Virginia Housing Development Authority Virginia Housing Market Overview Virginia Association of...

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Virginia Housing Development Authority Virginia Housing Market Overview Virginia Association of Realtors October 2, 2010
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Page 1: Virginia Housing Development Authority Virginia Housing Market Overview Virginia Association of Realtors October 2, 2010.

Virginia Housing Development Authority

Virginia Housing MarketOverview

Virginia Association of RealtorsOctober 2, 2010

Page 2: Virginia Housing Development Authority Virginia Housing Market Overview Virginia Association of Realtors October 2, 2010.

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Current Market Conditions

Page 3: Virginia Housing Development Authority Virginia Housing Market Overview Virginia Association of Realtors October 2, 2010.

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• The Northern Tier is Virginia’s portion of the multi-state greater Washington region.

• Rapid growth and very high housing costs made it a hot “bubble” market during the boom.

• This region has been hit hard by foreclosures, and continues to struggle with a large inventory of distressed homes.

• Downstate regions are less impacted by problem loans and have fewer “underwater” owners.

• But, they are being far more impacted by the recession that resulted from the housing bust.

Northern Tier

Downstate Regions

Regionally, Virginia is experiencing two different market dynamics.

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The Northern Tier has led other regions in the downturn and recovery.

Source: VAR

Virginia Existing Home Sales4-Quarter Rolling Average

5,000

10,000

15,000

20,000

25,000

00-2

00-4

01-2

01-4

02-2

02-4

03-2

03-4

04-2

04-4

05-2

05-4

06-2

06-4

07-2

07-4

08-2

08-4

09-2

09-4

10-2

Calendar Year Quarter

2nd Qtr '05

1st Qtr '08

2nd Qtr '09

- 52%

2nd Qtr '06

Northern Tier

Downstate Regions

- 42%

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Prices in the Northern Tier fell quickerand harder than in Hampton Rds.

Source: Federal Housing Finance Agency (FHFA)

Hyper Inflated MarketsAnnual Change in FHFA Home Price Index

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%Washington-Arlington-Alexandria MSA

Winchester MSA

VA Beach-Norfolk-Newport News MSA

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Hampton Rds prices have fallen in tandem with more moderately inflated markets.

Source: Federal Housing Finance Agency (FHFA)

Moderately Inflated MarketsAnnual Change in FHFA Home Price Index

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%VA Beach-Norfolk-Newport News MSA

Richmond MSA

Charlottesville MSA

Harrisonburg MSA

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Prices in lesser inflated marketshave only recently declined.

Source: Federal Housing Finance Agency (FHFA)

Lesser Inflated MarketsAnnual Change in FHFA Home Price Index

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%Roanoke MSA

Lynchburg MSA

Blacksburg-Christiansburg-Radford MSA

Kingsport-Bristol MSA

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Foreclosure sales at distressed prices stimulated the initial sharp rebound in Northern Tier sales.

Source: MRIS

Peak to Trough Decline in Median Price

-36%

-44%

-46%

-51%

-57%

-59%

No. Virginia

Loudoun

Fredericksburg

Blue Ridge

Gtr. Piedmont

Pr. William

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Sales to investors rose substantiallyand continue to support the market.

Source: MRIS

Cash Sales Share of Total Existing Home SalesNorthern T ier Region

0%

5%

10%

15%

20%

Aug '10 13.4%

Jan '10 17.1%

Jun '062.9%

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Now, the Northern Tier is strugglingto sustain sales as prices recover.

Source: VAR

Annual Change in Northern Tier Region

-30%

-20%

-10%

0%

10%

20%

30%

40%

08-1

08-2

08-3

08-4

09-1

09-2

09-3

09-4

10-1

10-2

Calendar Year Quarter

Existing Home Sales

Average Price

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Falling listings have contributed more to inventory reduction than rising sales.

Source: MRIS

Existing Home Sale ActivityNorthern Tier Region

(12-month rolling averages)

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Jan-01Jul-0

1

Jan-02Jul-0

2

Jan-03Jul-0

3

Jan-04Jul-0

4

Jan-05Jul-0

5

Jan-06Jul-0

6

Jan-07Jul-0

7

Jan-08Jul-0

8

Jan-09Jul-0

9

Jan-10Jul-1

0

New Listings

Sales

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With the federal tax credit ended,a new demand driver is now needed.

Source: MRIS

Annual Change in Existing Home SalesNorthern Tier Region

-50%

-25%

0%

25%

50%

75%

100%Housing Boom

TraditionalCorrection

REO Flood

Bottom Feeding

Fed. TC

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Factors ImpactingMarket Recovery

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The metro core of the Northern Tier has recovered lost jobs, but downstate regions lag.

Northern Tier

Downstate Regions

Unemployment is the key factor in downstate market weakness.

Change in Employment July 2008 to July 2010

-5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0%

Northern Tier -- Washington Metro Area

Virginia

Hampton Roads-Chesapeake Bay

Charlottesville-Central Valley

Roanoke-Blacksburg-Lynchburg

Northern Tier -- Outer Part of Region

Greater Richmond

U.S.

Southern Tier

Virginia

U.S.

Source: Virginia Employment Commission (VEC)

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Unemployment has replaced problem loans as the driver of foreclosures.

