The free fall of Richmond-area real-estate values came at great time for Megan Lynn Finch. A 2008 college graduate, she lived with her parents and then in an apartment in the Fan because she assumed that buying a home was beyond her means. Then home values took a dive, and suddenly the 20-something elementary-school teacher could afford her own home, a small house tucked away in Chesterfield County.
"I thought I would have to wait until I got married and there were two incomes," she says now. "But I got a good deal."
Jenny Jennings is enthralled with the current market. Not a buyer but a real-estate agent for Keller Williams, she says that so far this year, "sales are awesome. There are tons of buyers, just tons. A lot of first-time buyers."
On a hot day in mid-April, Jennings had just sold a three-bedroom, two-bathroom West End townhouse for $130,000. In Chesterfield County, she sold a 3,700-square-foot luxury home in Hampton Park for a strikingly low $319,000. "That one was a good deal," she says emphatically.
The real-estate business can be a zero-sum game, and right now the Richmond region is a perfect case in point.
If you're a buyer, especially a first-time homebuyer, these are halcyon days. Interest rates are low, inventory is high, and the market is like a clearance sale — flush with cheap foreclosures and short sales that have driven down prices for all homes. "It's like a perfect storm in a good way," says Chris Cleveland, also an agent for Keller Williams.
If you're a seller, it's like a perfect storm (in a bad way). Regional home values, which had already declined in 2010, dropped again in the first quarter of 2011, making the area the 14th worst-performing market in the United States, according to Clear Capital, provider of the housing-price index used by real-estate agents all over the nation. "It's terrible if you're selling and not buying," says Greg Cowart, a broker for Richmond's New American Mortgage.
Still, there is news that everyone can celebrate.
Low housing prices have spurred activity throughout the Richmond region, so much that first-quarter home sales were up 11.7 percent this year over the first quarter of 2010, says Laura Lafayette, CEO for the Richmond Association of Realtors. Investors have jumped into the market, which usually means the housing market is on the mend.
"A lot of what's selling is the distressed inventory," Lafayette says. "We have to sell that off in order to get healthy in the short run." Once that happens, she says, "you get fair market incentives" and prices will begin to climb. With any luck, by the end of 2011 or the beginning of 2012, she says.
Housing-industry experts — agents, developers and people who research the field — believe that if we've not hit bottom in terms of housing prices in the Richmond region, we're pretty close to it.
Lafayette says prices have dropped in the entire Richmond MSA, though some areas have been harder hit than others. The smallest decline was in Chesterfield County, where home-sale prices dropped 4.7 percent in the first quarter of 2011, compared to the same period in 2010. The worst decline was in Richmond, where prices dropped 15 percent. Henrico fell 14 percent.
Although "distressed" property has acted like an anchor on overall home prices, the depressed market also reflects the general economic malaise. High unemployment in particular drags down the housing market, because when people are out of work, buying a home is the last thing on their minds. Late last year, hiring in the Richmond metro area finally picked up, and unemployment dropped to 7 percent in March 2011, compared to 8 percent during the same month last year. As long as that trend continues, Lafayette says, an uptick in the housing market will follow.
"We're way past the subprime-mortgage foreclosures," she says, referring to the early stage of the crisis brought about by undisciplined lending to people who couldn't keep up with ballooning monthly mortgage payments. "The majority of the foreclosures now are due to unemployment and underemployment," Lafayette says. "It will take a while to recover all the jobs we lost." Until that happens, the housing industry won't be entirely healed.
"We're recovering, but it's going to be a very slow, gradual incline, and we're not going to return to the market of 2004 and 2005," she says.
That reality has finally begun to sink in for homeowners, which is another reason sales are up.
"Sellers have become more realistic on their sales price," says Linda Turner, a real-estate agent for Joyner Fine Properties. "People who've been waiting for the market to return are now realizing that it may be years before they see their home's value return to [what it was at] the height of the market . Many neighborhoods have seen prices adjust down to 2003 and 2004 levels." Says Long & Foster agent Anna Lange, "People have realized, ‘OK, this is what it is — if I'm going to sell, this is what I'm going to get."
