Wednesday, October 18, 2006

Charlottesville's Third Quarter Real Estate Report

2006 Third Quarter Market Report
On Pace for Second Best Year for Local Real Estate

By Dave Phillips, CAE, RCE
CEO, Charlottesville Area Association of REALTORS®

Despite attempts by some national analysts to spread gloom and doom over the housing market, 2006 is shaping up to be a banner year for real estate sales. In fact, this year will likely be the second best ever recorded in the Charlottesville area (and third nationally). While it is true the 2006 sales figures are down substantially from the record year of 2005, we are on the same sales pace as 2004, which was the second best real estate market in history.

Although this year’s sales totals are similar to 2004, the rest of the market statistics are very different. In 2004, the inventory of homes for sale was very low (around 1200) and prices were rising rapidly. Today we have 3000 homes on the market and prices are only going up at a modest rate. In other words, 2004 was a very strong seller’s market and 2006 has turned into a buyer’s market. 2005 is likely to be the high-water mark for real estate sales for many years to come and every other year will pale when compared to the phenomenal sales totals from last year.

The third quarter of 2006 was a continuation of the transition the market has been in for the last 12 to 15 months. According to figures from the CAAR Multiple Listing Service, 3132 homes were sold in the Charlottesville market area (including the counties of Albemarle, Fluvanna, Greene, Louisa, and Nelson, and the City of Charlottesville) in the first nine months compared to 3539 in the previous year. (Note: total figures include all properties reported to the MLS even if they were outside the main market areas.) Although sales were down 11.5% from last year, they were almost dead-even with the first three quarters of 2004 (which was a record year at the time).

Each quarter, CAAR publishes market statistics on the number of transactions closed, the number of listings that went under contract, the median sales price, the average days on market, price per square foot, and current inventory levels. These figures are tallied on a year-to-date basis every quarter and are compared to the same information from the previous year.

Transactions Closed
A closed transaction is one that has completed the sales process and changed ownership. In the third quarter, 1044 homes were sold in the Charlottesville area according to the CAAR MLS. That is 20% down from last year’s third quarter figure. For the first nine months of 2006, sales are off 11.5%. Although this is a significant decrease in the number of sales year to year, it is important to keep an historical perspective of these figures. As mentioned, 2006 is on pace to be the second best year for real estate in history.

Third Quarter 2006
All counties are significantly down from last year for both the quarter and the year, but the city of Charlottesville, thanks to amazing condo sales, is up 24.4% from last year.

Total Sales
Compared to 2005

Under Contract
Properties that are “under contract” (or pending) are ones that have a ratified sales contract that has not yet closed. This is, of course, an important indicator of how the closed transaction market will perform in the coming months. The third quarter “under contract” figures for 2006 were down 10.4% from the same period last year. For the third quarter, 921 listings went “under contract” in 2006 compared to 1218 during the same period last year. This should point the way to a soft fourth quarter for 2006 (at least compared to last year).

Median Sales Price
The median sales price is a better indicator of what the “average” home in our area sells for than is the “average” sales price. Our area has many estates and homes that often sell for more than a million dollars. In the third quarter of 2006, for instance, 25 transactions were closed for over one million dollars. Such properties distort the average sales price figures dramatically. The median sales price, on the other hand, is the number that represents the middle of the market. 50% of the homes in our area sold for more than this price and 50% sold for less than this price. The median sales price for the entire market area in the third quarter of 2006 was $269,000 which is just slightly below the previous year’s figure. (See table below for specific area figures.)

Median Price

Year to date, the median price in our area has risen 9%. That is a very healthy increase (not too much, not too little). The increase in inventory has helped slow down the unsustainable price rises we have experienced in recent years. This is another indication that we are in a buyer’s market after several years of the sellers being in control.

Days on Market (DOM)
It is no surprise that the average days a property stayed on the market has continued to rise. In the third quarter, the average property stayed on the market a reasonable 70 days. Anything below 100 days is a sign of a hot market, so our local market remains heated despite cooling compared to last year. Both Greene (65) and Louisa (80) showed a decrease in DOM during the third quarter (-5 and -4 respectively). Fluvanna (84 days, up 35), showed the largest increase for the quarter. Others areas showed moderate increases for the quarter: Albemarle (63 days, up 26), Charlottesville (63 days, up 16), and Nelson (85 days, up 15). For the year, properties in the area are only staying on the market 11 days more than last year. Considering the current high inventory levels (see below), it is surprising that DOM has not increased more.

One of the major factors that affect the DOM statistic is inventory. If the inventory of homes for sale is low, then there are fewer properties for buyers to consider and properties sell more quickly. CAAR tracks the number of new listings that come on the market each quarter to help us monitor the inventory of available homes. There has been significant growth in the inventory over the last 12 months. As of early October, 2006, our database has 2,992 homes actively listed for sale. That is almost two times the 1,681 homes on the market this time last year. This is a rather amazing turnaround since inventory has been very low for the past five years or more.

Inventory levels have been increasing since late last year, but seem to be leveling off. The rule of thumb is that a healthy, balanced real estate market has a 5 month supply of homes available for sale. Less than that and it is a seller’s market, more than that and it is considered a buyer’s market. For the past several years, we have experienced a strong seller’s market and prices have gone up rapidly. Now, we have about 6.5 months of supply in inventory which indicates we are solidly in a buyer’s market.

Price per Square Foot
This category helps us track the affordability of housing across jurisdictions in our area, but it is important to understand that this figure is not completely accurate. Each home is a different mix of land, location, style and amenity, and this figure does not take this soft data into account. CAAR considers this to be an interesting statistic, but not one that should be used too widely in comparing properties. In the third quarter of 2006, the most expensive area per square foot was Nelson at $205 (up 3.6% from last year). The other areas were as follows: Albemarle $183 (up 10.2%), Fluvanna $141 (up 9%), Greene $162 (up 18.5%), Louisa $151 (up 18.1%), and Charlottesville $198 (up 14.2%). The entire area was up 9.5% to $174.

