Economics 101: With demand outrunning supply, the local housing market has taken on new, competition-driven traits

ASSETS COURTESY OF FREEPIK

While other localities in the region had seen drastic year-over-year increases in home closings by this March – at least on a percentage basis – Chesterfield County’s volume of activity dominated Central Virginia, according to Integra Realty Resources in Richmond.

In 2021, 2,037 homes were sold for the year ending in March, and this year the volume was relatively unchanged, ticking up barely to 2,044 new home closings.

According to Integra, the top five subdivisions in the county, ranked by new home closings, are Harpers Mill, RounTrey, Foxcreek, Magnolia Green and Silverleaf.

Basic geography – Chesterfield’s size – and its steadily growing population continue to drive new home starts and resale activity in the county, says Tom Tyler, director of housing markets at Integra.

“Obviously, it’s got more inventory, and it also benefits from having master planned communities there, like Magnolia Green and Harper’s Mill that were developed years ago, section by section,” Tyler says. “So, new sections of those communities continue to come online, and that kind of helps sustain inventory a little bit. On the flipside of that, I think if you asked a home builder: Is there adequate inventory of lots in the county, they would probably say no.”

Laura Lafayette, CEO of Richmond Association of Realtors ASH DANIEL

Laura Lafayette, CEO of Richmond Association of Realtors ASH DANIEL

It’s exactly the supply-and-demand equation that is the story of local real estate in Central Virginia, says Laura Lafayette, CEO of the Richmond Association of Realtors.

“We had insufficient inventory for several years, so that’s a trend that we’ve seen,” Lafayette says. She adds: “Ever since the housing recession of 2008, ’09, ’10, we’ve not seen housing starts recover in the way that we need them to in order to have an adequate supply of housing.”

Throw in the paradigm-shifting effect of the COVID-19 pandemic, the ascendency of remote jobs, supply-related inflationary pressures, and your parents’ real estate market is long gone.

The degree of difficulty has increased both for new home starts and the resale market, Lafayette explains.

“New construction is hard to bring out on the ground,” she says, “and it’s certainly hard to bring it out in any way, shape or form that’s affordable. Labor shortages, supply chain issues, cost of materials have all exacerbated the cost of new construction.

“On the resale side, there’s just so many reasons why we’re not seeing people put their houses on the market,” Lafayette continues. “You know, there are lots of folks who have refinanced – they’re sitting on a very low interest rate, so they might be able to sell high, but they’ve got to buy high.”

This and more, she says, further complicates the demand for home inventory.

“Now, if you’re selling your house and downsizing substantially – or you’re at a point in your life where you want to sell your house and move into a senior community or something like that – you might have a reason to sell high . But when people realize they’ve got to sell high and buy high, that might give them pause, especially if they’re sitting on a really low interest rate.”

Anyone with family or friends shopping for a new home in the past two years has heard a catalog of real estate idiosyncrasies.

And when so many economic variables are in play, what exactly is creating the demand?

For those working the market, there is one key factor moving the real estate numbers in Central Virginia: quality of life.

Kathryn Oti, a Realtor with the regional Rashkin Saunders & Co., says it’s not so much a problem as it is a challenge driving the current housing market. “It’s so easy to live here,” she says, explaining that she’s seen a strong interest in the local region from buyers outside the area and even from outside the United States.

One reason this matters, Oti notes, is the rise of work-from-home jobs, allowing people to move from anywhere to a place where the rush hour is, by comparison to DC, for example, non-existent. Homebuyers coming from bigger markets can find more value and bargains than they would elsewhere.

She says the remote-work trend has figured more in homebuyers’ design preferences as well.

“Generally, home offices are huge. So many people have been sent home from work, and in a lot of cases, I think that’s permanent. … Most people that I’m showing houses to – even single people – want a home office,” Oti says. “They want some space that they can carve out to work from. And I think that a home office used to be just sort of an unusual thing, and now it’s almost mandatory for most people.”

The changing economy has focused buyers on affordability, she adds, but the gamble is out of the cards for most buyers, given how competitive the market has become. Oti, who has worked in real estate for almost a decade, says the homebuying market is the most competitive she’s ever seen, and that typical buyer tendencies and requirements have changed significantly.

“People have done all kinds of crazy things,” Oti says. “Buyers have offered to cover the seller’s closing costs. I just sold a house, and the buyer gave the seller free rent back so they could stay in the house a little bit longer after closing.”

The trend of buyers waiving home inspections has become normal, she adds, and now they are also offering to waive appraisals by a lender, an option available mostly to buyers with more budget available to close the deal.

The tight inventory in the housing market, Lafayette says, has slowed activity somewhat, and the jet-fueled pace of home sales since the pandemic is in the rearview mirror.

“This year will be the first year since 2011 that we’ve not experienced a year-over-year increase in sales,” she says. “Despite the pandemic, [2020] was a phenomenal year for real estate – best of the century – and then 2021 actually outpaced 2020. But we just don’t think that’s going to happen this year. … So, it’s been an extraordinary run.” ¦

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