When Gail Courville decided this year to move closer into the Richmond metro area from Serenity Farm, her 109-acre Goochland County estate, she faced a real estate market vastly changed from the last time she relocated, back in 2014.

The interest rate on the nearly $900,000, 5,000-square-foot home she wanted to purchase in Henrico County was 7.25% — more than twice the 3.25% interest she paid on her Goochland property, for which she paid $1.49 million. Prices had risen, of course, but housing supply had shrunk dramatically.

A former home health care agency director, Courville was undaunted.

“You know how you just know when it’s right? Everything about it flows,” says Courville, who closed on her new Henrico home in July.

Courville is one of many Virginia buyers who have been navigating a housing market that’s been dramatically reshaped in recent years. The below 4% interest rates that followed the Great Recession evaporated following the COVID-19 pandemic, while prices have continued to escalate. That’s led many prospective buyers — including baby boomers who’d otherwise be downsizing into smaller homes and moderate-income buyers wanting to scale up to larger houses — to hold onto their property.

Nationally, pending home sales fell in April to their lowest rate since the early days of the pandemic. A Gallup poll showed 21% of Americans say it’s a good time to buy — a reversal of sentiment from most of the 21st century so far.

In the Richmond market, however, pending sales are up.

Courville was aided in her decision to buy by 76 years of wisdom and a history of buying and selling real estate that included a memory of 17% interest rates when she bought her first home in the 1970s. She was also assisted by a real estate broker with whom she’s worked for 12 years, since she bought that Goochland farm.

Courville’s agent was Dare Tulloch, an associate broker at Long & Foster in Midlothian and past president of the Richmond Association of Realtors. Like Courville, she’s seen a lot.

“People always have to move for one reason or another,” Tulloch says. “I think people are realizing the interest rates are not going to change overnight. People are thinking, how much longer do I want to live with mom and dad, how much do I want to pay this rent rate? There are a lot of things flat in their face saying, ‘I need to go ahead and do something anyway.’”

Supply and demand

Virginia’s real estate market has fared relatively well in 2024 compared with the national market, says Ryan Price, chief economist for Virginia Realtors.

“We’re doing better than average in terms of market activity, transaction volume, things like that,” Price says. “In Virginia, we’ve been outpacing our transaction volume — the number of sales — slightly, though not much. We’ve had about 3% more sales this year than we had a year ago.”

That’s despite higher mortgage rates than this time last year. Price credits that to a couple of factors, such as “a very strong job base in Virginia,” Price says. “Jobs and housing go hand in hand. The other part is the pool of buyers out there — the ones that can afford to buy are becoming more acclimated to the higher interest rate environment we’re in.”

Home prices are continuing to climb, increasing every month so far this year, compared with the prior year. That dynamic boils down to supply and demand: With many homeowners still hesitant to dive into the market and abandon their locked-in low interest rates, there’s just not enough homes on the market to match the demand from buyers.

Price says many localities are reworking their planning and zoning codes to incentivize more construction, but it can be a while before that process makes a difference in market data.

“It is going to take us some time to get out of this tight inventory,” Price says. “Part of it is builders have underproduced relative to population change, basically, since the Great Recession. There’s also been the rate at which seniors, and particularly baby boomers, have been downsizing. [It] has been much slower than a lot of people anticipated.”

The result is that younger buyers, first-time buyers and moderate-income buyers have largely been shut out of the current market, Price says.

His team analyzed the income level needed to afford a median-priced home in Virginia’s metro areas. They found that in nearly every metro region, the median income is less than what buyers need to afford the median home. And in some markets — especially Charlottesville and Northern Virginia — median home prices are $60,000 or more higher than median incomes.

“Virginia is consistently ranked in the top one, two, three in states for business,” Price says. “We have all this stuff going for us, but if those workers have a hard time putting down roots in Virginia where we have jobs, we could start to see that diluted. I don’t know we’re at that point yet, but those affordability issues are starting to bubble up.”

Deals far from D.C.

Home prices are continuing to rise in Northern Virginia, but buyers are adjusting to that, as well as higher interest rates. For June, the region’s median home price was $780,000, up nearly 9% year-over-year, says Ryan McLaughlin, CEO of the Northern Virginia Association of Realtors.

“That’s largely driven by the situation we’re in, with low supply and continued demand,” McLaughlin says. “The silver lining is, we’re expecting sales to perform better than we initially expected.”

Northern Virginia has seen a slight uptick in its available housing inventory. As of June, the region had 1.3 months of housing supply, higher than its five-year average of 1.1 months. Homes in NoVa also are taking slightly longer to sell than in recent years, and in February, April and May, the region saw a year-over-year increase in sales for the first time since 2021.

Buyers in the region are going farther to find deals, as the patterns of remote working that flourished during the pandemic allowed buyers to work from farther away. This shift was reflected in the Northern Virginia Association of Realtors’ decision nearly two years ago to expand its reach from its traditional core of Arlington and Fairfax counties and Alexandria to include Loudoun, Prince William and Stafford counties.

Since 2020, the Winchester region, more than an hour’s drive northwest from Tysons, has become Virginia’s fastest-growing metro area due to an outflow of remote workers from the Washington, D.C., region. Some D.C.-area buyers are going even farther — as far south as the Richmond area.

“Five or six years ago, if they were moving from the West Coast or D.C., people bypassed Richmond and landed in Charlotte and Atlanta,” says Laura Lafayette, CEO of the Richmond Association of Realtors. “Now, if people are leaving D.C. or Northern Virginia, we’re second only to Raleigh in where they’re locating.”