Conclusions and Forecasts
While it would be easy to get caught up in reports of the “slowing housing market” or the mythical “bubble bursting” that is being reported in the national media, it would be wiser to look at the current market in a more historical perspective. The record sales of last year were a result of a market that was over-heated due to low inventory, high demand and attractive investment opportunities. This year’s market is a better, more rational market in many ways. Demand is still high, inventory is more than adequate and the overall economy is stronger than last year. Prices for local area homes are still going up, but at a much more reasonable and sustainable rate than the past five years. Buyers have more leverage and a lot more opportunity with this year’s market, but sellers are still able to sell their homes in a relatively short time. There is every reason to expect that 2006 will be a great year – probably the second best ever – for real estate in our area.

If you have any questions on these market statistic or other aspects of the local market, please contact me at 434-817-2393 or

Saturday, July 08, 2006



NEW YORK - (BUSINESS WIRE) The robust housing market has contributed 1.2 million new housing starts annually since 1998, and has provided a major boost for the U.S. economy in the last four years. This golden age of homebuilding is expected to continue its outstanding performance well into the third decade of this century, according to the new report, ''The Housing Boom: Another 20 Years of Growth.''

Authored by Al Ehrbar, a partner in consulting firm Stern Stewart and Company, (and co-sponsored by Pulte Homes and Masco Corporation), the report takes issue with the many economists who fear that downward corrections in home values and a major reduction in construction activity lie ahead. While some decline in construction seems inevitable, most forecasters neglect some of the overwhelming positive factors that fueled the success of the new-home market in recent years.

''Demographics is the single most important element in the housing equation because the number of households create a floor and a ceiling on the number of housing units demanded,'' Ehrbar writes. ''A careful weighing of the many variables -- immigration, the aging Baby Boomer demographic, affordability of housing -- influencing the housing industry strongly suggests that the new-home market will be enormously positive.''

Demand for housing will be solid for the next 20 years. U.S. Census Bureau projections now indicate that the number of households will grow by nearly 24 million from 2000 through 2020, from 105 million to 129 million. That breaks down to 1.17 million new households a year in this decade and 1.2 million a year from 2010 to 2020.

''The true anomaly of the last 10 years was the strength of housing through the recession,'' Ehrbar observes. ''The result was a radical new role for housing. Instead of adding to the severity of the recession, it helped sustain employment and consumption, and softened the economic landing. Housing went from being a safety valve at the inflationary peak of the cycle to acting as a safety net on the downside.''

Immigration Fuels Housing Demand
In the future, the flow of new immigrants, along with the coming of age of the Echo-Boom generation (people born after 1976) will keep the supply of first-time homebuyers essentially constant through 2020. An increase in the number of immigrants, which Ehrbar believes could happen, would add substantially to starter-home demand.

The Great Baby Boomer Effect
The Baby Boomers coming of age in the 1970s produced the greatest decade of housing construction. Now their passage into their retirement years will have an equally profound effect on the types of housing demand. Their homes will be houses, not apartments, typically one-story with three bedrooms. Surprisingly, though, retirees do not trade down very far in size.

Trading Up for Bigger Homes
The youngest and most populous group of Boomers is still in their late 30s and early 40s, which means they are just moving into their prime trade-up years. The median age of buyers of upscale new homes is 45, versus a median age of 36 for all buyers. The households in the 35-to-44 bracket in 2000 - the core of this decade's trade-up market - outnumbered the older Boomers by more than 4 million, creating more demand for trade-up houses.

Housing has such a bright future because houses (and apartments) will continue to get bigger and better, ensuring that real, inflation-adjusted spending on residential construction will continue to rise.

''There will be ups and downs in housing, and the torrid pace of construction in 2002 will not continue. But the underlying trend is enormously positive. The most important fact for the housing industry is not the immediate outlook, but that it can look forward to at least 20 more years of what historically qualify as genuine boom times,'' concluded Ehrbar.

Toby Beavers

Friday, June 30, 2006

Weekly Charlottesville Real Estate Update for June 30th

As if the extended silly season in Washington isn't enough evidence that we're in an election year, the National Association of Home Builders weighed in this week with what might be called a "gentle" reminder to legislators of the importance of a couple of pet tax deductions -- those for mortgage interest and property taxes.

These tax breaks are no narrowly cast earmark; nearly 40 million Americans participate to the tune of more than $450 billion in deductions. The average U.S. homeowner chops $9,650 off of federally taxed income by using the mortgage deduction and $3,000 using the property tax break. The analysis used 2003 IRS figures, the latest available.

To put the numbers in a frame of reference that even overspending senators and representatives who have become numb to such statistics can understand, the home builders broke down the stats by all 435 congressional districts: The average district contains about 80,000 taxpayers who use the mortgage-interest deduction and 88,000 who deduct property taxes. Ah, motivated voters! Now you've got our attention.
There is no indication that either of those tax breaks is threatened. Although the idea of ending or curtailing the deductions has been floated many times, the real estate trade groups are always quick to pounce on any such effort and, voila, it disappears. The presidential tax-reform commission was the latest to broach the subject last year. And you see how far we've gotten with tax reform since.

But let's face it; those billions can look mighty tempting to a Congress and an administration that have shown little restraint on budgetary matters. So it never hurts to put out a little reminder -- and why not just before the Fourth of July weekend since homeownership is, after all, the American dream.

"Because the mortgage interest and real estate deductions significantly reduce federal tax liabilities for homeowners, they are important tools for promoting homeownership," said Jerry Howard, executive vice president and CEO of NAHB. "The report shows that millions of working families across the nation use and depend upon these important tax incentives to help them maintain their current standard of living."
So there. The flag has been run up the pole again. And 100 senators and 435 representatives who fail to salute do so at their own peril.

