Left Out of the Party

Low housing inventory, low interest rates and high demand are creating a volatile and exclusive real estate market, where potential buyers are going to extreme measures to gain admission to the homeowners club. When will it let up?

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“Crazy” is the word Jim Martin of Long & Foster uses to describe the current real estate market.

“I’ve been doing this for 28 years, and it’s more of a frenzy than I’ve seen,” says Martin, who is based in Midlothian. “In the last downturn, prices were going up drastically, but it wasn’t so low an inventory like we have now. There’s just not much available.”

House-selling rules have gone out the window, Martin says. He’s seen desperate buyers across the region propose offers up to $60,000 above asking price. “Lots of concessions are being made by the buyer just trying to be the one chosen.” The result is that the average homebuyer, using traditional mortgage-based financing, is at a real disadvantage.”

Rick Jarvis also describes the current metro Richmond housing market in one word: “extreme.”

“Each and every one of the inputs that drive our real estate market is in an extreme position right now,” says the founder of One South Realty, which deals in commercial and residential properties across the region. “There’s a great reshuffling happening where people are electing to live differently than they did before. ... It’s created a massive game of musical chairs.”

Richmond’s volatile housing market is largely the result of the region becoming a hot place to live. According to national inflow data published by George Anders, senior editor at LinkedIn, Richmond has seen the third highest growth in new residents since the COVID-19 pandemic struck. “We’ve grown three times our normal rate to 6%,” Jarvis says, citing the analysis. “We are normally at 2%, so this has put a lot of pressure on our housing market.”

“I can sum up the situation in four words: low inventory, high demand,” says Laura Lafayette, CEO of the Richmond Association of Realtors. “There are very few homes on the market for sale right now. If we had four months of supply, that might look balanced. But we have less than a month’s supply of homes, which means that the homes available for purchase can be absorbed in three weeks’ time.” When demand outstrips supply, prices go up. “And that’s what we’re seeing.”

As of April, RAR’s data reports that Henrico and Chesterfield are sitting at a half-month’s supply of homes. More rural locations such as Dinwiddie have less than a 30-day supply. “The trends are also happening across the country,” Lafayette says. “There are some markets that are even tighter than ours, although that’s really kind of hard to imagine.”

The situation is exacerbated by a group that Lafayette calls “reluctant landlords.”

“When the recession happened [in 2008], many homeowners ... couldn’t sell their home because the house wasn’t worth what they paid for it, so they decided to rent it out. A lot of those houses went into the rental inventory and haven’t made it back into the sale inventory.”

Jarvis says it’s difficult for typical mortgage-based purchasers to compete right now. “It feels like you are in a bidding war when you are trying to use typical mortgage products, like an appraisal,” he says. “The mortgage market is really not designed for the kind of real estate market we’re in.”

E.B. Davis considers herself lucky. The first-time homebuyer, working with One South Realtor Kathryn Oti, recently closed on a cozy three-bedroom house in Church Hill after only two failed attempts at buying other homes. “But it was definitely more difficult than I anticipated,” she says. “I would have to adjust my budget based on how much I was told I would be competing against other buyers.” The first house she wanted had 19 other bids. “That was a heartache,” she says. “It just felt like exactly what I wanted, and I had my hopes up really high.”

Her advice to other buyers is to be patient and have a good agent. “And adjust what you expected in the beginning, because there’s a good chance a lot of other people are looking for the same thing,” she says. “You may miss out on several houses, but that doesn’t mean you won’t find one in the end.”

“I can sum up the situation in four words: low inventory, high demand. ... There are very few homes on the market for sale right now.” —Laura Lafayette, CEO, Richmond Association of Realtors

One of the most popular searches on Google has people asking: “Is this a bubble?” There’s a perception that this hot housing market will come crashing down eventually, as it did during the recession. Jarvis doesn’t think so.

“The conditions that happened in 2008 are nowhere the same,” he says. “That was caused by fraudulent creation of purchases by mortgage [lenders] offering loans to anybody and everybody. We overbuilt the properties we needed. The idea that this is a bubble is understandable, but this is really a supply-side restriction.”

