In the third quarter of 2011, Central Virginia home sales were up 23 percent from the previous year, but sales prices dropped by 8 percent, not the best news for Richmond homeowners watching their home values slowly recede like the waters of the James River in summer. We spoke to five local real-estate professionals about what conditions they're looking for that will indicate that the real estate market is bouncing back in Richmond. From economists to Realtors, mortgage bankers and developers, their comments touched on some of the same themes and worries driving the sluggish market, ranging from consumer confidence and job security to tougher lending rules.
Laura Lafayette,
CEO, Richmond Association of Realtors
"I think when the sales price stabilizes and starts to go up is when you know that the market is in full recovery," says Lafayette. At the close of 2011, Richmond's real estate market was beginning to gather steam. Available housing inventory decreased, and the number of sold and pending houses also increased, both very good omens, she says, especially when one considers there wasn't a special federal tax credit for home buyers this year, as there was in the preceding few years. "There has been no artificial incentive to purchase, so the fact that sold units are ahead of last year … is a good sign." Richmond has been a buyer's market, and it's starting to balance out, but if housing sale prices rise for a few months and stay stable in 2012, that will be a sign the market has turned the corner from a Realtor's perspective.
Christine Chmura,
President and chief economist, Chmura Economics & Analytics
From veteran economist Chmura's viewpoint, the leading indicator of a stronger Richmond real estate market will be employment data, specifically a significant decline in local unemployment and a faster growth rate in creating new jobs. Homes are more affordable than they've been in years, due to shrinking sales prices and low interest rates, but the "slow economy is still discouraging people from making that large purchase of a home," Chmura says. Even though the widespread foreclosures and layoffs seem past us now, many people still aren't confident enough in their job security. Typically, the end of a recession sees a sharp increase in home sales due to pent-up demand, but this hasn't happened yet, the economist says — partly because of the recession's severity and partly because banks have made it tougher for average people to get home loans by requiring larger down payments and better credit histories.
Craig Tolson,
Executive vice president, Home Building Association of Richmond (HBAR)
Real estate analysts and professionals look to a variety of indicators to gauge the health of the market, including new housing starts, builder confidence, real estate loans and building permits, but for the largest indicator of overall economic health, look to the nation's gross domestic product, or GDP, says Tolson. As American commerce and industry productivity and outputs increase, unemployment should go down, wages should rise and home sales should increase. The GDP rose slowly and steadily in 2011, which bodes well for 2012, he says. In the first quarter of the year, the nation's GDP rose just 0.4 percent. By the third quarter, it had risen 2 percent, a respectable jump. Other indicators also point toward a stronger 2012, Tolson says, including increases in the builder confidence index, which is gauged by a variety of factors, including current sales and traffic of potential buyers. Richmond's real estate market will finally have made it, he adds, if the city appears on the National Association of Home Builders' Improving Market Index, which tracks the top 30 metro areas that have seen the biggest growth in home prices, employment and housing permits.
Greg Cuenin,
President, Richmond Mortgage Bankers Association
Lately, loans designed to refinance home mortgages make up about three-quarters of the loans that lenders are writing nationally. The other 25 percent are for home purchases. "We're a much healthier business and economy when that's 50-50," Cuenin says. "It's a pretty simple barometer," but the number of loans being written for home purchases is "very, very indicative" of the health of the real estate market and the economy in general. Cuenin is well aware of criticism that banks are now making it too difficult for prospective purchasers to qualify for loans. However, he says, "There's plenty of mortgage money available. One of the things we consistently hear that's incorrect in the marketplace is that you need 20 percent down. That's not true. You only need 3.5 percent down. And you don't have to have excellent credit, but you have to have good credit, and you have to show you have the capacity and the willingness to pay back what you borrowed. We're lending money on an asset that's going down in value now. Not many people will do that."
Scott Camp,
President, Base Camp Development Corp.
Developer Scott Camp hadn't sold a million-dollar waterfront home all year, and in the final weeks of 2011, he sold two in the same week at Chesterfield County's Chesdin Landing, one of 11 subdivisions he's developing in Virginia and North Carolina. He hasn't seen that kind of business in four years. He credits it to low interest rates, but he also says that banks need to increase the number of loans they're writing. "If the banks are not willing to lend to the home buyer, they're not going to be able to qualify for these houses, and there are ever-changing rules on what the lending rules are, we're finding," Camp says. He's had purchasers who qualified for home-construction loans and then four months into construction, their bank re-evaluated their loan applications, and "that's got to be discouraging for people to step into the process."
Prior to the 2008 downturn in the economy, banks gave out credit too easily, he says, "but the pendulum has swung way too far back … as far as being very restricted. … That's the No. 1 factor slowing down the momentum we could get going." This will change, Camp believes. He expects that community banks will begin writing more loans, leading to market growth in 2012. Just the same, though, he advises against counting on a return to the 2005 boom times.