Steve Kerch, real estate editor
Housing's $457 billion tax savings
Thirty-five million taxpayers used the home-mortgage deduction in 2003, deducting a total of $338 billion, or an average of $9,650 per household, according to an analysis released on Thursday by the National Association of Home Builders. About 39 million deducted real estate taxes that year, totaling $119 billion in deductions nationwide, or an average of $3,000 per tax filer. See full story.
Left without a water line; senior wants out of lease over accessibility
We purchased land on which to build a vacation home. In our contract, we were promised water and sewer to the lot. In New Mexico, this is a big deal and one of the main reasons we purchased the land. Within a few months, the developer said he was having problems with the local town water and sewer department, which is not issuing well or septic permits. We are now suing him, but our question has to do with the title company. We believe the lack of water and sewer will effect our ability to sell, making the land almost worthless. There is a clause in our title policy that we thought covers this, but the title company says "No." Is this a valid response? See Realty Q&A.
Pluses and pitfalls of new home-design software
A slew of sophisticated software for home design has recently hit the market, allowing homeowners embarking on a remodeling project to plot everything from shingle styles to window placement and even see how shadows fall across the porch at different times of the day. If used properly, the do-it-yourself products can save thousands of dollars in architects' fees on a major project. But the growing popularity of the products is making them a point of tension between builders and their clients. Homeowners can spend hours on a design, only to be told they've taken out a key beam or put in a toilet where there are no pipes. See story from RealEstateJournal.
Renters face tight apartment market
With a budget between $1,200 and $1,300 a month, Charlene Conston thought she would easily be able to find an apartment in Southern California's San Fernando Valley. She's now in the second month of her search and still without a lease in her name. See full story.
In a tight market, here are tips for finding a good apartment deal
It's tough to get a good deal in a tight market. But it's not impossible, says Jeremy Bencken, chief executive of Here are some of his tips for getting the best deal on an apartment. See full story.
Garage sales still in style
The dirty and tarnished bracelet sold for 50 cents, but cleaned up to reveal a sterling silver and 18-carat gold piece of jewelry worth several hundred dollars. It's one of Jenn Callum's best garage-sale finds, and an example of why -- even in the age of the online auction -- many treasure hunters still seek out traditional rummage sales. Call it a garage sale, a yard sale, a tag sale or a boot sale, but don't call it a relic that online auctions have rendered obsolete. See full story.
Mortgage rates up for a third week
Mortgage rates rose for the third week in a row, sending the 30-year loan to its highest average rate in 49 months, according to Freddie Mac's weekly survey released Thursday. The higher rates, which have moved up more than half a percentage point since the start of the year, are definitely cooling off the housing market, returning it to more normal levels, according to Freddie Mac's chief economist Frank Nothaft. See Mortgages.
High-priced home hunters online
What's important to people looking for real estate online -- location, location, location -- won't shock you, but the online buyer is going for higher-priced property, as CEO Pete Flint tells Stacey Delo. See Broadband Report.
Growing evidence of real-estate 'bust'
Evidence is mounting that the global property cycle is turning down, as rising interest rates and heightened inflationary pressures combine to put the brakes on demand for real estate, according to a Morgan Stanley report. The shift ushers in an end to what's been a six-year rally during which the twin forces of globalization and financial innovation fed an upturn in the property cycle that became a worldwide phenomenon, said economist Andy Xie, in an Asia Pacific strategy report released Thursday. See full story.
Alaska investor turns home into profitable rental
Jim Nelson, 53, a former special-education instructor, lives outside Homer, Alaska, where he moved in his early twenties. At the age of 24, he purchased approximately two acres located 12 miles north of the city for $10,000 and later built a home there. He moved out of the residence in 2001 and is now selling the property. See story from RealEstateJournal.
Wealthy residents head to Wall Street
Retailers and developers who have watched a surge of luxury condos open in Lower Manhattan over the past three years see the beginning of a broader transformation as high-dollar retailers follow their high-rolling customers downtown. See story from RealEstateJournal.
Hot housing markets cooling
Some of the nation's hottest housing markets are cooling, but the strength of the economy is balancing the risk of home-price declines, according to PMI Mortgage Insurance Co., which released its U.S. Market Risk Index on Tuesday. See full story.
Hot spots even as housing market cools
Even as the housing market shows signs of cooling, there are still good deals to be had in some parts of the country, as Hugh Bromma of the Entrust Group explains. Stacey Delo has the interview. See Broadband Report.
Where houses are selling and where they're not
Here's a look at what's new in real-estate markets across the U.S. from around the Web. See Real Estate Blog.
Mortgage applications at four-year low
Applications for mortgage loans at U.S. banks dropped by 6.7% last week to the lowest seasonally adjusted level since May 2002, the Mortgage Bankers Association said Wednesday. The number of mortgage applications was down 31% compared with a year ago. See Economic Report.
New home sales rise 4.6% to 1.234 million in May
Sales of new homes unexpectedly increased 4.6% to a seasonally adjusted annualized rate of 1.234 million in May, the Commerce Department estimated Monday. Sales were running at the fastest pace since December after three straight increases, confounding experts looking for housing sales to slump. Sales are down 5.9% in the past year. See Economic Report.
Tips for scouting a market before making home purchase
My wife and I will be moving to San Diego in September. Originally we were planning to purchase a house in a good school district using most of our sizable nest egg that we have worked very hard to accumulate. But we have now decided to rent until we get a better sense of the housing market. Do you think this is a good idea? What do you think will happen to the San Diego market over the next five years? See House Talk.
Slowing sales, baby boomers, spur glut of McMansions
The golden age of McMansions may be coming to an end. These oversized homes -- characterized by sprawling layouts on small lots, and built in cookie-cutter style by big developers -- fueled much of the housing boom. But thanks to rising energy and mortgage costs, shrinking families and a growing number of retirement-age baby boomers set on downsizing, there are signs of an emerging glut. See story from RealEstateJournal.
Existing-home sales fall 1.2% to 6.67 million
Resales of U.S. homes fell 1.2% in May to a seasonally adjusted annual rate of 6.67 million, the National Association of Realtors said Tuesday. Sales of existing homes have fallen in three of the past five months. "We're right on course for a soft landing," said David Lereah, chief economist for the real estate trade group. "Fingers and toes crossed." See Economic Report.
Hiring a contractor as a tutor for tricky do-it-yourself jobs
Increasingly, some experts are willing to consider letting you apprentice with them in your own home. For the professional, it's a paying job with a free -- though potentially clumsy -- assistant. For the homeowner, it's a chance to make sure a critical project is done correctly and learn the skills you need to do it yourself in the future. See story from RealEstateJournal.
A housing slowdown can put the brakes on jobs
Mortgage brokers, prepare your resumes. And while you are at it, highlight any experience you've had in health care. The reason: Housing, the biggest generator of jobs in the current expansion, is running out of steam. As a result, tens of thousands of Americans, from bankers to hardware-store clerks, are likely to find themselves out of work over the next couple of years. For those who can transfer their skills to other industries that are still growing, such as health care, it won't be the end of the world. See story from RealEstateJournal.

