If you really think about it, the listing price of a house means ABSOLUTELY NOTHING --- regardless of what kind of a market we're in.  Below are a few common conversations that explore this issue. 


BUYER:  Well....this house is priced at $185,000 and we can't spend any more than $160,000 so we might as well not even go look at it. 

BUT WAIT: If the house is only worth $165,000 (and just happens to be priced at $185,000), then it would certainly be worthwhile looking at -- because when an offer comes in the owner might be reasonable about the actual value of the house.  You need to know more than the asking price of the house --- you need to know what it's actually worth.


BUYER:  I really like this house, it's listed at $295,000 so perhaps we could offer $285,000?

BUT WAIT:  Don't base an offering price on the asking price!  What if the house mentioned above was listed at $495,000 (and it was the same house) --- would you then offer around $480,000?  The asking price is not necessarily an indication of market value, so take your cues from market values, not asking prices.


BUYER:  The house is listed at $225,000 and that seems like a good deal, but in this market, I'm not willing to pay any more than $215,000 for it.

BUT WAIT:  Really?  What if the three most comparable properties in the city/county just sold for $250,000 --- and thus we are reasonable assured that the value is $250,000 (+/-) --- you'd really still only pay $215,000?


SELLER:  Let's list my house at $450,000 --- that's right about the price that all of my neighbors are asking for their houses.

BUT WAIT:  Regardless of whether the neighbors' houses are listed for $450,000 or $850,00, if they are selling for $350,000 then those sold houses should be the guide, not what  is on the market now.


These are just a few illustrations of the fact that the asking price of a house may mean absolutely nothing.  Certainly there are times when the asking price is just at / above / below the market value (the price at which similar homes have recently sold) --- but that is not always the case.

Beyond the asking price, you need to get comfortable with what the actual market value is of the houses you are considering.

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If, as a first time buyer, you close on your purchase of a home by November 30, 2009 you will receive an $8,000 tax credit on your 2009 taxes.  That is to say that:

• if you owe the IRS $8,000 you won't have to send them a dime
• if you owe the IRS nothing, you'll get an $8,000 check
• if you are owed a $2,000 refund, you'll get $10,000!

But this only works for you as a first time buyers if you close on your new home by November 30th of this year. 

Most homes take 45 to 60 days to "close" -- in other words, it is usually 45 to 60 days after a house is under contract that the closing can take place.  That means first time buyers ought to have their house under contract by September 30th in order to have time to close.

And if you're planning to have a contract on a house before September 30th, NOW is the time to start looking.  Lots of first time buyers are certainly in the market right now --- I'm working with quite a few, and I hear stories of many others as well who are buying --- but I believe there are quite a few other first time buyers who are still sitting on the bench.

If you have questions about the $8,000 first time buyer credit, or if you're ready to start looking at properties, call (540-578-0102) or e-mail (scott@HarrisonburgHousingToday.com) me and we'll get started!

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This past week the Daily News Record published an article about the new housing complexes being built to house JMU students.  I believe the uninformed reader of the article would assume that there is a relatively good balance between students and housing --- but according to my calculations there is a significant oversupply of student housing for JMU students!

Here are the numbers...

• On-Campus Headcount has increased (or is projected to increase) by 1,500 students between Fall 2007 and Fall 2009.
• In this same two year time period new housing developments have accounted for 3,340 new "beds".

Why will this oversupply exist?

• The Daily News Record consistently uses enrollment figures creatively to exaggerate JMU growth, though I won't speculate as to whether it is innocent or intentional.  If you compare the figures in the DNR article with JMU enrollment projections, you'll see that they use a lower enrollment metric (students taking classes at the JMU campus) when referring to past enrollment figures, and they use a higher enrollment metric (students taking classes at the JMU campus, or anywhere else) when referring to current or future enrollment figures.  The result is that JMU growth seems more significant than it actually is.  Take a few minutes to see where on the JMU enrollment projections page they pulled the figures in paragraph 3 and 4 of the DNR article, and you'll start to see the errors in their comparisons.  Their "8 percent increase from last fall" is actually a 5.5 percent increase if you use the same metric for the two data points.  Is this simply an error, or does 8 percent sound better than only 5.5 percent?
• Harrisonburg created an incentive (with good intentions) for student housing developers to build now, now, now.  Much of the land in the City that was annexed several decades ago was zoned R-3, which allowed (until recently) a property owner to build student housing (in the form of three-story apartment buildings) without asking for permission.  Much of this R-3 land was adjacent to single family home neighborhoods, and thus Harrisonburg took this "use by right" out of the R-3 zoning classification.  R-3 property owners were left with a three year window of time in which they could build this higher density housing (student housing) without asking for permission -- and thus the construction began!