Meanwhile, buyers — and at least some of the people in the industry working with them — have cause to celebrate. Not only are prices down, so are the interest rates that determine monthly mortgage payments. The two combined generate sales, as becoming a homeowner gets less expensive.
On a national level, housing is more affordable than it's been in decades, according to an April report from Moody's Analytics, an independent provider of economic data. The cost of a house for an average family is now equal to about 19 months' salary — the lowest level in 35 years, the research firm says. Home prices usually equal about two years of pay.
In the Richmond region, many first-time homebuyers are using FHA mortgages, which require them to put down only 3.5 percent of the cost of the house. Even with so little down, they can still get mortgages with interest rates of about 5 percent, says mortgage broker Cowart. The catch is that you have to have a fairly good credit score, usually no lower than 620 to 640, Cowart says. "Mortgages are not that hard to get, and I think people don't know that," he says. "You can still get 100 percent financing," he says, meaning people can buy homes with no down payment at all.
It all seems scarily reminiscent of the undisciplined lending that led to the 2008 economic crash. But Cowart insists there's one huge difference: "Before, there was almost no floor," he says. "Just about anyone, regardless of their credit rating, could get a mortgage, as long as they were OK with the interest rates. The biggest change now is that you can't give loans to people with poor credit."
(In the heady days of the real-estate boom — the early and mid 2000s — people with poor credit often got subprime mortgages with "ballooning" interest rates that started out low and then rose dramatically within a few years, making some monthly payments so high that the homeowners couldn't afford them. When those people began to default on their loans, the Great Recession was set in motion.
Rick Cox, a real-estate agent for ReMax Commonwealth, is taking a glass-half-full approach to the current market. So far this year, his sales are good, mainly because buyers are getting great deals, he says. He's selling homes in Chesterfield County, with its pricey waterside developments and wooded subdivisions, for as little as $120,000.
For a remarkably low $360,000, he says, he just sold a beauty of a place — 3,400 square feet, water views, a screened-in porch, a finished third floor, three full bathrooms, 9-foot ceilings, all hardwood floors, all of it in excellent condition.
"People are buying a house not to get rich but because they're thinking, ‘Maybe when I'm 60, I won't have house payments anymore,' " he says. "What they're not doing is thinking, ‘I can turn this [house] around and make $100,000 in a year.' They're not putting money into their houses because they know that no matter what they do, the value won't go up like it used to."
Lange says that this year, it's condition, condition, condition. "People are not interested in fixing things up," she says. Pre-2005, you could get bargains on fixer-uppers. "Today your bargains are also fixed up," she says,
Lange sells homes that range from $200,000 to $750,000, and she's cautiously optimistic. Within a few days of putting a West End house on the market in mid-April, she'd received two offers. "Our spring market seems to be pretty strong, as long as the property is priced right and it is in very good condition."
Other real-estate agents say they're beginning to see bidding wars, but not like the ones during the market's high, when people overbid asking prices to keep from getting shut out of a market overflowing with buyers. Now buyers (including investors picking up houses to rent to others or to resell) are racing to get first dibs because asking prices are already low.
Megan Finch just wanted her own home. After graduating in 2008 with a master's in education from the College of William and Mary, she moved back to her parents' house in Chesterfield to save money. When she moved out, she rented an apartment in the Fan with a friend; they each paid only $400 a month. By then, she was already teaching third graders at an elementary school in Chesterfield, a considerable haul from the Fan if you're doing it twice daily five days a week.
But the catalyst for Finch was the $8,000 federal tax credit for first-time homebuyers. She bought her house last May, in time to claim the credit on her 2010 tax return. She put 3.5 percent down, becoming a very young homeowner, just 25 at closing (she's 26 now).
"I liked a lot of the Brandermill and Woodlake houses," she says. "I looked at a lot of foreclosures. But they were in disrepair. The house she purchased, off Lucks Lane, was in move-in condition. She used her tax credit for two improvements, new air-conditioning and new hardwood floors.
For Danielle Scott and her husband, the real-estate market has turned out to be a wash, since they're selling a home and building another. The new house — 5,000 square feet, four floors, six bedrooms, including an in-law suite — will be located in Chesterfield's Tarrington neighborhood. "We have a very large family," says Scott, a psychologist and mother of 4-year-old twins. "We've become the host spot, so we want to have space to accommodate both families."
