Health of Richmond Housing Market

By CHRISTINE CHMURA
TIMES-DISPATCH COLUMNIST


The downturn in the housing industry is yielding some sobering numbers in most parts of the country.
Sales of existing homes are on a six-month slide, says the National Association of Realtors, with the purchase of new homes falling to the lowest level in seven years, reports the U.S. Commerce Department.
According to the Case Shiller home price index of 20 major metropolitan areas, home prices fell 3.9 percent over the year ending with July -- the largest drop since the index was created in 1987. New construction starts in August fell to their lowest level in 12 years, and foreclosures are way up, double what they were a year ago.
And yet, the real estate climate in Richmond has remained strong.
While the area has not been immune to the effects of the sub-prime mortgage implosion, the Richmond region has felt only a modest impact.
The Richmond Association of Realtors recently reported that the sale prices of homes in Richmond have increased year over year, despite a dip in sales volume. Also notable is Richmond's foreclosure rate for the first half of 2007, which was the lowest in the country's top 100 metro areas -- down 1 percent compared with the first six months of 2006, according to RealtyTrac.
With so many areas of the country feeling the full brunt of the market downturn, why has the real estate climate in Richmond remained relatively bright? At least three factors contribute to the health of our local housing market.
Affordability. Home prices in the Richmond region are generally affordable. The median home price in the area is just under $240,000, which means most homeowners in Richmond do not have to borrow heavily against their annual household income to afford their homes. In fact, the mortgage-to-income ratio in the metropolitan area is at a more-than-manageable 4-to-1, which most banks consider ideal.
Homeowners from other metropolitan areas have not fared as well.
Compare Richmond's housing prices to the likes of San Diego, New York, Boston and other major cities. Homeowners in these large markets have had to borrow heavily against their incomes, putting their mortgage-to-income ratios in a tenuous 7-to-1 range.
Affording these hefty mortgages led to some creative financing, including many of the subprime loans at the heart of the mortgage hardships. The first few years of the loan may start at an attractive 4 percent interest rate, but rising rates have meant increases in variable mortgages, which are now topping 7 percent. Suddenly, the homes that over-leveraged families have been living in have become unaffordable.
That has not happened on a significant scale in Richmond because of the broad affordability of homes in the local market.
Supply. The balance between supply and demand also contributes to the health of the local market. Again, unlike many other large urban centers -- most notably Washington and Miami, where condominium development, in particular, left a colossal glut of units -- the Richmond region has had a more moderate rate of new construction over the past five years.
On the condominium front, while there have been some high-profile developments, including Rocketts Landing, the Vistas on the James, and Riverside on the James, most of the building has focused on in-fill and restoration projects, which has kept the pace of development in line with consumer demand.
Stability of housing prices. Finally, the price of housing in the Richmond region will likely continue to be stable in the near term and remain on an upward trend.
According to the Office of Federal Housing and Enterprise Oversight, quality-adjusted home prices rose 6.9 percent in the Richmond region for the year ending with the second quarter of 2007.
That's a consequence of not only the supply-demand balance, but also the strength and diversity of our local economy. The unemployment rate in the region is much lower than that of the nation and employment is growing at a slightly faster pace than the nation.
The fact that Richmond is an attractive place to live and work will continue to create housing demand throughout the region.
Our highway network, expanded airport, historic character and other factors all will continue to make central Virginia a location where people will want to put down long-term roots.
And because Richmond will continue to be a great place to call home, it also will continue to be a wonderful place to buy one, irrespective of what is happening elsewhere.