a wall, you generally need to relocate plumbing and electrical as well as re-do the sheetrock, paint the entire room, and fix the floors.

So if you plan to open walls, add baths, or finish additional space in a home, make sure to pad your estimates.

Know Your Values AND Your Costs

Back to my pile of nickels — if I had a nickel for every time I heard a seller tell me how much something costs as a justification for a higher price, I would have a really big pile of nickels.

The argument goes something like this — if I put in an exotic granite for $25,000, then my home is worth $25,000 more than my competition. Or, if I put my floor joists 12” on center instead the customary 16” on center and it cost me $3,500 more, then the home is worth $3,500 more than the competition.

I’m sorry, but it doesn’t work that way — the market does not necessarily value things in the same way that owner’s do.

Those who make the most money in real estate inherently understand that the cost of an item (or a material) and its value are not necessarily one and the same. Sometimes, a simple but cool $50 light fixture can impact value far in excess of its cost much in the same way that a $30,000 surround sound system will rarely pay you back.

Knowing how to make these types of choices wisely is an art and those who get the cost/value ratio the best, generally make the most money in their renovations.

Summary

Without a doubt, the renovations we have done personally have made us far better advocates for our clients. Having lived it — breathing in the dust, dealing with lenders, organizing the contractors, hearing the feedback — sharpened our sense of how to best buy, renovate, and sell.

It is this knowledge we pass on to our clientele each and everyday.

2017 Predictions

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2017 already — sure got here fast, didn’t it?

It seems like only a few short months ago, we were under 2 feet of snow and wondering if we would ever be able to get our cars out of the driveway. But the snow did melt — and then it got hot (like REALLY hot) and then, there we were with short sleeves on for Thanksgiving.

untitled-design

Go figure.

But it was an interesting year on a lot of levels, not just weather. Anyone notice the little election thing that just happened? Who wants to go through that again??

This past politial season was the most contentious I remember — it was insane. And I am not sure we are going to see anything resembling normalcy coming out of DC for the forseeable future. Political affiliation aside, the next several years will look different than the past several for sure. I think we are all still trying to figure out what that means — stay tuned.

And while the national election was one we will all remember for quite some time, the local elections were also pretty interesting. Did you know we also had more turnover at City Hall than in any year prior? Hopefully, some new blood will help take us where we need to go, but that’s another post for another day.

So in 2017, What Do We Expect?

At One South, we spend a lot of time not just helping our clients transact real estate, but trying to help them understand the strategies behind their decisions. And in doing so, we need to be looking out over the horizon and making sense of the thousands of inputs that drive our marketplace — local and national economic conditions, pricing, inventory, interest rates, government regulation, devleopment momentum — just to name a few. Simply put, we feel it is our duty to stay in touch with the goings on that impact our market.

Last year, we published our predictions for 2016 to give our clients the insight they needed to make the best decisions during calendar 2016. We are proud of both how well they were received and more importantly, how accurate they were. So we decided to do it again.

This year, we elected to put out our thoughts in audio form (with some bullet point highlights) to make them a little quicker and easier to absorb.

Enjoy!

What are we expecting for pricing this year?

Cautiously optimistic with moderate gains, especially where inventory is constrained. Higher price points are probably less likely to see the same gains as lower price points.

  • Pricing is likely headed up, but not as fast. Inventory and interest rates will be the ultimate arbiter of pricing.
  • Resistance at higher price points in Richmond (we call these ‘Market Caps’ and you can read about them here)
  • Some other markets are showing some weakness (NY, SF) at the uber-upper price points

(To learn more about how to navigate the spring market, read this)

What is the forecast for mortgage interest rates?

Rates are already rising a bit, but any substantial inflation still seems a ways off. The global economy is still somewhat sluggish and Brexit’s impact will be long lasting as they untangle the UK from the EU. Ironically, Europe’s uncertainty is probably decent for the US in the short run as investors look for safety.

  • Uncertainty may be mistaken for inflation and part of the post-election bump in rates.
  • Shorter term mortgage products will emerge as alternatives to the 30 year mortgage we are used to seeing in the middle to upper 3’s.

A quick note — all bets are off if the new administration chooses to restucture their relationsip with Fannie Mae or Freddie Mac as some have suggested they might. If these two entities are fundamentally modifed, the entire housing landscape will change considerably.

(And here is a good primer on how interest rates are determined)

The current inventory situation…

Inventory is still an issue and has caused increasingly active spring markets. The distribution of sales has become more and more centerned around the early and late spring.

  • Inventory is still extremely tight, especially where new houses cannot be built
  • Where new homes can be built, inventory is more in balance
  • ‘Affordable’ is still lacking

The following graph shows the number of available homes for sale in any given month going back 10 years.

The number of available homes is off over 50% from its height in 2008/9.

Pretty crazy, isn’t it?

The following graph shows the number of houses ‘under contract’ during any given month going back 3 years.

From January to May, the number of homes under contract increases by 100% and then falls quickly once the summer hits. And each year the peak has increased.

You need to be prepared.

How will the political climate impact the industry?

I think we are all still guessing but most of the initial indicators are for a more ‘business-friendly’ mentality from DC.

  • Think of the new administration as more likely to repeal rather than add more regulation
  • Regulation tends to hurt the little guy and stifle competition
  • Expect a more ‘business-friendly’ environment

(Here is what we wrote about Dodd-Frank and the CFPB last year)

What is up in the world of new houses?

home building remains healthy for the most part, but higher priced new homes are not as strong as those in the middle and lower price points. Oh, and we need more affordable new homes.

(for a little more on dealing with a new home builder, here are some of our thoughts)

How about new new projects within the city?

A lot of really good choice right now.

What to avoid doing as we head into 2017 ?

If you are entering the market for the first time in a while, it is not what you remember. The spring market is hyper-competitive.

  • Waiting too late to get started/not being prepared
  • Relying too heavily on Zillow
  • Relying on one data point/anecdotal evidence rather than looking at the big picture
  • Assuming that the fall market is similar to the spring one

(Here are some tips about how to use the sales data to your advantage)

Things to be cognizant of as we head into 2017?

Lots of development momentum in a lot of Richmond’s areas. Scott’s Addition is on fire and Manchester is poised to become its own city.

  • Repeal versus new processes
  • Broad Street has never been healthier
  • Scotts Addition
  • Ballpark
  • Manchester

(For more on some of the things we think are important in the future of Richmond, read this…)

Thanks for reading and if you have any other questions, please let us know and we will be more than happy to answer them!

Good luck to all in 2017 and if we can help in any way, reach out to us.

Sarah, Rick Jarvis, and Team

804.201.9683

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kendall@richmondrelocation.net

804.305.2344

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