With exposure to the Hampton Roads metro area, Washington D.C. metro area, Shenandoah Valley, and Richmond, the Virginia real estate market has been in the post-pandemic phase for over three years with low inventories and increasing home values. However, the market has significantly transformed over the last few months.
In this article, we analyze the most critical factors that are influencing the Virginia real estate market and what buyers and sellers can expect in the coming months this fall.
Rising Rates
In the first week of August, the average 30-year fixed loan rate increased from 6.81% to 6.9%. This rate is 1.91% higher than what it was this time last year. The National Association of Realtors estimates that a typical single-family home translates to a monthly mortgage payment of $2,192. For a typical condo, it would be $1,905.
The Fed has been raising interest rates for a year and a half to tame inflation, and there could be another hike in September. This has made it challenging for both sellers and buyers in the Virginia real estate market. The increased rates have pushed some prospective buyers out of the market altogether.
Decreasing Sales
According to Virginia REALTORS, from January to June, there were 50,359 home sales in Virginia. Compared to the first two quarters of 2022, there were 15,673 fewer sales, marking a decline of 24%.
The outer suburbs of Northern Virginia, coastal markets including Hampton Roads, parts of the Shenandoah Valley, and parts along the Chesapeake Bay witnessed the highest drop in home sales.
Increasing Prices
The Virginia real estate market has been mirroring the national trend where supply cannot catch up with demand. After more than a decade of steady home price increases, prices have reached the affordability threshold for potential homeowners.
That doesn’t mean that the median sales price has declined. The median sales price for the first half of the year was $388,825 in Virginia. This shows an increase of $8,925 or 2% from 2022. In June, the median sales price climbed to $411,000, showing a rise of 3.4% or $13,685, compared to last June.
Sold Volume and Pending Sales
An increase in home prices hasn’t led to an increase in the total sold volume in the Virginia real estate market. $24.1 billion was the traded volume of homes in the first half of 2023. This is $7 billion lower compared to last year, demonstrating a decline of 22.5%.
Analyzing pending sales allows us to forecast how the Virginia real estate market will perform in the near future. From January to June of 2023, there were a total of 49,696 pending sales in Virginia. Compared to last year, this is a decline of 20.4% or 12,716 fewer pending sales.
Decline in New Listings
According to a report from Virginia REALTORS, 11.174 new listings were added to the Virginia real estate market in April 2023. This is 28.5% lower than the same time last year.
This reflects the tight inventory situation in the market. Homeowners who have taken advantage of low-interest rates aren’t inclined to sell their homes and buy new properties with historically high rates.
Buying a House in Virginia
Generally, four to six months of supply is considered to be essential for a balanced real estate market. In May 2023, the average supply in the Virginia real estate market was 1.7 months.
This demonstrates how competitive the market is for buyers, with low inventory levels and pent-up demand. Higher mortgage rates are also reducing the buying power of many prospective homeowners.
Selling a House in Virginia
While the Virginia real estate market conditions are becoming more stable compared to the post-pandemic boom period, homeowners are taking longer to sell. In May 2022, the average days on the market for a property was 17 days. A year later, it’s up to 25.
With higher mortgage rates pushing up monthly payments, homeowners have little reason to sell their current properties and opt for a new loan with higher rates.
State of the Virginia Real Estate Market
While sellers had the upper hand for the last three years, the tide is now shifting. With the Virginia real estate market showing signs of rebalancing to its pre-pandemic levels, buyers are beginning to gain leverage. Low inventory and high mortgage rates stand in the way of that shift.
The direction in which the Virginia real estate market is headed is clearer since the past Fed meeting, which was on September 19 and ended with a policy statement on September 20 at 2 pm Eastern. While rates stayed steady, the Fed did express that there will likely be another rate hike before the end of the year and that rates will continue to be high for a longer period of time. Homebuyers and homeowners alike should brace for a longer period of high interest rates.
Are you looking to sell your home or buy or invest in coastal Virginia? Contact me today!