She and her husband, who is an executive for Capital One, had originally planned to build the house a few years from now, but the market changed that. "We realized we can afford it now," Scott says, partly because the cost of lots has declined.
Developers, too, say cheaper land has been given them an advantage, since they can make new homes more affordable. Josh Goldschmidt, sales manager for Eagle Construction, says new homes are usually 10 percent to 15 percent more expensive than pre-owned houses. But now new houses are in some cases cheaper, because owners of existing homes, who may have bought during the market's high, are reluctant to lower their prices.
If homeowners bought during the mid-2000s real-estate high, Goldschmidt says, "there are a set of expectations, but if they bought in '92 or '93, they've seen the value of the house go up, but it's not dropped now to below what they bought it for. They're not upside-down."
For Scott, what really made the difference is the current uptick in sales. She and her husband no longer feel trapped by the possibility that they'll take a huge hit on the house they own, or not be able to sell it at all. She says they've put in the upgrades that their real-estate agents say people want: hardwood floors, granite countertops and a mosaic-tile backsplash in the kitchen. They've tried to price the house competitively — asking for $325,000 — though the foreclosures in the neighborhood make that difficult.
"We're hopeful," Scott says. "We're going to lose money on this house, but we're going to get a deal on the new house. It's probably going to be a wash for us."
Assessing the Numbers
Since 2000, we have been tracking real-estate statistics for more than 100 neighborhoods in the city of Richmond and the counties of Chesterfield, Hanover and Henrico. In light of the market high in 2007 and the market lows of 2009 and 2010, we highlight a few neighborhoods that are superlative for price, sales or days on market. Our chart begins on Page 90. —Susan Winiecki
Most significant price increase over 10 years:
Oregon Hill, City of Richmond, 314.34 percent
Populated in the early 1800s with workers from Tredegar Iron Works, Oregon Hill sits above the northern banks of the James River, adjacent to the VCU campus.
Fewest average days on the market in 2010 in Chesterfield:
Shenandoah Hills and Surreywood,35 and39 days
Shenandoah Hills is located between Midlothian Turnpike and North Courthouse Road and behind Moorefield Office Park. Surreywood (pictured), established in 1967 in northern Chesterfield, contains 507 traditionally styled homes and a 14.3-acre lake that is fed by natural springs.
Highest square-footage costs in 2010:
Hampton Gardens, City of Richmond, $233.90
Hampton Gardens is a highly desirable neighborhood that runs between Cary Street Road and Grove Avenue, near the Libbie and Grove shopping district, and includes Tudor- and Colonial-style homes from the 1920s and 1930s.
Most sales in 2010:
Brandermill, Chesterfield, 99
Seventeen miles south of the city of Richmond, Brandermill includes 4,000 homes on 2,800 wooded acres. It was selected the best planned community in America in 1978 by Better Homes and Gardens. More than 12,000 residents live there today.
Highest average sales price in 2010:
Windsor Farms, City of Richmond, $1.1 million
Developed in the 1920s off Cary Street Road, Windsor Farms is one Richmond's first planned neighborhoods, with large lots and home styles that range from Colonial Revival to Cape Cod.
Most significant price increase over 10 years in Henrico:
Laurel Lakes, 166.67 percent
This large condominium and townhouse neighborhood, built between 1984 and 1996, is off Hungary Spring Road, and near Meadow Farm Museum and the Laurel Lakes Skateboard Park.
Most significant price increase over 10 years in Hanover:
Milestone, 76.22 percent
With lighted streets and a large recreation center, Milestone has about 400 homes and is conveniently located off I-95's Sliding Hill Road exit in the Atlee community.
Fewest average days on the market in 2010 in Hanover:
Summer Grove, Shady Grove Forest and Cherrydale,
11 and 12 daysOn the eastern end of Hanover County in Mechanicsville, Summer Grove, established in the late 1990s, and Cherrydale, established in the late 1960s, are neighbors themselves. Shady Grove Forest is nearby, west of I-295.
Most significant price increase over 10 years in Chesterfield:
Claypointe, 91.67 percent
Conveniently located near Hull Street shopping, this neighborhood of traditional homes lies between Genito Road and North Bailey Bridge Road.