Monday, June 26, 2006

FHA Announces New House Flipping Rules

FHA Anti Flipping Fraud Rules

Real estate flippers got a new set of marching orders last week -- at least those flippers who want to use FHA mortgage financing.

The Federal Housing Administration issued long-awaited final regulations on property flips last Wednesday. The rules take effect nationwide July 7. Flipping involves resales of houses or other real estate shortly after acquisition, typically at a substantial price markup. Say you buy a rundown rowhouse at a bargain price, do cosmetic fixups, and then sell it a month later for twice what you paid for it.

Sounds like a high payoff short-term investment, right? It is. But the FHA found that too many property flips using its insured mortgage program involved outright fraud -- hyped appraisals, shell games where property flippers never actually took legal title to the house before selling it for huge profits, sometimes overnight.

Often the end purchaser of the flipped property was not financially qualified, and used fraudulent income, employment and assets information to obtain the FHA loan. Then the buyer quickly defaulted, leaving FHA with insurance losses and a house that was worth nowhere near its appraisal valuation. The flipper, meanwhile, pocketed all the sales proceeds financed with the FHA mortgage.

To rein in such practices, FHA proposed -- and last week adopted in final form -- new restrictions. Specifically, FHA will now require that:

* Only owners of record -- listed as such in the local court house real estate recordations -- may sell properties that will be financed using FHA insured loans.
* Any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing.
* For resales that occur between 91 and 180 days where the new sales price exceeds the previous sale price by 100 percent or more, FHA will require additional documentation of the property's true value before insuring the mortgage.
* The agency may also require additional evidence of the accuracy of appraisals whenever properties are re-sold at high price gains within 12 months.

The FHA 90-day no-flip time restrictions will be waived when the sellers of properties to be financed are:

* HUD itself, disposing of its REO (real estate owned) acquired property portfolio.
* Sales of properties that were acquired by the sellers through an inheritance.
* Fannie Mae, Freddie Mac or other federally-chartered financial institutions disposing of REO.
* Local or state housing agencies.
* Nonprofit organizations that have previous approvals to purchase HUD REO properties at a discount.
* Properties located in a presidentially-declared disaster area, provided FHA has issued a formal announcement of eligibility for a specific disaster area.

Real estate investors, particularly those who specialize in rehabilitations of rundown structures in central city areas, had complained to HUD about possible negative impacts on their business activities stemming from the new rules. But HUD decided that banning most 90-day or under flips, and by scrutinizing flips between 91 and 180 days of acquisition where the price markup exceeded 100 percent, FHA should be able to protect itself against the worst abuses.

toby beavers

Monday, June 19, 2006

And How Will You Price Your Charlottesville Home?

When it comes to pricing your house when you’re ready to sell it, keep in mind you must sell in the market you’re in today. It doesn’t matter what your former neighbor got six months ago, or what properties are listed for now.

All that matters is this -- whatever the last sale price in your neighborhood of your model -- that’s probably your sale price now.

When you’re looking at what you’ll gain on the sale of your house, let’s keep it in perspective.

If Charlottesville home prices increased year after year at 4 percent per year and then suddenly people were selling their houses for 1 percent less than last year’s asking price, would that be reasonable?

If so, then when property is moving up at 20 percent per year for several years and then suddenly you have to sell it for 5 percent less than the prices last year, would that be reasonable?

The challenge is when we move from percentages to dollar amounts.

If 5 percent represented $5,000, most people wouldn’t blink. It’s when 5 percent represents $25,000 that sellers start to freak.

In the Charlottesville area, we were experiencing astounding rates of appreciation as a region, 20 percent from 2004 to 2005 prices.

Many Charlottesville homeowners have experienced a doubling in property values over the last five years.

The average home price is now about $240,000, according to the local multiple listing system.

Now, price appreciation has subsided and is sitting at a mere 10 to 15 percent region wide (depending on where you’re standing).

Sounds pretty healthy, still, right?

You would think.

However, there are stories from the field on how sellers are defending their prices as if their lives depended on it. While sellers are sitting on hundreds of thousands of dollars of equity, they can’t stand the idea of dropping their price by $25,000 or $50,000 to sell it today.

The house that was $260,000 in 1999, is now selling for $569,000 today.

But some sellers now want that same type appreciation and can’t imagine selling it for less than $589,000.

Bringing it down the $20,000 or $40,000 to sell the property seems, well, just not fair.

What’s even scarier are the agents who are defending their prices in a correcting market.

I have to keep in mind that nearly half the agents in the country (as well as here in the Capital region) were not in business five years ago.

They’ve just now entered a market where prices have to be corrected, dropped -- improved, as it were.
However, as I talk with agents around the region about their listings, they’ll be the first to let you know, "It won’t sell for what the seller’s asking," but they’re too afraid to tell the seller the sobering news.

The market is like playing Russian roulette. Sometimes you don’t know what you have until you pull the trigger. Somebody needs to blink. Sellers seem to be saying to buyers, "I’ll drop my price, just make an offer." While buyers are blankly replying, "I’ll make an offer, just lower your price."

It’s this stalemate that has played a part in creating an abundant supply of houses on the market in the DC area. We’re talking upwards to 200 percent more homes on the market in any given year-to-year comparison.

And, folks, after a dearth of homes in this area, it’s a good thing.

Is it affecting prices? Sure thing.

Will prices come down? Absolutely. Are sellers going to lose money? Well – in some cases.

For sellers staying in the same area, keep in mind, if you have to drop your price by 5 percent, then the seller of the house you’re buying (usually a lot more expensive) is probably doing to drop the sales price by about the same percentage point.

It means that while you may "lose" money on the sale of your home, you’ll more than likely "gain" it on the purchase up.

Keep in mind, the market is the market.