Don't Build Anymore!  My concern when I read an article such as the one that ran last week in the DNR is that a local (or out of town) developer will read the article and will decide to build more student housing because of the (exaggerated) enrollment growth and the (fictional) even balance between students and housing.  If you're a student housing developer feel free to contact me (540-578-0102, scott@HarrisonburgHousingToday.com) to discuss this further --- but please don't start building more student housing before completing a thorough market study beyond the figures reported in the Daily News Record.

Tell Your Friends!  Last week I was told of a (usually) well informed local business leader who was convinced that JMU will be growing to 30,000 and then 40,000 students within the next 5 - 10 years.  This type of casual conversation will lead to an even wider sentiment that we need more student housing in Harrisonburg --- and this individual is often in conversation with student housing developers.

I'm stepping down from my soap box now, but I hope that student housing developers, and those that advise them, will carefully study our market before continuing on a rampage of building college student housing!

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Two weeks ago I showed some clients two houses in Massanutten.  My clients had reviewed the photos (interior and exterior) of both homes online, and were quite a bit more excited about the second house.

And yet --- when we went to see both homes they were somewhat surprised to discover that the first house was MUCH more attractive (generally speaking, and specifically to their interests).

As it turns out --- beautiful photos can be taken of a less than attractive home to make it look moderately interesting and exciting.  And yes, not so great photos can be taken of a beautiful home, making it seem mediocre and drab.

What does this mean for you?

BUYERS ought to consider going to visit homes that they have disqualified based on interior photos.  Unless you are convinced that the photos are a true, accurate, fair representation of the extent and condition of the home's interior, you should go take a look!

SELLERS ought to make sure that their home is presented in the best possible manner when it comes to exterior and interior photographs.  I have found that a wide angle lens and an external flash unit can make an extraordinary difference in photo quality.

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If you ask most people, you'll be told that starter homes are a much more stable segment of our market right now --- and that the higher end market is definitely doing much more poorly.

As it turns out, both markets are performing well, depending on how we examine the issue.

Starter homes are performing well!



As you can see in the chart above, there is a much healthier supply of homes below $200,000 than in any other price range.  Put a few other ways:

• It would take 10 months for all homes currently on the market under $200,000 to sell, as opposed to the 24 months it would take for homes priced above $400,000.
• Each month 1 in 10 homes on the market priced under $200,000 is sold --- as compared to 1 in 15, 16 or 24 for the higher price ranges.

Yet at the same time, expensive homes are performing well!


   *** 2009 total sales figures are extrapolated from Jan 1 - June 15 data.

Of note, the decline in home sales in our market has not affected all price/size ranges in the same way.  Since prices change over time (homes shift into different price segments), I examined the change in pace of home sales by dividing our market into starter homes (0 - 1499 SF), mid-range homes (1500 - 2500 SF) and large homes (2500+ SF).  You'll note that:

• The pace of starter home sales has fallen 58% between 2006 and 2009.
• The pace of mid-range home sales has fallen 58% between 2006 and 2009.
• The pace of large home sales has only fallen 30% between 2006 and 2009.

So, while it almost certainly takes longer for larger homes to sell, it's not because there are fewer buyers seeking that product.  In fact, the buyers haven't fallen out of that price/size range nearly as much as they have disappeared from the starter home and mid-range sized home markets.

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We're now less than four weeks away from the first residents moving into the brand new upscale condos in the East Wing of Urban Exchange located in downtown Harrisonburg.  Click on the image below to view updated construction photos.

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View a video introduction to the May 2009 Real Estate Market Report:



Read on for a full review of the state of the Harrisonburg and Rockingham County residential real estate market.  Or....download the full report:
May 2009 Harrisonburg & Rockingham County Real Estate Market Report



The four most commonly referenced measures of our local housing market (sales volume, median sales price, average sales price and average days on market) are all in worse shape in May 2009 than they were a year ago.  However, the median sales price is likely the most meaningful of the measures, and it continues to show a decline of only 3% when comparing May 2008 to May 2009, or when comparing January-May 2008 to January-May 2009.



In this graph, we see that 2009 sales volume (purple line) is still hovering well below 2008 sales volume (blue line) --- but the gap closed slightly in May as compared to March and April.  Perhaps we are seeing a normalizing trend, and sales volume in June, July and August of this year will be much closer to 2008 sales levels.  Greater stability will return to our market when sales volume stops declining.



