What the BLEEP is going on with the housing market?!
First, I want to preface this blog post with this: I am a real estate agent with a degree in Interior Design. I am not a financial advisor. I have no background in economics… unless you count the online course I took in college for my minor in General Business, but I’m pretty sure that professor graded all of our assignments with a heavy curve. I also DO NOT have a crystal ball, but then again, nobody does.
Softening: Like Butter
Let’s start by looking at the BIG PICTURE.
We’re talking overall, broad brushstrokes of the real estate world. (Further down in this post we’ll dive into Richmond more specifically.) So, what is going on with the housing market? I’m going to use one word to simplify it; it’s softening. If you enjoy baking as much as I do, think about it like this: we’re leaving the butter on the counter until it reaches room temperature. We’re not nuking it in the microwave or melting it on the stove. We’re not in a bubble that’s about to burst, and I don’t know anybody who actually studies the market that is predicting a crash.
(Define prediction: a thing predicted; a forecast. So we hold this information accountable as much as we do the weatherman, alright?!)
What does that mean for buyers and sellers?
For sellers, it means we need to adjust our expectations. We can no longer pull a price out of a hat and trust that the house will sell. We can’t list a house at top dollar knowing it needs all new carpet, a full kitchen renovation, and a new roof. Bidding wars of 25+ offers are becoming bidding wars of 5+ offers, which means the houses that were selling for $50-100k over will likely sell for “only” $10-15k over. But who can complain about that?! It’s still a “seller’s” market. It’s just that we are returning to a market comparable to 2018. From a realtor's perspective, when I think of 2018, I have that warm and fuzzy feeling of pure joy... because 2018 was a great year for the real estate market!
For buyers that aren't sitting on a pile of cash, it means it’s time to PUT YOUR FOOT ON THE GAS. Why is that? The softening market means your chances of getting a house under contract are increasing, and you want to take advantage of that opportunity while interest rates are still low. Yes, I said interest rates are still low. “But I heard they were at 5.5%?!” Let me repeat myself, interest rates are still low. Historically, 30-year mortgage interest rates have averaged just under 8%. Take a look at the chart below if you think 5.5% is bad (best viewed on a computer or with your phone in landscape orientation):
Waiting is a Dangerous Game
For those of you thinking, “Well, I’m just going to wait a little bit to see if rates go back down.” My response to you is, WHY?! Here are three reasons why that is a terrible idea:
1. Remember, we are still in an inventory-starved market, and low inventory tends to push pricing higher. Prices may not be increasing at the insanely rapid rates we saw over the past two years, but they are still increasing. Virginia Realtors predicts 4.1% year-over-year for 2022.
2. Everyone I've talked to agrees: interest rates are more likely to keep going up. By "waiting to see what happens", you’re playing a dangerous game. You can either:
Option #1: Act now, get a 5.5+/- interest rate, and then refinance if the interest rate happens to go back down - OR -
Option #2: Wait, watch the interest rates (likely) steadily increase, and then get stuck with a higher interest rate on a more expensive house.
3. Inflation. You know it. You hate it. It’s happening anyway. However, owning real estate is one of the best hedges against inflation. When inflation runs rampant, the value of your home will increase, while your mortgage debt does not. (Sound familiar? It's kinda like rental prices increasing at astronomical rates, but those of us with a fixed mortgage are just chilling with all of this equity we’ve gained. #richgrandmaenergy)
“Real estate is the most important thing in the world. If you don't own land, you don't own nothing.”
Snoop Dogg
(I’d also just like to point out that at the time this post was written, June of 2022, we’re entering a Summer real estate market. Competition for homes tends to slow down in summertime anyway, so this could be a really great time to try to scoop something up!)
Richmond Ranks Supreme
So where is all of this confidence in our housing market coming from when the headlines make it sound like the sky is falling? It’s coming from right here in RVA!
COVID created a Work-From-Anywhere environment that caused some noteworthy migration to our little city of Richmond. In 2021, LinkedIn ranked Richmond at #3 on their list of places with the biggest gain in new residents during the pandemic. It’s no surprise that people living in Washington, DC would move only 2 hours south for a significantly lower cost of living. Just look at this cost of living calculator on NerdWallet. Housing costs in Washington, DC are 229% higher than in Richmond!
Here to Stay
Reflecting on my own real estate business last year, 20% of my sales in 2021 were people relocating to Richmond. I had clients move to Richmond from Northern Virginia, Maryland, New Jersey, Massachusetts, Texas, Florida, and Arizona!
And if you're worried a “return to office” movement could cause a reversal of this migration, have no fear! In 2022, LinkedIn also ranked Richmond at #9 on their list of cities with the most hires and job openings. Looking at another cost of living comparison, Salary.com explains that the overall cost of living in Richmond is almost 40% lower than in Washington, DC, while employers in Richmond typically pay only 10% less. (If you're making $60,000 per year, that's like coming up with an extra $17,000!)
Lastly, another big reason our housing market is likely to stay strong despite the stories the news outlets try to spin: millennials. This Wall Street Journal article cites that millennials account for over half of all home-purchase loan applications. A quick google search with any combination of “millennials” and “Richmond, Virginia” reveals a multitude of headlines over the past five years claiming that Richmond is a hotspot for millennials, and if you’re still not picking up what I’m putting down, just skim through the Rankings page on the Greater Richmond Partnership website.
Summing it Up
In closing, I recently sat in on a class where the presenter made a pretty bold claim that “5.5% [interest rate] to buy a home in RVA / USA is one of the greatest opportunities on the planet.”
And I tend to agree with him.