Source: Mortgage Bankers Association (MBA)

Subprime Foreclosures

Prime & Govt. ARM Foreclosures

Prime & Govt. Fixed Rate Foreclosures + 7,700

Virginia Foreclosures

Change 2008 to 2010- 3,100

+ 2,300

2nd Qtr. 201027,200 Active Foreclosures

43%

28%

29%

Prime &Govt. Fixed Rate Loans11,700

Prime & Govt. Adjustable Rate Loans

7,600

Subprime & Alt-A Loans

7,900

2nd Qtr. 200820,300 Active Foreclosures

20%

26%

54%

Prime &Govt. Fixed Rate Loans4,000

Prime & Govt. Adjustable Rate Loans

5,300

Subprime & Alt-A Loans

11,000

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Foreclosures may have peaked in Virginia, but their decline will be slow.

Source: Mortgage Bankers Association (MBA)

Virginia Mortgage Loans in Foreclosure

0

8,000

16,000

24,000

32,000

Prime & Govt.Fixed Rate

Prime & Govt. ARM

Subprime

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High foreclosure rates arerelated to two combined problems:

1. High unemployment2. A large inventory of distressed properties

and/or a large share of homeowners who are “underwater”

• Areas with foreclosure rates above the state average exhibit both problems.

• Where unemployment is lower—e.g., inner parts of the Northern Tier, including Pr. William Co.—foreclosures rates are stable or declining even where distressed inventories remain high.

• Likewise, where unemployment is very high—e.g., the Martinsville area—but where few homeowners are “underwater”, foreclosure rates are lower.

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• In mid 2008, foreclosure activity was heavily concentrated in the Northern Tier Region.

Source: RealtyTrac and Census Bureau

Northern Tier

Downstate Regions

• As economic factors have increased in importance, downstate foreclosures have risen steadily.

• In contrast, foreclosure activity is declining in the Northern Tier where unemployment is lower.

The regional distribution of foreclosures is shifting.

*Trustee sales and lender repossessions

Foreclosure Activity*

0.00% 0.25% 0.50% 0.75%

August 2010

August 2009

August 2008

Share of Homes with a Mortgage

Downstate Regions Northern Tier

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Source: RealtyTrac and Census Bureau

Foreclosure Activity* May 2010

0.00% 0.25% 0.50% 0.75%

Southern Tier

Roanoke-Blacksburg-Lynchburg

Charlottesville-Central Valley

VIRGINIA

Greater Richmond

Northern Tier -- Inner (PD 8)

Hampton Rds-Chesapeake Bay

Northern Tier -- Outer

Share of Homes with a Mortgage

VIRGINIA

Northern Tier -- Outer

Northern Tier -- Inner (PD 8)

*Trustee sales and lender repossessions

Foreclosure rates are mostsevere in the outer partof the Northern Tier.

Northern Tier

Inner

Outer

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The stock of lender-owned homes is large and will take time to deplete.

Source: RealtyTrac

Inventory of Lender-Owned Homes

0

5,000

10,000

15,000

20,000

25,000

Northern Tier Downstate Regions

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Demand factors remain weak.

• By traditional measures, the cost of home purchase has dropped.

• However …

1. Access to favorable mortgage terms and underwriting standards remains a challenge.

2. Consumer purchasing power and confidence remain weak.

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By traditional measures, homes in most markets are again affordable.

Source: MRIS, VAR and Census Bureau

Ratio of Median Home Price to Median Household Income

Northern Tier Region Downstate Regions

0.0 1.0 2.0 3.0 4.0 5.0 6.0

Spotsylvania

Stafford

Pr. William

Frederick

Fauquier

Loudoun

Fairfax

Arlington

Alexandria

Pre-Boom: April2000

Peak of Boom:May 2006

Price Trough: Feb/Mar 2009

Current: June 2010Traditional

affordability range

0.0 1.0 2.0 3.0 4.0 5.0

Danville

Roanoke

Richmond

Lynchburg

HamptonRoads

Charlottes-ville

Pre-Boom: April 2000

Peak of Boom:2nd Qtr 2007

Current: 2nd Qtr 2010

Traditional affordability range

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Nonetheless, traditional buyers arestill struggling to enter the market.

• Young households are especially impacted by unemployment and under-employment.

• Access to mortgage credit remains a barrier due to ongoing tightening of lending standards.

• In some areas 1st-time buyers have had trouble competing against investors with cash.

• Would-be repeat and “trade-up” buyers are holding back due to significant loss of equity—prices must recover in order to restore mobility opportunity for current owners.

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Funds for down payment is agrowing barrier for first-time buyers.

• Higher minimum loan-to-value ratios have significantly increased down payment requirements.

• Young households lack the savings needed to cover down payment and closing costs.

• Parents are less able to assist with these costs due to loss of income, home equity and the value of stock holdings.

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Burdensome debt is another major obstacle for young households.

Source: Survey of Consumer Finance

• Young households are carrying far higher debt loads than in the past.

• Both credit card and student loan debt are serious problems.

• Acquiring financial management skills and paying down debt are essential for successful home purchase, and will take time.

Average Credit Card DebtAmong Households Age 25 to 34

with Credit Card Debt(2004 dollars)

$2,873

$4,358

1989 2004

+52%

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In Summary:

• Market conditions will remain challenging for the next several years until the foreclosure problem is resolved and economic recovery takes fuller hold.

• Continued high levels of distressed sales coupled with weakened demand among traditional buyers will restrain prices and could result in a “double dip” in prices in some markets.

• Long-term home appreciation will depend on employment and income growth.