‘Slow yet competitive’: In Virginia, housing prices remain high and supply tight
A house for sale in Richmond. (Sarah Vogelsong / Virginia Mercury)
Even as the housing market in Virginia has slowed, prices remain high statewide, researchers told the Virginia Housing Commission Tuesday.
“The theme is slow yet competitive,” said Ryan Price, chief economist for Virginia Realtors. “A lot of things are driving that, primarily the increase in interest rates, which has deterred both buyers and would-be sellers, but also our inventory, the lack of inventory that we have out there.”
While new home construction in Virginia has continued to grow in 2022, building still lags levels seen in the state historically, said Hamilton Lombard, a demographer for the Weldon Cooper Center for Public Service at the University of Virginia.
Before the financial crisis of the late 2000s, “we were around 60,000 new homes annually,” he said. “We’re below 40,000 right now. … If you go back before that and look at the averages we had in the ’90s and ’80s, we were building about 50,000 new homes every year.”
Declines, however, aren’t even across Virginia. Data presented to the commission shows new home construction is down significantly in Northern Virginia and Hampton Roads compared to a decade ago and continues to be low in the coalfields region of Southwest Virginia. In contrast, Richmond and smaller metropolitan areas in places like Halifax and Danville have seen upticks in activity.
“Richmond has really been the one big standout area when you look at Virginia,” said Lombard. “It’s built a large number of homes in recent years. The numbers we have for 2022 are the highest we had in any of our records my office has collected going back to the 1980s.”
At the same time, high interest rates are discouraging not only buyers but sellers. While the average interest rate on mortgages held by existing Virginia homeowners is 3.8%, the average interest rate for new mortgages is 6.4%, said Price, making many reluctant to move.
“The incentive to lose that 4%, 3%, 2.5% rate and get a 7% rate — there is no incentive unless you’re forced to move,” he said. “That spread is really deterring a lot of homeowners to list their homes.”
In response, home sales have slowed. Between January and June of this year, sales statewide were down 24% compared to the same period last year. Data presented to the commission showed market activity declining in 90% of Virginia’s counties and cities, with the sharpest slowdowns seen in Spotsylvania, Franklin, Bedford and Rockingham counties and the city of Newport News.
Simultaneously, Virginia home prices are trending upward in the majority of jurisdictions. Since 2018, Price found they have risen 36%, from an average statewide price of $285,000 in 2018 to $389,000 now.
In some regions, the uptick in remote work spurred by the pandemic appears to be exacerbating price hikes as higher-paid workers move from larger metropolitan areas to smaller ones where wages are lower.
“What we’ve seen in metro Richmond is that if you’re coming from the West Coast and making West Coast wages or you’re coming from Northern Virginia and D.C. making those wages, you’re coming into this region, folks who live here and are living with our wages are being beat out every time when they’re going for a purchase,” said commission member Laura Lafayette, who is also CEO of the Richmond Association of Realtors. “And they’re also being squeezed on the rents, because folks making D.C. wages can afford more rent.”
While many of the trends Virginia is experiencing are playing out nationwide, Virginia home construction is lagging that of neighboring Tennessee and North Carolina. Lombard said Tennessee is building about a third more housing units than Virginia, while North Carolina is building double. Both have also seen far higher job growth than Virginia since January 2020, with Virginia adding 56,800 jobs, Tennessee 172,900 and North Carolina 284,500, according to Price.
“North Carolina is kicking Virginia’s butt as far as job growth,” said Del. Danny Marshall, R-Danville, Tuesday. “And one of the main reasons they’re doing that, as we hear all the time, is North Carolina’s march to a zero tax rate for corporate. So they are going away from us. Tennessee’s the same situation.”
More affordable housing elsewhere may be a key driver of population losses from Virginia to more southern states, said Price.
“They’re building more housing in these states,” he said. “So the fact there are homes available, there are good jobs there, it is attracting a lot of folks away from Virginia. We also have good jobs here, but our housing is more expensive, particularly in the job centers.”
Asked by Del. David Bulova, D-Fairfax, if there was anything the state could do policywise to ease some of the housing pressures, Price said many solutions have emerged from local governments.
“The places that have started to move the needle particularly on the supply side are really making strides at the local level moreso than the state level with respect to zoning changes — whether it be loosening up the zoning in some places, whether it be concentrating a lot of the new housing in specific corridors that are near transit, that are near job centers, whether it be making the process to densify in some cases easier, making the permit process easier,” he said. “But I also think there could be ways to incentivize local governments to do this type of work at the state level.”
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