When it’s time to buy, buy.

When it’s time to move, then sell.

Work with the market you’re in, not in the market you wish it would be.

Toby Beavers

Sunday, June 18, 2006

The Growth of Charlottesville Real Estate

Charlottesville’s growth has become something of a buzzword of late, though it often means different things to different people.

But regardless of how it is interpreted, a core set of trends are positively influencing future land-use alternatives, which presents greater opportunities for private real estate developers engaged in mixed-use, infill, redevelopment, adaptive re-use and other niche products.

These trends are also positive for neighboring counties seeking to lessen growth's impact on quality of life, because they can supplement their support for conventional development with policies and incentives for a wider range of housing and mixed-use developments.
At the same time, experience has shown that some smart growth prototypes may be difficult or expensive to develop and finance, while others have experienced slower initial absorption.

Charlottesville planners are actively working with private developers seeking to capitalize on an economic, demographic and political environment increasingly supportive of new land-use and building forms.

Charlottesville’s experience has proven to be a valuable asset to developers attempting to discern which types of projects will be most successful in specific locations.

Charlottesville should also be working with cities, counties, community improvement districts and others involved with creating land-use policies and plans, with an emphasis on strategic planning grounded by the market realities of various or proposed solutions.
These are a few of the trends that support "smarter growth" around Charlottesville:
· Companies are expanding or relocating in places that score high in terms of quality of life, so business groups have joined environmentalists in smart growth planning efforts;

· While the suburbs remain popular, some aging baby-boomers are heading back to cities in search of a more convenient "urban lifestyle"

· Many younger households, including segments of the Generation-X cohort, believe urban areas, not suburbs, are the cool places to live. The companies who employ this generation will tend to locate where their employees want to be;

· While about 30% of the market would seriously consider the "new urbanism", in some markets supply represents less than 15%, creating un-met market demand;

· Rapid suburban growth in major metro's has out-paced the ability of transportation systems to keep up, with resulting traffic congestion fueling in-town housing demand;

· Many local and regional governments realize they can't afford to exclusively support a low density development pattern, and are actively seeking more balanced alternatives.
Over past three decades Charlottesville’s lower land costs at the urban fringe, public policies relative to the extension of roads and infrastructure, higher regulatory costs in urban areas, and the consumer's willingness to trade a longer commute for lower housing costs, have led to rapid outward expansion among the fastest growing metropolitan areas.

While new suburban development in large, fast growing metros like Atlanta, Dallas, Phoenix and Houston has had a positive impact on regional economies, the sprawl development pattern that has accompanied this rapid suburbanization has been widely criticized.
The transition over the past 50 years from relatively compact urban forms to a dispersed and auto-dependent development pattern requires more time spent in our cars, which has led to greater traffic congestion and reductions in air quality.

Though people generally appreciate the benefits of growth and understand the connections between growth and jobs and the economy, they are concerned about its impact on their quality of life.

In the midst of the debate about how best to grow, changes in demography, the increasing affluence and aging of the baby-boomers, Gen-X households seeking a different set of life experiences than their parent's generation, and other real estate demand factors represent a confluence of trends more supportive of new ways of creating real estate developments, suburban activity centers, cities and regions.
Understanding these trends is essential for anyone involved in land use development and policy.
Because there is no single set of "solutions" that define how Smart Growth can be achieved universally, a wide range of proposals exist for resolving growth-related problems.
From a policy perspective Smart Growth is a potential middle ground between proponents of "no-growth" or "slow growth", and those who believe that all growth is good for the economy regardless of its impact.

At its best, Smart Growth is a belief that we can continue to enjoy the economic benefits of growth but do it in a way that is better than we've done it in the past. Some local residents and public officials in fast-growing regions say they are in favor of Smart Growth but their goals are essentially to limit growth. Though Smart Growth "solutions" will vary across regions, they are most likely to succeed if they include a broadening the market's transportation and land-use options, not a limitation of them. The success of particular solutions will depend on the degree to which there is underlying market support for the broader options being proposed. Gauging market support is one of the ways that Charlottesville planners have been engaged in identifying viable solutions.
Charlottesville’s work with the public recognizes that policies promoting tough growth limits tend to increase sprawl, as developers barred from building in anti-growth jurisdictions simply move farther out.
It also recognizes that simply maintaining existing land-use policies is not likely to result in the desired quality of life outcomes. See Greene County for a good example.
Charlottesville real estate planners seek to find market-based solutions. For example, the trends supporting new directions in land-use and building development increase the opportunity for higher density housing and mixed-use developments in places where that makes sense, such as the existing urban center, the new RT 29 town centers and our downtown mall district.
The research also suggests that there will continue to be strong demand for conventional development. This is not a case of "either/or," i.e. Smart Growth or conventional development, but of "both/and." Not "urban versus suburban" development, but "urban and suburban" development.

Not high-density versus low density, but high density where it makes sense -- such as in activity center locations -- and preserving a low-density character where doing otherwise would diminish the quality of existing neighborhoods. What is exciting about the emerging trends is that they support a greater diversity of housing products, multiuse and mixed-use development, which provides opportunities for innovation.
Even the most conservative projections indicate that proponents of "slow-growth" or "no-growth" are likely to be disappointed.

Most regions will continue to grow, out of sheer need. Regional economies require at least a minimum level of growth to keep from stagnating. U.S. immigration policies admit about a million people a year. Buildings and homes do not last forever.

Our children will not always live with Mom and Dad, eventually transforming one household into two or three.

Many older adults will desire, or require, specialized housing as they enter latter stages of life. With people living longer than ever before, that could represent a substantial new housing demand. Charlottesville home builders are slowly catching on to the 55 and older developments.
How our Central Virginia regions grow is changing, not simply as a response to improving the quality of development or to attempt to minimize negative impacts on quality of life, but as a response to changes in underlying economics, shifts in demography, and necessary changes in public policy.

Privately developed real estate projects are the building blocks of Charlottesville, so a better understanding of these trends will help private developers make good development decisions, and help the public sector to avoid costly mistakes with policies that lack market support.

