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Declining mortgage rates means Charlottesville house sales should tick back up

Could things be about to change in the Charlottesville housing market? Prices are still up, as ever, but sales are down and mortgage rates are coming down with them.

According to fourth-quarter data, last year ended the way it started for the Charlottesville area’s housing market: properties only getting pricier. But the pattern of property values consistently creeping upward may not continue for much longer, as dropping mortgage rates meets a “tremendous amount of pent-up demand” from buyers who have not been able to afford today’s prices, said Anne Burroughs, president of the Charlottesville Area Association of Realtors.

“Our own businesses are seeing a lot of buyers coming out of the woodwork as interest rates move down,” Burroughs told The Daily Progress. “They’re ready to move out because they’ve been looking for a home for the past two years. They’re saying ‘I’ve got to move, I’ve got to get a house.’”

After almost reaching 8% toward the end of October 2023, mortgage rates began trending down, reaching 6.6% in the third week of January. This figure is less than the 6.66% from the previous week, but still up from where it sat at 6.15% a year ago.

At the height of the pandemic, the federal government lowered mortgage rates more than it had in decades, ranging from 2% to 3%. This resulted in an almost 150% increase in people refinancing their properties, which in turn led to homeowners being less inclined to sell their houses, with mortgage rates almost three times larger than the previous year.

While Burroughs is unable to predict the Federal Reserve’s behavior, she said the agency has been indicating it intends to continue lowering the rate.

“We can’t predict when they’re going to decrease, and we don’t know how much of an impact it will have,” she said. “But it’s going to help ease us out of the lock-in effect of homeownership, because the idea of selling a home after refinancing it at 2% is hard to swallow.”

Burroughs said she believes that if interest rates were to fall into the 5% range, homeowners may feel more comfortable with selling.

“If rates continue to slide down, you have more competition and have more buyers getting off the bench so to speak,” Josh White, president-elect of the regional Realtor association, told The Daily Progress.

As for the temperature of the market’s fourth quarter in 2023, sales activity remained cool. In the Charlottesville area, which includes the city as well as the counties of Albemarle, Greene, Nelson, Louisa and Fluvanna, there were 817 house sales, which is 100 fewer sales, or 11% less, than that time last year.

The decrease is due to the rise in housing prices — the median price tag went up by 9% year over year, from $400,000 to $435,000 — in conjunction with the decline in active listings. The fourth quarter ended 2023 with 674 available houses on the market, 9% fewer from a year ago.

“Prices are up and sales are down, which sounds counterintuitive, but it has to do with the issue of offer and demand,” said Burroughs.

In Albemarle County, the median sales price rose by almost $50,000 year over year, reaching $522,160 with 25 fewer listings. Median sales prices were up to some degree in every county that the Realtor association covers; the price increased by 20% in Nelson County, a locality that has not reported an increase in the past four quarters.

Fluvanna County was the only exception where the median sales price dipped by 3%, which amounts to $10,000.

“The prices were going up everywhere, they didn’t go up as much in Charlottesville though. There was only one market where sales went down, Fluvanna, which is the most affordable county in our footprint,” said Burroughs. “Things are pretty much tracking with the level of activity in those counties.”

The prices of resale houses are increasing in tandem with the sales prices of new developments. In the Charlottesville area, new permitting activity slowed significantly, with 50% fewer permits issued for construction on multifamily properties in 2023 compared to the year prior. As a whole, 1,239 residential building permits were issued last year, 405 fewer permits than 2022.

However, Burroughs pointed to the amount of permits granted from 2020 to 2022, which indicates there are new developments coming out of the permitting process not yet on the market.

“They’re being built so we’re going to see them come online. Permit activity has dropped, but there will be an influx of developments and properties for sale, but then it will drop back down,” said Burroughs.

The price of new houses remains high, as construction costs as well as the number and wages of workers are still struggling to recover from the pandemic. The median sales price for new construction in the Charlottesville area is on par with prices in Richmond at around $492,000, according to Burroughs.

Regarding unemployment, the rate in the Charlottesville-area footprint was 2.5% in November 2023, which remains relatively unchanged from a year ago.

In the upcoming months, Burroughs recommends potential buyers get a good grasp on their financial situation and understand what are the specific “needs” and “wants” they are looking for in a house.

“The sales cycle is going quickly, so buyers need to be prepared and have a good advocate,” said White. “They should use the value and knowledge of buyers’ agents to guide them through the process.”

Given houses are not selling as quickly as they used to, per fourth-quarter data, sellers should work to price their real estate as accurately as possible, said Burroughs. Houses that are prepared for buyers to immediately move in are more likely to sell faster.

Source: www.dailyprogress.com

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