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By: Megan Nash

Homebuyers looking for relief from rising prices can expect a mixed bag in 2024. After watching mortgage rates hit record highs and inventory dwindle last year in Central Virginia, many hopeful homebuyers are eager to get off the sidelines and into a home.

On Thursday, April 11, the VCU School of Business Kornblau Real Estate Program’s fourth annual “Industry Talks: Spring Housing Forum,” brought together an executive panel from different sectors of residential real estate to share their thoughts and observations on the housing market today in Central Virginia.

With over 350 people in attendance, the forum was moderated by Jim Napier, senior executive officer and chairman of Napier Realtors, ERA. Panel guests included:

While 2024 is expected to be a better year for the housing market, if you’re planning to buy a house this year, here’s what you need to know about housing market predictions, and how you can prepare.

Economic backdrop presents challenges (and opportunities)

Before you think about signing any papers or dreaming up your new backyard, it’s important to understand the economic conditions that are shaping today’s market.

According to Ryan Price, chief economist at Virginia REALTORS®, “Our economy is still running at a pretty fast clip,” with a significant 3.4% GDP growth at the end of 2023. The growth is fueled by strong consumer spending, government expenditure and increased exports. Despite concerns over inflation, there’s cautious optimism about achieving a soft economic landing – keeping inflation in check without triggering a recession.

Surging mortgage rates are cause for cooling

Mortgage rates have been a significant barrier for many. “Mortgage interest rates are really cooling a lot of that activity,” Price explains. Although there’s demand, high rates are stifling actual buying actions. With 30-year fixed mortgage rates hovering around 6.82% recently in Central Virginia, it’s no surprise activity has been sluggish. This has put a damper on the spirits of both buyers and sellers, with many homeowners reluctant to give up low rates they’ve locked in during better times.

Inventory woes: Why choices feel limited

The low inventory is another critical issue. As of late February, Virginia had fewer than 16,000 homes on the market. For a state with over 8 million people, these numbers are naturally inadequate, leading to a seller’s market where competition is fierce. In the Richmond area alone, there’s 1.9 months of supply, far below the healthy market standard of 4 to 6 months. This scarcity is pushing up prices and making bidding wars the norm rather than the exception.

In a recent article published in the Richmond Times Dispatch, “Commentary: To lower tax bills and home prices, support rezonings,” Danna Markland, CEO at the Home Building Association of Richmond, attributes this shortage to restrictive zoning regulations.

She highlights that current zoning policies do not keep pace with demand, severely limiting the availability of land for development. This bottleneck, compounded by rigid entitlement processes and government regulations, restricts the number of new homes that can be built — averaging only about 5,100 permits annually against a demand for 12,500 homes. Expanding residential rezoning could unlock critical inventory, help stabilize prices and mitigate the frenzied market conditions.

Affordability in a tough market

Affordability remains a concern for many potential homebuyers in Central Virginia. Mike Chenault from Hometown Realty shed light on the challenges, noting that “affordability is something we’re going to have a hard time fixing in Central Virginia.” The region’s housing market is grappling with escalating prices due to limited supply and high demand, which affects first-time and lower-income buyers.

Alana Gonzalez from the Better Housing Coalition further emphasized the depth of the affordability crisis, pointing out the rising costs of both buying and renting. “The cost of building one unit of affordable housing has skyrocketed from $187,000 to $305,000 over five years,” she explains. This sharp increase has made it challenging for developers to keep prices accessible for average earners without substantial subsidies.

Bright spots: Construction and consumer optimism

Despite challenges, new construction, particularly townhomes and condos, is picking up. Craig Toalson from the Home Builders Association of Virginia highlights a steady increase in permits, suggesting a cautious optimism among builders.

Innovative constructions and interest in adaptive reuse projects are also on the rise, where commercial or industrial properties are converted into residential units. For homebuyers, these innovations mean more choices and potentially lower prices.

“I don’t think that we’ll see substantive changes without some seismic shifts in the environment and also without innovation,” said Monique Johnson with Virginia Housing. “We’re seeing developers who are really trying to be more creative, more conversion of commercial to residential.”

What this means for you

The panel collectively stressed a cautious but strategic approach to navigating the 2024 housing market. With economic growth continuing at a strong pace yet challenged by inflation and high mortgage rates, potential homebuyers must remain well-informed. As Price suggests, “It’s about understanding where these trends are going with jobs, with inflation and right now, it’s not pointing to a rate cut at this point in time,” which means keeping an eye on economic indicators will be more important than ever for those looking to dive into the housing market this year.

For the full panel presentation and their discussion, listen to the playback of the Spring Housing Forum webinar here.

Join the conversation and stay informed at the Real Estate Trends Conference on October 10, 2024, featuring keynote speakers Jay Bilas, former Dallas Maverick and renowned ESPN analyst, and Willy Walker, chairman and CEO at Walker & Dunlop.

To learn more about the VCU Kornblau Real Estate Program, visit their website or follow on LinkedIn.

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