This graph captures all residential real estate activity as reflected in the Harrisonburg/Rockingham MLS.  The 2009 year-to-date sales figures now include five months of sales data, and show only a slight decline in median sales prices.  Of note, the median residential sales price has not significantly changed since 2006.



When examining only single family home sales in Harrisonburg and Rockingham County we see that the median sales price continues to decline at a relatively slow rate (1%, 4%, 7%) when comparing 2009 to 2008.  Amidst these slight declines, the pace of sales (yellow bars) continues to decline drastically.



When examining only townhome sales in Harrisonburg and Rockingham County we note that while the sales volume has dropped dramatically since 2005 (-18%, -15%, -37%), the median sales price has gained during that time period (2005 vs. 2009) and has stayed steady between 2006 and 2009.



This graph shows a normalized trend of home sales by charting the ongoing sum of the preceding 12 months' sales.  We continue to see a decline in this metric, and likely will until the pace of sales stops its decline.



Of note, inventory declined slightly between the end of April and the end of May.  This is great news for the overall health of our market, as it will reduce the high inventory levels and slowly start to balance out our market.  This is a surprising trend for the early summer months!



With inventory levels holding steady, the number of months of supply of homes in each price range noted above has stayed relatively steady.  Of note, this is the first month that any of these trend lines have crossed, as can be noted between the $200k-$300k and $300k-$400k lines.



The median price per square foot of all single family homes sold since 2002 in Harrisonburg and Rockingham County shows that homes have started selling at a somewhat higher rate over the past several quarters when examining their cost per functional space. 



The chart above examines time on market for homes sold in Harrisonburg and Rockingham County during the past six months.  Homes with the lowest price points are selling the quickest, and homes in the upper price ranges are taking the longest time to sell. 

For example, overall only 10% of homes took longer than 1 year to sell, but 26% of homes selling over $400,000 took longer than a year to sell. 

In contrast, only 13% of these homes over $400,000 sold in the first three months, while 37% of homes selling for less than $200,000 sold in the first three months of being on the market.



When examining only new single family homes in Harrisonburg and Rockingham County, we can see a steady decline since 2005 in the number of such homes that are selling (yellow bars) accompanied by a slow decrease in the median price per square foot since 2006 (green line).



The graph above depicts the number of lots (less than 1 acre) selling in Harrisonburg and Rockingham County since 2000.  The last several years have been unbelievably slow for lot sales, likely because many builders have been holding back on starting construction on new homes given the trends in the residential sales market.



Land sales (tracts larger than 1 acre) have also markedly decreased since 2005, but aside from the spike of activity in 2005, the pace of these land sales remained relatively constant between 2002 and 2007.  Last year, and the projected figures for this year show that there are very few buyers in the market for land at this time.

Download the full report here:
May 2009 Harrisonburg & Rockingham County Real Estate Market Report

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For some time I have been tracking price per square foot trends for all single family homes in Harrisonburg and Rockingham County.  These appear in my monthly market report, and show a median price per square foot of $80/sf back in 2002, a high of $131/sf in 2006 and a current value of $123/sf.

In talking to a potential developer last week, he inquired about price per square foot trends for new construction.  This isn't an easy thing to calculate, for several reasons:

• We don't have a consistently used "New Construction" field in our MLS. 
• Single family homes built on larger parcels would inflate the median price per square foot
• Finished and unfinished basement square footage can muddy the waters.

We devised a plan to account for two of these three challenges.  First, I would search in any given year for homes reported as being built that year or the year prior (for 2003 homes, I'd look for 2003 closings where the home was reported as being built in 2002 or 2003).  I'd also limit the search to homes built on lots of one acre or less to remove the value of the land as a significant factor.

Below you will see the results, with a starting value of $99/sf in 2002, a high of $150/sf in 2006, and a current value of $140/sf.



I also graphed the number of applicable home sales in each year since 2002 to put the market into perspective.  Click here, or on the image above, for a clearer PDF version of this graph.

Closing thoughts:

• This represents all single family homes, regardless of size or location.
• If you're pricing a new construction home to sell, you'll need a more specific analysis to address your level of construction quality, the location of the building lot, etc.
• If you are evaluating a builder's proposal, please bear in mind that these figures are based on homes sold as total packages, thus including water/sewer/well/septic, driveways, sidewalks, etc.

