Loudoun County, VA 1st Quarter Real Estate Market Update – 2018

Loudoun County, VA 1st Quarter Real Estate Market Update – 2018

The Loudoun County, VA 1st quarter real estate market had a great first quarter. The market continues to expand, home prices continue to climb and distressed properties continue to decline. It’s going to be a sunny Spring.

Loudoun County, VA 1st Quarter Real Estate – Average Sales Price

There was a 6% average sales price improvement over the first quarter of 2017. The Loudoun County, VA 1st Quarter Real Estate Market Update - 2018average home sale price was $516,700. In 2017, that number was $486,382. Most of the past five years have shown some level of improvement, but the 2017-2018 increase is the highest. The 2014-2015 average sales price increased 2.2%, but 2015-2016 dropped slightly at .02%. That quickly rebounded with a 1.4% increase from 2016-2017.

Loudoun County, VA 1st Quarter Real Estate – Number of home sales

The number of home sales in the first quarter has followed a similar pattern over the past five first quarters. In 2018, 1250 homes were sold. That was a minor decline (-4.8%) from 2017, which has 1313. The 2017 first quarter improved over 2016 by 4%, and 2016 first quarter improved 6% over the first quarter of 2015. The biggest jump in the past five first quarters was 2014-2015. That jump was 10%.

The challenge for 2018, and the most reasonable explanation for the small decline is the lack of existing homes on the market. The lower inventory that has plagued the country for the past nine months most certainly affected the volume of home sales. Now that Spring is upon us, the market is likely to show increased numbers over the same period last year.

Loudoun County, VA 1st Quarter Real Estate – Distressed properties are no longer distressing

Loudoun County, VA 1st Quarter Real Estate Market Update - 2018The number of distressed properties also continues to decline. The first quarter only 2.9% of all sales in the distressed category. There were 17 short sales and 19 foreclosures. That is the lowest number in five first quarters. The 2017 market had 6.1% distressed properties and 2014-2016 averaged 7.5% over the three first quarters.

The nationwide foreclosure rate dropped to a 12 year low in 2017. The drop was 27% from 2016 to 2017. The largest change can be seen in the 2010 to 2017 market which was a drop of 76%. Currently, the national foreclosure rate is at the lowest it has been since 2005. The national first quarter foreclosure rate is below the pre-recession rates, and it has been for six consecutive quarters.

The Loudoun County, VA 1st quarter real estate market’s 2.9% is a good sign for home sellers. The lack of foreclosures and short sales on the local market will give greater stability to local housing prices, and that can be seen in the continually improving average sales price.

Loudoun County, VA 1st Quarter Real Estate – Active listings and pending home sales

The current pending home sales in the Loudoun County, VA real estate market are now at 980. That number nearly eclipses the total sales for the first quarter of 2018. The average list price of the pending sales is $545,766. If that number holds or stays close through closing, the second quarter may see a rise in average home sale prices.

With lower than needed inventory, buyers are scrambling to buy homes soon after they hit the market. The current number of available existing homes in 1134. In a market as big as the Loudoun County, VA market, that is not many. There is some light at the end of the low inventory tunnel. The January 2018 inventory increased year to year by 13.35%.

If the trends of higher home sales, high average sales prices, lower distressed properties and improved inventory continues, the Spring is going to be very sunny for Loudoun County, VA real estate. When you’re ready to list your Loudoun County, VA home, give Cornerstone Business Group, Inc., a call. We are your local real estate sales pros.

Advertisements

The cost of low housing inventory and rising interest rates.

The cost of low housing inventory and rising interest rates.

The real estate market, nationwide, has enjoyed the benefits of lower home prices coupled with lower interest rates for the past ten years. Unfortunately, that is about to come to an end. The costs of rising home prices, low housing inventory and rising interest rates are starting to impact housing across the country. There are a few areas throughout the country that are busting with inventory, but many areas with low inventory are presenting buyers with a conundrum.

When interest rates fell at the beginning of the 2008 recession, buyers were able to jump into the market and pick up great deals. There were plenty of foreclosures, and they were followed by short sales. Distressed properties presented buyers with great opportunities to get their dream home at a lower price, and lower interest rate which offered a lower mortgage payment. Even fair market prices were down because of the recession and the impact of distressed properties. As the economy has turned into a healthy economy again, those benefits are about to change.

The cost of low housing inventory and rising interest rates: Low Inventory and the psychological factors.

Low inventory can create a major problem. For instance, when there are 1,000 buyers and 200 houses available, tension forms in the market. Buyers get into multi-offer situations often causing them to pay more for a home than the list price, and creating a higher mortgage payment than they wanted when the search began. It’s stressful and can create anger, hurt feelings and often animosity among the parties involved.

The season may be partly responsible for some of the low inventory. Granted, it is Winter, and homes may sit a little longer during the colder months, but according a RealtyTrac study released in the Fall of 2015, January, February and December are three of the top five selling months nationwide. There may be other factors keeping some homes on the market.

