Summer Home Affordability Report

Overview of the Central Virginia Housing Market

In mid-2024, central Virginia's housing market is a hot topic, marked by significant changes in mortgage rates and home prices. As reported by Zillow and Freddie Mac, mortgage rates have recently declined, with the average 30-year fixed rate dropping to around 6%. This change, along with expected Federal Reserve rate cuts, could impact home affordability in Central Virginia, where the median home price has risen dramatically by 15.8% year-over-year to $532,000.

Current Market Conditions

The median home price in the central Virginia region hit $532,000 in mid-2024, a substantial increase from the previous year. The Richmond Metro area, a focal point of the region, reflects these trends starkly. Homes here are selling within an average of just six days and often above the asking price. Despite the recent decline in mortgage rates to around 6%, many potential homebuyers still face affordability challenges. Limited housing supply, particularly for specific types of homes such as 2-bedroom and 5+ bedroom properties, exacerbates this issue.

Factors Affecting Affordability

Several factors are influencing the current state of home affordability in Central Virginia:

1. Limited Housing Supply: Restrictive zoning laws and complex permitting processes contribute to a constrained housing supply.

2. Strong Demand: Favorable mortgage rates and a robust local economy drive strong demand for homes.

3. Rising Property Values: The median home price has increased by 15.8% year-over-year, reflecting escalating property values.

4. Economic Disparities: Low-income households and essential workers face significant affordability challenges due to rising prices.

5. Moderate Property Taxes: Property tax rates average 0.87%, but they vary by location, affecting overall affordability.

These factors create a competitive market where homes often sell above the asking price shortly after being listed, particularly in the Richmond Metro area.

Regional Price Variations

Home prices across the area show significant variation. In the Richmond Metro area, median home prices surged from $367,000 in January 2024 to $402,000 by May 2024, marking a 9.5% increase in just five months. However, price trends vary by property size:

• Prices for 1-bedroom and 2-bedroom homes decreased.
• Prices for 3-bedroom homes rose by 25.7%.
• Prices for 5+ bedroom homes experienced an 82.1% increase.

These disparities highlight localized demand patterns and the available inventory, contributing to a complex affordability landscape.

Impact of Mortgage Rates

The recent decline in mortgage rates has provided a slight improvement in affordability for central Virginia. As of August 2024, the average 30-year fixed rate dropped to 6.69%, down from 6.88% the previous week. This decrease could help more households qualify for home loans. However, the benefit is still overshadowed by rising home prices. Forecasters expect mortgage rates to stabilize in the mid-6% range by the end of 2024, with more substantial reductions anticipated in 2025.

As mortgage rates drop more significantly, it is expected that more buyers will enter the marketplace. This influx of buyers will likely increase competition for homes, which in turn can drive prices even higher. The increased demand, coupled with limited housing supply, will intensify bidding wars and further escalate home prices, making the market even more competitive and challenging for buyers.

Advice for Homebuyers and Sellers

For Homebuyers:

1. Act Quickly: In a market where homes sell fast, being pre-approved for a mortgage can give you an edge.
2. Expand Your Search: Consider looking at various property sizes and types, and be open to different neighborhoods to find more affordable options.
3. Monitor Interest Rates: Stay updated on mortgage rate trends to seize opportunities at the optimum time for your financial needs.

For Sellers:

1. Price Strategically: Given the competitive market, pricing your home appropriately can attract more potential buyers and possibly lead to bidding wars.
2. Highlight Unique Features: Emphasize aspects that make your property stand out, particularly if it falls into high-demand categories like 3-bedroom homes.
3. Prepare for Quick Sales: With homes selling swiftly, be ready to move fast on offers and negotiations.

Conclusion

The central Virginia regional housing market in mid-2024 is characterized by rising home prices and competitive conditions, despite recent declines in mortgage rates. While affordability remains a challenge, understanding the factors at play and strategically navigating the market can help both homebuyers and sellers make informed decisions. As mortgage rates are projected to drop further, the coming years may offer better opportunities for affordability. However, the increased competition from more buyers entering the market will likely drive prices higher, maintaining the competitive nature of the Central Virginia housing market.