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The questions continue:

• Are home values increasing or decreasing in our local real estate market?
• Are homes more or less affordable now as opposed to a year ago?
• Will homes in Harrisonburg and Rockingham County hold their value over the next year?

Looking back at last month's real estate market report showed that the median value of single family homes had held steady between 2008 and 2009.  The median sales price during Jan-Apr 2008 was $215k, and it was again $215k for Jan-Apr 2009.

I'll be issuing my May report in the new few days, but in the meantime I thought I'd explore the big value questions again from a few perspectives.  Here's what I found:

Median Homes Prices Decline

When now examining January through May, we see a median home value of $215,000 (still) for 2008, but a median value of $205,000 for 2009.  How did we drop $10k when comparing Jan-Apr 2009 and Jan-May 2009?  Smaller and less expensive homes sold in May 2009 (avg = $197k, 1906sf) as opposed to during the first four months of 2009 (avg = $240k, 2048sf).

So....despite Jan-May 2009 median home prices being down compared to the same months in 2008, perhaps it is because smaller (and less expensive) homes are selling?

Larger Home Market Outpaces Smaller Home Market

The data above suggests that perhaps median home values are declining because smaller homes are selling right now.  Not so fast!

During Jan-May 2008, 39% of homes that sold had 1500 or fewer square feet.  This declined in 2009 to only 35% of homes sold during Jan-May 2009.

During Jan-May 2008, 21% of homes that sold had 2500 or more square feet.  This increased in 2009 to 26% of homes sold during Jan-May 2009.

These are relatively small differences, and they may not be significantly, but they refute the hypothesis that median home prices are declining because smaller homes are selling.

Are First Time Buyers Procrastinating?

The data above is a bit surprising to me --- I suspected that we would see an increase in "starter homes" (often less than 1500 square feet) because of the financial incentives currently available for first time buyers.  The combination of an $8,000 tax credit, plus historically low interest rates is predicted to bring lots of first time buyers into the market. 

These first time buyers don't seem to have shown up in large numbers so far, based on the slower sales in the most affordable price range.

Price Per Square Foot Declines

As one last look at home values, I thought I'd take a look at the average price per square foot of the single family homes sold in Harrisonburg and Rockingham County in Jan-May 2008 versus Jan-May 2009. 

Last year we saw an average price per square foot of $130 during this time frame, as compared to $118 per square foot this January through May.

Making it Actionable

To obey my own imperative, here are a few thoughts on how this might affect you and your real estate decisions:

• If you're selling a home, or preparing to do so, price it well.  Don't get overly greedy (or hopeful) --- base your pricing on recently sold data, and competing properties for sale.
• If you receive an offer on your home for sale, consider it within the context of value trends and supply trends.
• If you are buying a home, negotiate knowing that supply is high (good negotiating point) but that home values aren't declining 10% - 40% like they are in some areas of the country.
• If you're a first time buyer, get in the game already!  Don't forget you need to close by November 30, 2009 to take advantage of the $8,000 tax credit.
• If you're a first time buyer, consider renting if you won't be in your newly acquired home for at least 3 or more years.
  

Stay Tuned!

A far more detailed analysis of our local real estate market will be available in the next few days.  Until then, wrestle with the data points above, and let me know if you have any related revelations or hypotheses.

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In a meeting last week with a potential client, I was asked a great question amidst showing off some of my recent market report:


What a great point --- it's marvelous to have lots of interesting analysis of market data, presented in an easily comprehensible format --- but how do we transform it into something that actually helps my clients make better real estate decisions.  Here were/are my responses:

1. Everyone selling or buying in our local market (or considering doing so) needs to have a solid understanding of the state of our local real estate market, regardless of how "in touch" they consider themselves to be.  This should be based on facts (sales data analysis) as opposed to conversations around town about "how things are going."
   
   
2. Once a buyer, seller, builder or developer knows where we are now, they need to be able to guess (with some certainty) where we're headed.  My market reports solely provide a perspective on the past, but you can easily follow the local trends to make save estimates of future market performance.
   
   
3. Perhaps the most important aspect to consider is that in almost all cases, a buyer, seller, builder or developer will need more than just my regular market report to make good decisions.  You may need specific sales data on townhomes under $160k in the city, or lot sales over 1 acre, etc.  The best way to make good real estate decisions is to have data analysis performed that is directly related to the properties in which you have interest.

So....do you have any questions about our local real estate market that would be helpful to answer here in this space, or shall we take it offline?

And by all means, if you see data analysis or reporting on this blog that is not providing actionable information or statistics, call me out!  I'd like to make them actionable for you!

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