As one of Charlottesville’s top realtors, I am proud to say, our Charlottesville real estate planners have developed the knowledge base to facilitate smart growth development.
Toby Beavers

Building Costs For Charlottesville Real Estate Have Soared Through the roof

Building Costs For Charlottesville Real Estate Have Soared Through the Roof !

As building-material costs soar, Charlottesville homeowners are scaling back on remodeling & new home builders are seeing a problem ahead.

Toby Beavers, a Charlottesville realtor and small Charlottesville home developer, believed he had a big job lined up last fall. But in the six months it took the client to hire an architect and have blueprints drawn for a large addition, Beavers' estimate went from $170,000 to $250,000 and the Northridge homeowner abandoned the project.

Beavers blames at least part of the increase on the soaring prices of building materials, which generally account for about 30% of the cost of a major home-improvement project. Also figuring into the equation are rising energy, labor and insurance costs, including workers' compensation.
"Everything went up drastically in the past year - from nails to drywall," said Toby Beavers, Charlottesville realtor.

Since April 2005, the price of copper pipe and tubing has risen nearly 71%; the gypsum products used in drywall, 24%; asphalt shingles for roofing, 19%; and ready-mix concrete for foundations, 12%, according to Reed Construction Data, a construction information company based in Norcross, Ga. The exceptions are framing lumber, which stabilized after rising sharply in 2004 and 2005 and is down 5%, and plywood, down 2%.

It's all part of an upswing that has seen Charlottesville home building supply costs outpace the rate of inflation for at least two years, largely because of strong demand, and that is adding to the cost of remodeling projects and new homes.

Copper gutters, copper roofing, copper stuff we used to do 10 years ago as a design feature, we just don't do it anymore because it's prohibitive. But the metal isn't just a decorative option in home building. There are about 440 pounds of copper in a new 2,100-square-foot single family home, according to the Copper Development Assn., including about 200 pounds in wire and about 175 pounds in pipes and fixtures for homes with copper plumbing.

That alone would add $500 to the cost of a new home.

The increased cost of building materials will on average add $6,000 to the expense of building that 2,100-square-foot house this year, Beavers estimates.

Nationally, in the last three years, the higher prices for construction supplies have added $20,000 to the cost of a new home, he said. With this in mind, why the huge increases on some Charlottesville home bids in just a matter of months?

Deciphering the economics of a contractor's quote requires expertise that few Charlottesville homeowners possess. But to avoid overpaying, prosecutors, consumer affairs departments and Beavers recommend rigorous comparison shopping.

Get at least three bids, verify the contractor's license with the state board, talk with at least three references, visit other jobs to determine the quality of craftsmanship, look for experience and credentials, check for proper liability insurance, don't be rushed or pressured into signing a contract, make sure the contract includes all spoken promises and ask for a detailed timetable.

Specifying materials and their costs is another recommendation. But keep in mind, when compared to last year's Charlottesville real estate prices, most construction supplies cost more today.

Competition from other countries for building materials and the lingering demand from Hurricane Katrina rebuilding, as well as rising energy prices, are behind the price increases, according to Toby Beavers.
There was a great deal of extra demand last year in rapidly developing countries of the world like China and India. Concrete is one of the big problems. Building in Latin America and Europe and the rest of Asia has picked up, and they are out looking for cement too."

This is compounded by a lack of new cement plants to keep up with demand and for environmental reasons, nobody wants a cement plant in their backyard or the next county.

U.S. contractors also depend on imported cement, which means competition for space on ships and adds freight costs, Beavers said. Central Virginia faces an additional problem: finding the gravel to mix with cement, he said. "It's really hard to get the permits to open gravel pits."

Meanwhile, the price of lumber is moving down a bit. Demand is off and there has not been a commensurate reduction in output production.

" When a booming Charlottesville housing market, falling interest rates and aggressive speculation boosted demand, the price of framing lumber rose to $473 per thousand board feet in August 2004, from $271 in January 2001, about the time the run-up began. By April of this year, it had come down to $367, according to Beavers.

Because few prices are standing still, a matter of months between the date of the original estimate and the day the contract is signed can add thousands of dollars to the final cost. Estimates are simply that. Until a contract is in place, any cost increases can be passed on to the homeowner. And that has left homeowners to afford their dreams.

"We had refinanced and pulled out quite a bit of money. We were going to add a second story, a master bedroom, two bedrooms with a Jack-and-Jill bath," said Pam Taylor of Charlottesville . "It was about 1,100 square feet upstairs." After an early estimate came in at about $130,000, "we gave our ideas and plans to the architect," she said.

Nine months elapsed. "By the time I got the plans and I started calling contractors, nobody was under $300,000." Contractors who originally quoted $90 or $110 per square foot were now charging $220.

"I was sick to my stomach because I had already spent $10,000 on plans. We were either going to have to sell the house to get what we wanted or work something else out on a smaller scale," Taylor said. "It was impossible to do the second story.

One guy said, 'You really needed about $400,000 and another hundred thousand for incidentals.' " So instead of a second story, she opted for a larger dining room, hardwood floors in the living rooms and some skylights. It's not what Taylor had envisioned. "My dream is gone," she said.

Woe unto anyone who received a quote but postponed the work. "If they put it on hold for a couple of months, the prices changed," said Jay Courage. His company remodels kitchens and bathrooms, renovates homes and builds additions in the Charlottesville area.

"The prices of cabinets have increased a lot," he said. As a rule of thumb, he said, Charlottesville homeowners who started planning last year can expect to tack on an additional $5,000 this year for a kitchen remodel. "If an average price was $30,000, it would be $35,000 today. If it was $40,000, it would be $45,000."

His bids for additions are up too. "A year ago, I was willing to sell a job somewhere between $140 to $160 per square foot," he said. "Today, it's pretty close to $200 per square foot.

" By comparison, Charlottesville contractor, Beavers, said a job that two years ago would have cost $85 per square foot would now be quoted at $150 or more. Materials are not the only thing going up in price — gasoline and diesel fuel have too.

Builders "use a lot of diesel fuel for off-road equipment, earth-moving equipment and diesel- powered construction vehicles like dump trucks and cement mixers," Beavers said.
Diesel fuel has also gone up 18% since April 2005.