Low housing inventory has a psychological impact on buyers. For instance:

  • Buyers get frustrated because they can’t find anything, and they quit looking.
  • Buyers get tired of racing out to see the latest listing only to find that it’s in terrible shape, in a less desirable neighborhood, or that it has three offers before they opened the door.
  • Buyers get irritated at the long process and fail to keep their financial data up to date, and then they don’t have the required documentation available when a deal comes along.
  • Buyers can get depressed and lose hope because they get outbid on deal after deal.
  • Buyers can’t find homes available in the area they wish to live.
  • Buyers adopt a “why-bother” attitude and continue to rent.

When things like this happen, fewer buyers are in the market and the homes that are available sit longer than normal. It gives the appearance that something is wrong in the local market, when in reality, it can be the psychological impact of low inventory on frustrated buyers.

The cost of low housing inventory and rising interest rates: Low inventory and higher interest rates

Add higher interest rates to low inventory and you have another major challenge for buyers and sellers. Sellers wishing to capitalize on low inventory are trapped when interest rates increase. Higher interest rates reduces a buyer’s buying power, and in turn, can cut the buyer pool. Lower buying power changes what a buyer looks at in the process. Let me show how this works. For the sake of simplicity, let’s say the buyer is not putting any money down and the buyer is working with a 3.92% interest rate. I’m also going to ignore the added cost of taxes and insurance. This will be a purely principal and interest scenario.

The buyer’s dilemma

  • A buyer has been pre-qualified for a loan with a mortgage payment of $946. That’s a perfect payment amount for the buyer. At the time of pre-qualification, the buyer was qualified to buy a $200,000 3 bedroom 2 bath detached home. In the process of working through low inventory, the buyer can’t find a good home in the $200K price range.
  • A month goes by and interest rates have increased to 4%. In order to keep the The cost of low housing inventory and rising interest rates.mortgage payment at the $946 range, the buyer’s buying power drops to $198,000. That’s not too bad, but it may be a little less of a house than the buyer wants.
  • Interest rates are on the rise and within two weeks, they are at 4.25%. Now the buying power is $192,500. Remember, inventory is low and there is a huge number of buyers for properties under $200,000. Competition increases as buying power drops.
  • Another frustrating month goes by with low inventory, and now interest rates are 4.75%. The buyer’s buying power has slipped to $181500. The volume of buyers has increased, but inventory has not. The flurry of contracts thrown at every listing make it nearly impossible to win a bid without forfeiting contingencies that would protect the buyer.
  • Finally, interest rates climb to 5% and the buyer’s buying power drops to $176000. Multi-offer wars are happening everywhere and buyers are buying homes they don’t want in neighborhoods they don’t like, but there is nothing else they can do if they want to own their own home.

This scenario played out before the market downturn in 2008. I’m not saying that we’re heading for another housing bubble, but even without the other issues that caused the last bubble to burst, we’re in a tricky place for buyers. The greatest struggle they have with low housing inventory and rising interest rates is buying power. The higher the rate, the lower the buying power.

The cost of low housing inventory and rising interest rates: Mortgage payments

Another issue that plagues buyers when interest rates increase is the mortgage payment. If our buyer is qualified to buy the $200,000 house at a higher interest rate, the buyer will also find that he has a higher mortgage payment as rates climb.

Our $200,000 buyer would love to keep the mortgage payment at $946, but as interest rates increase, his payment will also increase. The desirable $946 payment rises to $$999 if rates rise to 4.38% when he finally buys. If it goes as high as 5%, that same $200,000 home, will cost the buyer $1,074 a month. Waiting a few months increased the payment $128 a month, or $1536 a year.

The cost of low housing inventory and rising interest rates: Long-term costs of waiting.

In our scenario above, there is a hidden cost that buyers rarely think about. What is the long-term costs of waiting too long to buy a home as interest rates rise. Let’s go back to our $200,000 purchase at 3.92%. If the buyer stays in that home for 30 years, the long-term cost of the home will be $340,427 in principal and interest. Fortunately, a high percentage of buyers move every 5 years.

Most will never realize that cost, but let’s say our buyer does stay through the entire 30 years, and lets say the buyer was qualified to buy the house at $200,000, but interest rates climbed to 5% by the time of the purchase. That 1.08% climb will cost the buyer an extra $46,085 dollars over the life of the loan. When it is all said and done, he will have paid $386,512 for his $200,000 house. Also, his mortgage payment is no longer $946. It ends up being $1074.

The time-value of money has an adverse relationship with interest rates. When rates fall, buyers can buy more and when interest rates climb, buyers can buy less. During the lower rates of the past ten years, buyers could causally look for a home over several months and even years. Today, if a buyer sees a home he likes, that meets his needs and is in his price range, he better move on it. Three months from now, it may be out of his price range or not available.

When you’re ready to buy or sell, give Cornerstone Business Group, Inc., a call. We are your local real estate sales pros, and we’re here to help you make something great happen.

