Tracking the Slower Pace of the Fall Season
Home sales in Richmond are slowing this fall season and that’s totally normal. Historically, fall is a slower pace compared to the wild ride in spring and summer. People are busy getting back to school and getting out of the summer groove. Rates are up, too, but don’t let that discourage you from buying or selling. Here’s why…
The Rising Rate Environment vs. Future Home Prices
We can’t predict the future, but we see it too. The national news is telling us that the sky is falling when it comes to the real estate market. We would be lying if it didn’t catch our attention too. Let me tell you why that is likely not the case in the Metro Richmond market (or, at least not as bad).
Rates are up… wayyyy up… and they will likely continue their climb. The government pumped trillions of dollars into the economy as stimulus and now they are attempting to retrieve it. Raising the federal funds rates is one of the ways they can do that.
Interest Rates and Affordability
Interest rates are high (6.0+) and they will continue to rise until the Federal Government can get control of inflation. Think “things will get worse before they get better”.
Toggle or swipe between the two images below to see the difference.
| Previous Interest Rates 3.5% Interest rate – $400K with 20% down 3.5% Interest rate – $800K with 20% down | Monthly Mortgage Estimate (Principal & Interest) ~About $1,437 ~About $2,874 |
| Today’s Interest Rates 6.0% Interest rate – $400K with 20% down 6.0% Interest rate – $800K with 20% down | Monthly Mortgage Estimate (Principal & Interest) ~About $1,919 ~About $3,837 |
The Jist ^
In just five month’s time, it is now much less affordable to own a home, even if sale prices remain the same. It is $482 more expensive per month to own the same home at $400,000 and $963 more expensive per month to own the same home at $800,000. Wow.
With current rates, to secure a principal and interest payment (P&I) of about $2,874 per month, you would need to purchase the home at $580,000 while still putting 20% down. This equates to a $220,000 reduction in buying power if it is your goal to have a payment around $2,874 per month.
What Now?
Marry the house, but date the rate. You can always refinance when rates come back down. The most common objection to buying in this market is now “we are going to wait for the rates to drop.” We still believe inventory levels in Richmond will remain in seller’s market territory and inventory is simply not increasing fast enough to handle the demand. Home values are going to continue to go up in the long term. We can’t really predict how high the rates will go, but the silver lining is that higher rates may mean less competition, so this may be a better time to buy than you think.
Richmond Becomes a More Balanced Market
Fortunately, high interest rates alone won’t destroy the Richmond market. What we hope happens is a more balanced housing market moving forward. March 2020 to August 2022 was anything but balanced. It was quite literally insane. Leading up to 2020, however, the market in Metro Richmond was a bit more balanced. From 2014-2019 we saw an average appreciation of 4.5% year over year compared to 10.1% in 2020 and 12.7% in 2021. We welcome the balance after the last 2.5 years.
Millennial Buying Power is Strong
We have mentioned this one before, but will mention it again. The millennial generation is the greatest consumer generation in our country and just like their parents, grand-parents and great grand-parents, it is part of their American Dream to own their own home.
People are Continuing to Flock to Richmond
Another contributing factor that will continue to help Richmond home prices stabilize and likely rise is the population growth that we are expecting. By 2050, Richmond City is expected to grow 19.3%, Henrico County is expected to grow 26.4% and Chesterfield is expected to grow 38.4%.
What’s All of This Mean?
In summary, the higher rate environment is here to stay, but the continual population growth of Richmond and the millennial buyer pool getting fed up with rising rents should keep Richmond from seeing dramatic price decreases like some other areas are likely to experience. When you get the homebuying bug, it is going to come down to balancing higher mortgage rates/rents and the future of home price movements.
Let’s Hang Out
If you’d like to learn more about the Richmond market or your potential home buying/selling journey, let’s do beer or coffee!
