There’s been a lot of press this week about the national real estate market and doom and gloom. I wanted to provide some perspective and remind you that real estate is local and, overall, we remain in great shape and are lucky to be where we are.
First, the national media reported that NAR’s figures showed a decline of 27.2 percent of existing home sales from June to July of this year. Allegiance saw a decline of twenty percent. This was not unexpected due to most tax-credit-generated closings having closed in June. What’s more, June was the best month we’ve had in two years and likely the best month in three or more years if based off of a transactions per Associate formula. The tax credit did stimulate the sale of homes and had to come to an end at some point.
Let’s focus on three major issues regarding the purchase of a home: rates, prices, affordability and unemployment.
Interest Rates
Happily, the media has been reporting that mortgage rates remain at historic lows, reportedly 4.59 percent according to bankrate.com. Five years ago, rates were about 6 percent. Ten years ago, rates were about 8.5 percent. In fact, since rates were tracked beginning in the 1960s, they have never been lower.
Prices
We all know that prices have fallen dramatically since their peak. That has been harmful to some but has created opportunity for others. A breakdown (Q2 2010 is a prediction by NAR):
US
2007 Median: $217,900
Q2 2010: $176,900
Metro DC
2007 Median: $430,800
Q2 2010: $331,600
Richmond
2007 Median: $233,700
Q2 2010: $199,600
Hampton Roads:
2007 Median: $226,800
Q2 2010: 210,000
Prices are up in most of our markets from last year.
Affordability Index
The Housing Affordability Index, a standard adopted by the National Association of Realtors, measures the financial ability of consumers to buy a home. The index compiles three factors – median income (reported by the Census Bureau), median house cost and median mortgage rates. An index of 100 indicates that a family earning the median income has exactly enough to qualify for the going mortgage rate to purchase a median-priced home.
Q1 2010: 175.3
2007: 115
An index of 100 indicates that a family earning the median income has exactly enough to qualify for the going mortgage rate to purchase a median-priced home.
Thus, anything over 100 shows that the median family has more than enough income to qualify, indicating that houses are particularly affordable at that time. Tracked since 1971, it’s never been higher. So, in the last 39 years, it’s never been more affordable to buy a home than it is today.
Declining interest rates have offset an increase in median prices nationally from January to July. If we continue to see an increase in prices, the affordability index will come down a bit.
Unemployment
Economists predict housing will remain soft while unemployment is high. The national unemployment numbers are consistently reported while local numbers are not. The trouble with this is people look at national numbers and, even if currently employed in a position with great prognosis for longevity, they get spooked. Instead, if they focused on local numbers, they may feel more comfortable making a large purchase.
June National Unemployment: 9.6%
“Normal” National Unemployment Rate: 6%
Our Markets:
DC Metro:
Anne Arundel County: 6.9
PG County: 7.4
Montgomery County: 5.7
DC (city proper): 10.5
Arlington: 4.3
Alexandria: 4.8
Fairfax County: 5.1
Loudoun County: 5.0
PW County: 5.9
Stafford County: 5.8
Richmond Metro:
Richmond (city proper): 10.6
Chesterfield County: 7.2
Henrico County: 7.0
Hanover County: 6.6
Hampton Roads Metro:
Newport News: 8.2
Chesapeake: 7.2
Portsmouth: 9.4
Suffolk: 8.4
Norfolk: 9.8
Virginia Beach: 6.6
Urban cities traditionally have a higher rate of unemployment.
Nearly every one of our markets has a lower rate of unemployment compared to the national average. Many markets have a significantly lower rate. Educate past clients and prospective purchasers when it comes to local unemployment numbers.
It’s time to tune out the noise. You have the education, tools and brand to succeed. Keep your eye on the ball and continue to do what you excel at – selling homes.