Even the cost of the contractor getting to the job site has risen. "It costs me more to get to the customer's house," said Beavers, who has four crews working on jobs around Los Angeles County.

"It's adding to the whole picture." Although Beavers stays busy, he has lost more than one job because of the higher prices, and some homeowners have had to put their grand visions on hold or downsize their plans.

One lady is doing a smaller addition," he said. "She couldn't make her dream home because of the prices. They went up."

Percentage change in the price of building materials from April 2005 to April 2006:

Copper pipes and tubing +70.7%

Gypsum products (wallboard) +23.9

Plastic construction products +19.9

Asphalt roofing (shingles) +18.6

Ready-mix concrete +12.1

Softwood plywood -1.8

Softwood lumber -5.0

Toby Beavers

Buying a Charlottesville real estate with Interest-only mortgages

Buying a Charlottesville real estate with Interest-only mortgages

Some Charlottesville real estate buyers & borrowers with affordability issues are opting for a rate that stays fixed for the life of the home loan.

Charlottesville — A relatively benign form of interest- only mortgage is gaining popularity as the loan of choice among Charlottesville real estate buyers who have affordability issues.

Unlike the first round of interest-only loans, which carried an adjustable rate and could result in big trouble for some Charlottesville borrowers, the newer type comes with fixed rates that can never change.

With this version, Charlottesville home buyers pay only interest for the first five, seven or even 10 years. When the initial term expires, the payment increases to an amount that allows the borrower to pay off the balance over the loan's remaining years. But the interest rate remains the same as when the borrower originally took out the loan.

"It's a very low-risk mortgage," says Toby Beavers, Charlottesville’s top realtor/economist.
"It's essentially tax-deductible rent" for the first few years, Beavers said. And by the end of the interest- only period, household income should have grown enough that "if the borrower has been reasonably prudent, he should be well-prepared" for the big jump coming in his or her house payment.

Even if the Charlottesville borrower's income doesn't keep pace and he can't afford the higher payment, he should be able to sell the Charlottesville house for more than he paid and come out ahead.

As the economist points out, "There's never been an extended 10-year period" in which housing prices have fallen. Of course, there are no guarantees, not in life and certainly not in housing values.

In the second half of 2005, the majority of interest- only loans were still adjustables, meaning the rate will adhere to the market rate when the interest-only period expires.

But, according to the bankers association, a growing share have fixed rates.

To see exactly how a fixed-rate, interest-only loan works, let's look at a $200,000 loan, as priced in late May:
A conventional fixed-rate 30-year loan on a Charlottesville home— one in which the payment remains the same for the entire term and amortizes each month so the loan is paid in full with the 360th payment — would cost $1,297 a month in principal and interest at the current rate of 6.75%. A loan with a 10-year interest-only payment is priced a little higher — 6.875% — but the first 120 payments would be only $1,146. That's pure, tax-deductible interest and a savings of $151 a month. Then, the balance would be paid down over the next 20 years, with payments of $1,535 a month.

There are other versions too.

With an interest-only period of five years, the rate is somewhat lower, so the initial payment is smaller as well.

At 6.47%, the interest payment for the first five years of a $200,000 loan would be $1,078, a savings of $219 And for the last 25 years, the interest and principal payment would jump to $1,347.
There also are loans available in which the interest- only period is 15 years, and the mortgage would then amortize over the next 15 years. Some Charlottesville lenders such as Millenium Mortgage are also offering 40-year interest-only loans, which make the mortgage even more appealing because the higher payment is spread over 10 extra years.

But the big question remains: Is the initial savings worth the bigger hit down the road? For a growing number of borrowers, it seems to be. "It's an interesting opportunity," says Keith Gumbinger, vice president at HSH Associates, a mortgage information firm based in Pompton Plains, N.J. "There's no interest-rate risk, but there's a huge jump in the payment down the road."

True enough, but the difference between adjustable- rate interest-only loans and the newer fixed-rate version is the difference between interest-rate shock and payment shock. With interest-rate shock, you don't know what the rate will be until the loan converts to a one-year adjustable-rate mortgage at the end of the interest- only period you choose.

So you could very easily find yourself in over your head if the increase is more than you can handle. With payment shock, on the other hand, you know what you are in for when you sign the loan documents.
It still may be more than you can afford when the time comes to pay, but you can't claim surprise because the rate will never change. If your income has grown, there's no problem. If it hasn't (but house prices have risen sufficiently to let you sell at a profit), again - no problem.
But if you stretched to get into the house and were betting on appreciation to keep you afloat, you could run into a serious problem.

If prices don't keep pace, you won't be able to sell the house for enough to cover the mortgage.
Worse, you won't have enough equity to refinance. And if your credit record has deteriorated at all, you may not be able to get a new mortgage at any price. "Even with your eyes wide open, you can still get hammered," Gumbinger warns.

He suspects that most interest-only Charlottesville real estate buyers anticipate either selling their homes or refinancing them before the interest-only period expires. But even that plan has pitfalls, because you never know what the future holds, he points out.

Toby Beavers

Thursday, June 15, 2006

Charlottesville's Downtown Picks UP...Big Time!

An analysis of Charlottesville's downtown population, household, and income trends from 1970 to 2000 finds that:

During the 1990s, Charlottesville's downtown population grew by 10 percent, a marked resurgence following 20 years of overall decline.

Forty percent of other US cities began to see growth before the 1990s.

While only big cities such as New York's two downtown areas, Seattle, Los Angeles, and San Diego saw steady increases from 1970 to 2000, another 13 downtowns have experienced sustained growth since the 1980s.

But Charlottesville was not one of them.

From 1970 to 2000, the number of Charlottesville's downtown households increased 8 percent—13 percent in the 1990s alone primarily to the Belmont section of Charlottesville—and their composition shifted.

Households grew faster than population in downtowns, reflecting the proliferation of smaller households of singles, unrelated individuals living together, and childless married couples looking for night life.

Downtown Charlottesville homeownership rates more than doubled during the thirty-year period, reaching 22 percent by 2000.

Overall the number of homeowners grew steadily each decade.

By 2000, the share of homeowners across the sample downtowns swung from a high of 41 percent in Chicago to a low of just 1 percent in Cincinnati.

