Virginia sees major housing inventory shortage
Industry experts see numerous cases of homes under contract on first sale day
Across Virginia and the nation, real estate experts are singing the same tune: We’re facing a major housing inventory shortage that shows no signs of letting up soon.
“Inventory is down about 44% compared to a year ago and it’s about a third of what it was five years ago,” says Lisa Sturtevant, chief economist for Virginia Realtors, adding that she’s heard of numerous cases of Virginian homeowners receiving offers on the first day that they put their homes on the market.
While housing inventory has been on the decline for at least the last five years, real estate experts say the current draught has reached an unprecedented level. Where Virginia once saw five or six months’ worth of housing supply — a measure that imagines how long it would take to sell the current inventory of houses if all indicators remained constant and no new houses were put on the market — the real estate industry is now counting housing supply in terms of weeks. As of this February, Virginia had 1.3 months of supply.
Another key metric is the average number of days a home is on the market. In 2017, the average Virginia home on the market took 80 days to sell. In 2020, it took 52. This February, the state average was 35 days, with homes in Loudoun County averaging just seven.
According to the National Association of Realtors, overall housing inventory fell 43% across the country in January, compared to the previous year, and new listings were down 23% year over year.
Many factors are contributing to the current dearth of houses. Not only are mortgage rates at historic lows and millennials increasingly entering the homebuying stage of their lives, but baby boomers are staying in their homes longer for various reasons, freeing up fewer homes for the market. And boomers who wish to downsize are finding themselves competing with millennials for some of the same homes.
New construction has yet to reach pre-Great Recession levels and is being constrained by materials costs and supply chain issues caused by the pandemic. Additionally, the pandemic has made some homeowners fearful of putting their homes on the market and interacting with potential buyers.
“What you end up with is a really quick drawdown of inventory to levels that we haven’t seen before,” Sturtevant says.
It’s a trend taking place across the state. In Central Virginia, 25.3% fewer new listings were put on the market this February compared with the previous year, and the number of days on market was cut in half, from 46 to 23. Meanwhile, the median sales price grew 22.2% and the average sales price grew 14.8%.
“It’s a challenge across the board. It’s a challenge in most price ranges. It’s incredibly acute in the first-time homebuyer market,” says Laura Lafayette, CEO of the Richmond Association of Realtors. “We’re seeing multiple offers. We’re seeing buyers waive inspections. We’re seeing all-cash offers. We’re seeing offers well over the listing price.”
Ryan McLaughlin, CEO of the Northern Virginia Association of Realtors, reports similar conditions in his part of the state.
“In Northern Virginia, inventory has been a challenge long before COVID. It’s only been exacerbated by the COVID pandemic,” he says.
Overall inventory in Northern Virginia was down 8.7% in February, compared with the previous February. The past five years have averaged 1.2 months of housing inventory, McLaughlin says, but the region is now seeing 0.81 months of supply.
In an area that already has high housing demand, McLaughlin says, Northern Virginia has only seen a slight change in average days on market, moving from 26 days on market in February 2020 to 27 days on market this February.
Interestingly, McLaughlin adds, Arlington and Alexandria are seeing an increase in condo inventory, as the pandemic has led some condominium owners to sell and purchase houses. Additional condos are also in development in the area, spurred by the massive hiring taking place for Amazon.com Inc.’s HQ2 East Coast headquarters.
So, what’s left on the market? Sturtevant says that at the close of 2020, Virginia had 15,712 active listings, many of which had been on the market “a really, really long time.” While she doesn’t have much data on these houses, Sturtevant bets that they are in “really bad condition.”
“If a home is being priced right, no matter what price range it’s in … the inventory is being brought down at all price points,” she says.
Eventually, demand will slow because home prices have risen so much, mortgage rates will increase and construction may ramp up, but Sturtevant believes the housing drought will continue for a while. “It’s going to be more of the same, though by the end of the year I think demand is going to be a little softer, supply might be a little easier,” she says. “We’ll still see prices going up, but not at the same rate that we have been seeing.”