 

 

Don’t wait too long to buy a house. It may cost you more than money.

Don’t wait too long to buy a house. It may cost you more than money.

One of the most common questions Realtors deal with is related to “how much house” a buyer can afford. The first place to start when you want to buy a house, is the lender’s office. A lender is a great resource in the home buying process because the lender can determine what buying power a home buyer is capable of. Then, with that information in hand, a buyer knows what price he/she should be shopping in. It would be terribly frustrating to shop for a $400000 house if a buyer’s buying power is $232000.

Don’t wait too long to buy a house: The cost of waiting.

There is second issue buyers should also consider when they start the process to buy a house. That is time and interest. Time and interest rates can work for you, or they can work against you. A buyer may start the process qualified to buy a $232000 house at 4.5%Don't wait too long to buy a house. You may find that you can't afford what you could before., but what happens if he lingers for 6 months and interest rates inch up over that time? Let’s say rates climb to 6%. That $232000 house will now be out of his buying range. Now, he can only afford to buy a $196147 priced home, but his house payment will be the same as the $232000 house.

Don’t wait too long to buy a house: Even small changes will hurt your purchase.

Even if the rate only went up 1% to 5.5%, the buyer’s buying power slips to $207119. No one wants to rush into buying a house, but being too causal in home buying process may cost you. In this scenario, the buyer lost nearly $25000 in buying power. If it went to 6%, he lost $35853 in buying power. It’s very likely that the $36K loss in buying power is not going to produce the house he envisioned when he started the search.

Don’t wait too long to buy a house: Time really is money. Your money.

Time really is money when the market is showing increases in housing prices and interest rates. Every increment up means less buying power. A buyer needs to be focused on finding the right house within his/her price range within a reasonable time. If not, he/she might be settling for less house at the same monthly costs.

You may also enjoy reading:

Buying a home? What is the process?

You can’t buy the first house you look at, can you?

Why do FSBOs often fail to sell? It’s really not a hard question to answer.

Why do FSBOs often fail to sell?

Why FSBOs often fail to sell?As a real estate professional, I’ve seen my share of FSBOs. Most of the time, they end up with a Realtor’s sign in the yard after months of languishing on the market with a “For Sale By Owner” sign. I just passed a former FSBO yesterday. As usual, it has a Realtor sign in the front yard.

Why do FSBOs often fail to sell?

Why do they fail at a higher rate than a professionally listed property?

  • Homeowners seldom really know the current market. That leads to an overpriced home that savvy buyers would never buy. I showed one last year that was 62% overpriced. I guess the seller assumes there is always a buyer with more money than brains out there. What you want, and what a home will sell for may be light years apart.
  • Showing a FSBO can be challenging. When an agent sets up a dozen showings in one day, scheduling becomes an art. Access is the key to making that day successful. If a FSBO can’t allow the house to be shown except on a limited schedule the odds are radically against it. That’s true of listed properties too. Access is critically important.

There’s more to selling homes than placing a sign in the yard.

 

  • Homeowners may not know how to negotiate an offer. There is usually some give and take in a real estate offer. If a FSBO is locked on a price and won’t budge, or won’t let a home inspection or repair request become a part of the deal, or is refusing a termite inspection, or is demanding of a closing date closer than a lender can accommodate, then a buyer can’t buy it. In a case like this, the house is basically an island with no way to visit it.
  • Homeowners may not disclose things, or they may disclose too much.
  • Homeowners may not understand legal contracts. I ended up re-writing a contract for a FSBO a few years ago because there were so many legal liabilities in it that could eventually come back to bite the seller. The seller had no idea, and the buyer, who wasn’t represented either, had no idea of the legal ramifications of a binding contract full of potholes. Contracts are a Realtor’s bread and butter. Most FSBOs never see one away from a Realtor initiated deal.
  • Listed homes sell for more than FSBOs, on average. On average, listed homes sell 10-13% more than FSBOs. A 2015 article by the National Association of Realtors showed that the average FSBO sold for $185000, and the average Realtor listing for a similar house, sold for $240000. That’s a 23% loss by going it alone. Is it worth it?

Why do FSBOs often fail to sell? – Make the best choice

This list could go on and on, but the reality is that a FSBO is almost always better off selling through a competent Realtor. As is the case in most real estate transactions, fees can be negotiated. If money is an issue, let the agent know that up front and he/she can work with you. Having a qualified agent on your side can reduce stress, and it will help you get across the finish line with a better deal.

Why do most FSBOs fail? For the same reason car mechanics don’t do brain surgery. It’s not their area of ability, and for the sake of the community, they’re better off leaving brain surgery to medical professional who do it everyday. The same is true of real estate. Those who do it everyday are your best resource for an excellent outcome.

When you’re ready to list your FSBO with a competent real estate firm, give Cornerstone Business Group, Inc., a call. We are your local real estate sales pros in this area.