This group of D.C.-centric homebuyers has an advantage over Richmond locals: They have greater equity derived from the higher prices in the Northern Virginia housing market. Often, they continue to work their higher-wage D.C. jobs remotely or visit the office only on occasion. That allows them to make more attractive purchase offers — which in turn is pushing prices in the Richmond area to higher amounts than many locals can afford.

“We’re seeing a crowding out of Richmonders who’d love to get into that first-time house or [a] house period,” Lafayette says. “Someone from Fairfax who just sold a house for $1.5 million can offer cash. Or a lot of people in D.C. or Northern Virginia have to rent because a purchase is elusive. If you can come here and purchase with D.C. wages, that’s a lot more attractive.”

This new pool of buyers has also brought additional strain to a region that’s already experiencing “a profound lack of inventory,” Lafayette says. The region is sitting at a 1.4-month supply of houses — slightly higher than Northern Virginia, but exceedingly tight for Richmond.

Interest rates are part of the problem. It’s not that current rates are particularly high compared with historical trends — it’s that they’re high compared to rates from the past 15 years. That’s meant older homeowners are deciding to stay put rather than risk a loss by moving.

“We know many, many seniors across the commonwealth and in our region are aging in place,” Lafayette says. “And they’re aging in first-time homebuyer inventory. If people don’t move out of first-time homebuyer inventory and move up — from $250,000 to $400,000 [homes], from $400,000 to $600,000 [homes] — then people can’t enter the housing market. It’s like a gear that locks up on itself.”

Land grab

Virginia homebuilders are scurrying to address the supply issue.

Tim Parent is Richmond market president for Mungo Homes, which three years ago acquired the former CraftMaster Homes. Parent says the company is in a “push toward growth mode” as it scales up new home construction in the Richmond metro region.

The company is seeing the effects of Richmond’s increasingly hot housing market, along with the growing number of buyers relocating from the D.C. metro area.

“Richmond’s by no means inexpensive, but it’s a lot less expensive than Northern Virginia and D.C., and they get more for their money here,” Parent says.

That’s not just driving prices up but pushing more growth out into greater Richmond’s surrounding counties. Builders and developers are encountering challenges there, too.

“Our biggest hurdle is land and getting lots,” Parent says. “It’s harder and harder in some of these counties and surrounding areas to get land approved. Once you do, it’s pushing value up because there’s less of it. And that creates bigger issues in cost and what we can build.”

The issue of land availability and red tape around the development process is one of the major issues affecting supply, he says.

“That’s the biggest, most difficult thing hitting builders now,” Parent says. “For developers, it’s getting the right piece of property at the right price, and not taking two to three years to get it approved and rezoned. That cost is driving up the price of homes.”

Some localities are moving to address the issue. Parent points to Henrico County, which has a $60 million land trust and is looking to facilitate projects that involve affordable housing. And generally, county governments seem willing to work with developers because they see the upside, particularly in terms of tax revenue.

Still, all these actions take time to make a real difference in terms of housing prices and supply.

“That’s our No. 1 focus now … making sure we have enough lots to grow,” Price says.

What’s normal?

The Hampton Roads area is one part of Virginia that saw an increase in inventory over the past year. Listings there are up 35% year-over-year, from 3,366 listings in June 2023 to 4,380 this June, according to Kim Georges, president of the Hampton Roads Realtors Association.

That seems like a big jump, but context is important.

“Just to give perspective, in 2009, we had over 11,000 listings on the market,” Georges says. “Even though this sounds like a huge increase, we’re still at 2.2 months of supply in Norfolk. Recently we’ve had anywhere from 1.7 to 2.2 months, which is historically low.”

Although buyers are beginning to adjust to higher interest rates, can the Hampton Roads market adjust to a stubbornly small supply of housing inventory? Georges isn’t so sure.

“The rule of thumb used to be six months of inventory was typical,” Georges says. “We haven’t seen six months of inventory in a long time. Now it’s two months. That’s still not enough inventory. I’m not sure what a ‘normal’ real estate market looks like today, now or in the future. It’s not been ‘normal’ since the pandemic, or even before then.”

It took the real estate market years to adjust to disruption from the Great Recession. Today’s market is still adapting to that new environment, plus additional disruptions from the pandemic. It’s still shaking out.

The Hampton Roads Realtors Association has seen a dip in membership as agents leave the business or take on different roles. Some of that’s due to attrition, but also to uncertainty around commissions.

The real estate market is still adjusting to a $418 million court settlement that led the National Association of Realtors to institute changes in how real estate agents are awarded commissions on sales. That’s fueled anxiety both for buyers and industry professionals.

“I think again we’re talking about a new normal,” Georges says. But “it’s not a new concept to have a buyer-broker agreement. That’s not new to the state of Virginia; it’s been law for a while. Some people aren’t sure how to handle it, but the more it’s settled, and we know what we’re supposed to do, we’ll go back to doing business. We’re going to be fine.”

Virginia’s real estate market is still finding whatever passes for normal in 2024. It’s disconcerting, both for industry professionals and for buyers.

“Moving is such an emotional process,” says Courville, the recent Richmond buyer, who’s now selling her Goochland estate, which is listed for $2.6 million. “I think that wise counsel would say that you want to really know what sustains you. When you see that one house, you know it’s right. [For me,] it wasn’t difficult. The difficult part is unpacking the boxes.”