Tag: residential real estate

Charlottesville Realtor Denise Ramey has a client who put in multiple bids for houses over the summer, when the market was booming, but they were all turned down. Now, with mortgage rates topping 7% for the first time in more than 20 years, he’s not sure if he will buy a house at all — or whether he might look outside Virginia to markets where he can get more bang for his buck.

The rate on a 30-year fixed mortgage, which many homebuyers use to take out loans, averaged 7.08% for the week of Oct. 24, sending ripples through an already volatile housing market. It was up from 6.94% the previous week and more than double the average of 3.14% a year ago, according to Freddie Mac’s primary mortgage market survey.

The client, who was shopping for houses listed at above $800,000, represents the typical buyer Ramey works with: people qualified for a mortgage and able to put 15% to 20% down.

“That was a real eye opener for me,” said Ramey, owner of Denise Ramey Real Estate LLC/Long & Foster and the president of Virginia Realtors. “I expected he would be reducing the price range, but I did not anticipate the level of frustration and negativity he expressed today.”

‘Something psychological’

Mortgage rates have been rising swiftly for the past few months, said Lisa Sturtevant, chief economist for Bright MLS, but there’s something psychological that kicked in with rates rising above 7%, she notes.

“It’s higher than anyone in this demographic cohort can remember,” she said.

First-time homebuyers — who tend to be younger with less income — will be impacted the most, she said, by a double whammy of higher prices and higher interest rates. Repeat home buyers, who have benefitted from record growth in housing equity, will be less impacted, Sturtevant adds.

The rise above 7% comes as a shock.

“A few months ago, most places were not forecasting 7%,” said Ryan Price, chief economist for Virginia Realtors.

Big unknowns include whether the Federal Reserve will raise rates again as expected during its Nov. 1-2 meeting and how much inflation grew during October.

Earlier this year, inflation hit a 40-year high, and although the Federal Reserve has raised interest rates to battle the rise, prices have continued to spike.

“In general, if we see inflation come down, the [Federal Reserve] will ease up and settle in at a rate that could hit as high as 8%,” Sturtevant said, adding that it’s likely that rates could settle in between 7% and 7.5%. Double-digit rates are unlikely in her opinion.

Price had a similar view.

“We’re in a pretty volatile stretch of market right now so it’s pretty hard to predict,” he said. “Until we see sustained evidence that inflation is receding, it’s likely that upward pressure on mortgage rates will continue.”

Changes in inventory

In September, 10,172 houses were sold in Virginia, about 3,000 fewer than a year ago, or a 23.1% decrease, according to Virginia

Realtors. At the end of the month, there were 19,793 active listings, a 2.9% supply drop from a year ago. The median sales price statewide was $365,000, up 4.3% from a year ago.

But the inventory situation is improving, Sturtevant noted, because there are fewer potential buyers making offers. She doesn’t see a “balanced market” happening until next year.

“There may be fewer buyers, so sellers are competing for fewer buyers, but at end of day, sellers will still be in the driver’s seat next year,” she says.

With buyers pushing pause on home searches as rate increases leave them with less purchasing power, “some sellers are [in turn] likely spooked by this cooling demand and more are reluctant to list their property right now,” Price said.

In Virginia, price growth will slow in the Northern Virginia suburbs and Richmond, but regions such as Hampton Roads — coastal markets — and places where people have second homes, are at the biggest risk for declines. “Zoom town markets” — scenic places with high-speed internet access that attracted remote workers, such as the Shenandoah Valley — have had to reset to local incomes instead of appealing to relocating buyers who were willing to pay higher prices. Metro areas are more stable.

Sales activity is slowing down in most places in Virginia, which is not a new trend. It started about a year ago, Price noted, when the market started slowing, but the slowdowns have accelerated in recent months due to increased interest rates.

Where Ramey is, in the Charlottesville area, available housing inventory remains lower. When a property does come on the market in an area people find desirable, such as Western Albemarle County, there will be multiple offers.

Normally, at this time of year, she would have 10 to 15 houses under contract to close in December. But not this year. “We’ve had another great year, but what I’m seeing is, it wasn’t even a slowdown, it was a ‘hit the brakes’,” she said.

“It will be interesting to see what plays out. It really is that crazy of a market right now, where it’s very transitional.”