Downtowns today are more racially and ethnically diverse than 20 years ago.

In Charlottesville from 1980 to 2000, the combined share of white and black residents living in the sample downtowns fell from 81 percent to 73 percent.

The number of white residents living downtown rebounded in the 1990s, however, despite an overall loss of this group in cities as a whole nationwide.

In general, downtowns boast a higher percentage of both young adults and UVA-educated residents than the nation's cities and suburbs.

In 2000, 25- to 34-year olds represented nearly a quarter of the Charlottesville downtown population—up from 13 percent in 1970. Forty-four percent of downtowners had a bachelors degree or higher.

Downtowns are home to some of the most and least affluent households of their cities and regions.

Twenty of the sample nationwide downtowns—such as Midtown Manhattan, Dallas, and Miami—have at least one tract where the median income is higher than that of their MSA as a whole.

Thirty-eight have at least one tract 50 percent or lower than their MSA median.

While this analysis demonstrates good news for the Charlottesville downtown residential development overall, demographic, market, and social trends differ substantially from place to place.

Charlottesville city leaders need to understand these patterns so they can make investment decisions that best capitalize on their unique assets.

Toby Beavers

Positive Housing Report is Out!

The Harvard Center For Joint Housing Studies Releases Positive Housing Report

by Blanche Evans

"The State of the Nation's Housing 2006," one of the most anticipated annual housing reports, has just been released by the Harvard Joint Center for Housing Studies.

The report overall is positive on the housing market -- that "the housing sector continues to benefit from solid job and household growth, recovering rental markets, and strong home price appreciation," and as long as these remain in place, "the current slowdown should be moderate."

Households are expected to accelerate from about 12.6 million over the past ten years, to 14.6 million over the next ten which combined with projected income gains and a "rising tide of wealth" should "lift housing production and investment to new highs." On the strength of this growth alone, housing should reach new all-time records, predicts the Center.

However, affordability will also intensify, as the economy is generating many low-wage jobs and land use restrictions are driving up housing costs. Incomes are rising much faster in the top ranges than in the bottom ranges for homebuyers. From 2001 to 2004, the number of households paying more than half of their incomes for housing shot up by 1.9 million, says the Center, bringing the number of low and middle-income households with severe housing cost burdens to 15.6 million.

Affordable rental housing is disappearing -- between 1993 and 2003, rental units affordable to those earning $16,000 or less shrank by 13 percent, creating a shortfall of 5.4 million units.

Homebuyers increasingly turned away from fixed-rate mortgages to adjustable-rate mortgages and other products to afford their homes. In just two years, the interest-only loan which defers principal payments to lower immediate monthly costs, shot from relative obscurity to 20 percent of the dollar value of all loans and 37 percent of adjustable-rate loans originated in 2005. Payment option loans, those that allow borrowers to make minimum payments while the balance balloons, accounted for nearly 10 percent of 2005's loan originations.

As bad as that sounds, the report says that only three percent of owners had equity less than five percent in their homes, and 87 percent had a 20 percent or higher equity stake in 2004.
Housing gains are continuing even while home sales are softening.

Driving housing will be the ever-dependable baby boomers who will boost markets for senior housing and second homes while their children, along with second-generation Americans and immigrants will buoy demand for starter homes and apartments. This generation will favor rental over for-sale housing, predicts the Center.

Charlottesville Home Inventories is Rising Quickly

Attention Charlottesville home buyers...Keep an eye on the supply of homes in your market.

Charlottesville real estate inventories may have to more than double before prices begin to decline, but if you know when inventories are sufficient to impact prices you could be in a better position to negotiate your new Charlottesville home.

New York City-based Corzen Real Estate Indicators says the number of existing homes listed on rose 60 percent to 2.3 million in May 2006 this year, but home prices continued to rise.

The national median price of all US homes -- single-family, townhomes, condominiums and co-ops -- rose 4.2 percent from $214,000 in April 2005 to $223,000 this April, according to the latest figures from the National Association of Realtors.

In its latest repeat-sales index for single-family homes only, the Office of Federal Housing Enterprise Oversight says home prices rose nationwide 12.54 percent from the first quarter of 2005 to the same quarter this year.

Corzen said sales declines were evident only where inventories increased by far more than 60 percent, as home price increases or stable prices were the norm in the vast majority of the 100 largest metro areas (1,655 counties) it tracks for the report.

"We do see significant decline in asking prices in certain counties, where the volume of available properties online has increased as much 400 percent," said Charles Thibault, a Corzen market analyst
"However, 75 percent of the counties in Corzen's sample showed no change or increases in prices, suggesting that asking prices in overall market are not in a downward cycle -- yet," he added.

The survey is based on a ZIPcode analysis of homes listed online at

Each month, Corzen gathers data on home listing including its location, list price, number of bedrooms and bathrooms and the listing broker or agent.

Corzen's survey of homes in the nation's 100 largest metropolitan areas reveals that the median list price nationwide was up 8.4 percent in May 2006 compared to May 2005.

Asking prices for existing homes fell most sharply in metros in Florida, California, Massachusetts and in the Virginia suburbs outside of Washington, DC but not much in Charlottesville proper due to the super Charlottesville schools and low taxes.

Corzen said the number of listings in Florida counties it tracks grew as much as 400 percent between May 2005 and May 2006 as home prices declined 25 percent during the same period.

The company also reported some of the largest increases in list prices from May 2005 to May 2006 came from migration following Hurricane Katrina in September, 2005. Around Baton Rouge, LA, asking prices were up 56 percent and in Galveston, Texas, prices were up 44 percent, Corzen reported.

The OFHEO also said the post storm go-to area of Hattiesburg, MS, saw prices rise by 12.16 percent during the first quarter this year, and areas more directly hit by Hurricane Katrina also enjoyed price jumps from the first quarter 2005 to the first quarter 2006 -- Charlottesville Virginia real estate is up 13%, New Orleans, LA, was up 14.32; Baton Rouge, LA, up 12.07 percent; Gulfport-Biloxi, MS, up 15.88 percent and Mobile, AL, up 14.61 percent.

Toby Beavers