So in case you haven’t heard, inventory is down.
Like WAAAAY down.
Like really WAAAAAY down.
Like never before this low in the history of housing low.
I mean low.
And while we can sit here with our clients and lament the conditions (which we do — trust me), I thought it might be interesting to ask why this shift has taken place.
The Urban Inventory Crisis
To give you a sense of how much the market has changed, take a look at the inventory chart below.
The chart shows the inventory of available listings in the City of Richmond.
Pretty scary, huh?
It can be argued that the level of inventory in some of the City’s sub-markets (Fan/Museum District/Byrd Park) has dropped 75 to 90% from where it was a few years ago. The rarity of this condition is up there with seeing Bigfoot riding a unicorn while talking to Elvis.
Think of it this way: You’re standing in the coffee aisle of a grocery store with two others and there are 10 total bags of coffee. No real pressure, right? Now imagine there are 10 of you and only 1 bag and you haven’t had your morning cup yet. Yeah, there is going to be a brawl. [ If you would like to learn more about how to best buy housing in this market, check out our article on Winning in the Spring Market here. ]
The real estate market feels a lot like that.
Renters Saved the City
I am a lifelong Richmonder and I have never seen the city in better overall condition. Been on Broad Street lately? The transformation is amazing. Manchester? Ditto. Scotts Addition? Unreal. Main and Cary Streets? Battery Park? Brookland Park? Fulton Hill? Church Hill? Woodland Heights? They are all rolling right now.
All of the urban neighborhoods have momentum like I’ve never seen before.
The bevy of apartments that were developed in Shockoe, Manchester, Jackson Ward, and the other neighborhoods of Downtown fundamentally changed Richmond by introducing a base of residents to neighborhoods that had not existed before. The vacant warehouses came alive, underutilized office spaces were converted to living spaces and vacant parking lots were built upon. In the past five years, some estimate 10,000 new apartment units have come on line — with many many more on the way.
This net new residential base then spawned new restaurants, cafes, startups, pop ups, and other retail that had previously not existed. Furthermore, the development of new creative offices and shared work spaces allowed suburban businesses to relocate into urban properties that better suited them in both style and location. Being in city the became an ‘it’ thing and the new urbanite didn’t want to drive to Innsbrook every day. Live, play, work became a reality and with it, more and more who craved the lifestyle.
The urban core is no longer a collection of vacant warehouses, an ever-changing club scene, and surface parking lots. It is now a vibrant community supported by a thriving and independent neighborhood economy.
And with it, a growing population that now needs housing.
The chart below supports the assertion:
The Richmond Public School System is on the Rise
Have you taken a look at the RPS lately? It would surprise you quite a bit.
The older generation of Richmond has a totally different relationship with the school system than the next generation does. For decades, city schools faced a host of issues that the county schools never could have imagined dealing with. Without getting too deep into the uncomfortable history of Richmond’s slow decline beginning in the 1970’s, suffice it to say that the crushing poverty that existed within the city limits manifested itself in a public school system that was overwhelmed by the issues it faced.
Fast forward to today and the budgets are fuller, City Hall is less dysfunctional, poverty is less prevalent and, most importantly, the overall Richmond region seems to recognize the need to help the schools rather than ignore them.
Is the RPS now without issues? Hardly. But I truly believe that each and every day, the RPS improves its position, allowing the population the City has attracted to stay longer and support the rapidly growing economy.
The 4% Mortgage
Do you remember 7% interest rates?
5%?
4.5%?
It has been nearly 20 years since 30 year mortgage rates were consistently above 7%.
Take a look at this chart.
If you are a homeowner with a mortgage rate above 5%, then you have been asleep at the wheel. The mortgage environment has never been better and if you have not refinanced into a stupidly low mortgage rate, then you need to run, not walk, to your local mortgage representative and refinance.
The large majority of homeowners have secured long term financing that is as favorable as it has ever been. And when you have a 3.5% interest rate locked in for 30 years and your equity is rising daily, buying a new home doesn’t feel like a great decision.
I Hate Applebee’s
Hate is a strong word, but given the choice of where to eat, I would take just about any individually owned restaurant in the city over a chain on Midlothian Turnpike any day of the week.
For years, the empty-nester population, when faced with the downsizing decision, typically elected to purchase a one level/maintenance free home somewhere near where they had lived for the last 20 years. Most planned neighborhoods included a section of ‘villas’ that targeted the 55+ crowd — and for years, they sold incredibly well.
But as the City has reinvented itself, many suburbanites who would have previously purchased the retirement villa in Glen Allen or Midlothian are instead electing to call the city their new home. They crave the walkable lifestyle and inherent amenities that urban living provides and being close to Carytown, the River, museums, and restaurants seems far more appealing than being close to Applebee’s, Outback, and another dying strip mall.
Damn You, HGTV
Admit it, you love to watch.
Rehab Addict, Fixer-Upper, Property Brothers — all of the shows on HGTV dealing with renovation have helped us fall in love with the idea of finding the diamond in the rough and making it our own.
These shows, along with incentives like tax abatement and Historic Tax Credits, have spawned a new generation of urban homebuilder; the professional renovator. These individuals and teams who buy, renovate, and sell have also helped raise the profiles of the long ignored neighborhoods of Richmond which has in turn, helped increase demand in the city. [ And if you want to read our article about the renovation community, you can find it here ]
Has it helped bring life back to some formerly blighted neighborhoods? Of course.
Has it created a set of newly renovated houses? A few, but not enough.
But has it also created even more pressure on an already stressed supply? Again, yes it has.
Renovation alone will not solve the problem.
Summary
So …
— apartment dwellers want to stay
— current owners don’t want to leave
— empty nesters want to come back in
… and thus we find ourselves in the environment we are in with home prices shooting up, multiple bids on everything worth buying, and the existing population staying longer with better schools, sub 4% mortgages, and their equity growing at incredible rates.
And I don’t see it changing.
Unlike Chesterfield, Henrico, or Hanover, the City of Richmond has no ability to build its way out of the problem. There are not thousands of acres of land available for development of planned neighborhoods 3 minutes from Carytown. It would be great if we could build another Ginter Park right next to Ginter Park, but, obviously, it cannot be done.
The supply is fixed and as long as the demand continues to increase, you will see the same conditions exist and exist for the foreseeable future. So as long as the city continues to improve, the pressure on the existing housing will become even more intense.
If you are thinking about coming, you should get here now. The trends that are driving the appeal of the city are not about to change and each day you wait means higher pricing and fewer choices.