The current frenzy is also being fed by low interest rates. “If you refinanced and you’re sitting on 3% interest and are happy with where you are living and the schools your children attend and the size of your house, you aren’t inclined to move off of that interest rate,” Lafayette says.

“The pandemic has gummed things up as well,” she adds. “Lots of folks in the last year, staring at the same four walls due to COVID, have decided to make home improvements and expanded their outdoor living space and don’t want to make the sale.”

There isn’t an obvious solution to the low inventory situation, Jarvis says. “We aren’t going to be able to build our way out of this problem. So I think [there is] going to be a prolonged period of time where there’s very, very low inventory. While pricing may adjust, I still think we’re in for a prolonged period of time where it’s going to be a challenge for people entering the market.”

Martin is more optimistic. “This has built into a frenzy so quickly that I feel that once this pandemic ends, homeowners will feel more comfortable and start putting their houses on the market, and the prices will come down,” he says. “It just can’t continue like this; it’s out of sync.”

Lafayette’s advice to homebuyers is to be patient. “Go into the market recognizing that there’s a possibility that you could put a contract on a house and it might not be selected,” she says. “That could happen to you one, two, three times. It’s just that competitive.”

She’s seen buyers bring more all-cash offers to the table, and escalation clauses are becoming common. “If you get an offer 5% over the list price, I’ll go 7% — that kind of thing,” she says. “I’ve seen buyers waive inspections, which I don’t recommend because you don’t know what you are buying. But there are buyers willing to take that risk.”

What the area needs are more townhouses, condos and modest-priced housing, Lafayette says. “When we don’t have an adequate supply of entry-level housing, it kind of clogs the system up.” She says the region also needs more affordable options for seniors. “Our senior population is the fastest growing. We are creating five new senior households every day and will do so until 2040.”

And then you have the overriding trend, she says, of aging millennials, a large demographic. “We’ve got baby boomers trying to downsize and trying to come into the homeownership market, and often they are competing for the same product with the millennials who are ready to settle down and start a family.”

Both boomers and millennials like mixed-use “live, work, play” communities, she says, “where you live over the coffeehouse or walk to the neighborhood restaurants and enjoy green space. Just think about how important green space has been in the past year.”

It’s a question of what problem Richmond would rather have — today’s high demand or the problems of double-digit foreclosures.

“The market is a very positive reflection of the quality of life in metro Richmond,” Lafayette says, “but let’s be clear: The quality of life is not something that everybody enjoys and benefits from equally. We have some ways to go in creating a metro region where everyone has a possibility to flourish. But gosh, people want to live here, put down roots and contribute to our community.”

Real Talk

We asked five local Realtors for their thoughts on the real estate market and tips for how to compete and close a deal

Catina Jones, ICON Realty Group

“The market is a very different animal these days. I tell people: Make strong offers out of the box. Don’t send the universe mixed messages. If you want to buy the house, make sure that’s reflected in your first offer.”

Aaron Gilbert, Berkshire Hathaway PenFed Realty

“Real estate is about dollars and cents, but it is also an emotional experience. … The emotional side for a buyer is knowing you’re just one within a stack of 13 to 15 other offers. The waiting is the hardest part.”

Sarah Jarvis, One South Realty

“I know some people say, ‘Just rent for now and wait for things to calm down,’ but all the market is doing is escalating. Waiting longer might cost you money. There isn’t any downward pressure on pricing, and I don’t see anything that’s going to fix our inventory problem.”

Chris Hargrave Jr., RVA Realty

Some people say the market will correct itself — not a crash, but stabilization. There’s others that say, ‘Hey, this might be the market we’ll be in for a good while.’ The big thing six months ago was that whoever won the election would change the market, and ... it didn’t change the market one bit.”

Margaret Wade, Long & Foster

“I sell mostly in the city and the Near West End. This part of town has always been competitive. There’s no new land to build on, so there’s never enough inventory for buyers. If you’re going to make an offer in these areas in particular, it’s going to have to be very, very competitive.”