Market Conditions in 23456>Question Details

Patrick, Home Buyer in Virginia Beach, VA

What are the real estate market conditions in VB ?

Asked by Patrick, Virginia Beach, VA Sat Nov 15, 2008

I recently read that in Forbes a few days ago that Virginia Beach is the #1 city where homeowners are losing value the fastest. Yet in another article last month in Forbes, VB was named one of the best cities to ride out a recession.

Which one is it and how do you think this affects the real estate market in the area for prospective buyers and recent homeowners?

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Personally, even without a crystal ball, I don't think it would be too hard to tell even in this market where prices are headed. Just look around the country as this thing unwinds. If, at any given point, prices doubled in a 4 or 5 year period in your area, (see San Diego, Miami, Phoenix, D.C. area) prices WILL go down. It's unavoidable. As I look at homes in this market now my agent tells me "Hey, prices here are holding steady" as if that's good news for a buyer. My translation as a thinking man, "be very careful, prices have not fallen.... YET." I would much rather my agent tell me "hey, prices have already fallen 30% from there ridiculous highs". I consider that a much better scenario to buy in. i think a lot of agents need to listen to there buyers and give them a little more credit.
0 votes Thank Flag Link Tue Nov 25, 2008
Dan, I can really understand where you're coming from and you're right, no one has a crystal ball. If I owned one, I wouldn't work at all. I'd just pick my lotto numbers and relax. I also realize that not all real estate agents are really good at what they do, but doesn't that happen in every field? You're going to have better teachers than others. Lord knows there are better accountants than others. Yes, with the technology we have today, buyers can do a lot more homework on their next purchase than they could 5 years ago but you should also do your homework on finding the best agent for you. A really good buyers' agent can take away a lot of the time, agony, and frustration that goes with the whole process, not to mention, save you more money. Prices have fallen a great deal already and the agents who are out there day after day know that the end is near for deep discounts. The bottom line is that a house is only worth what a buyer is willing to pay for it and believe it not there are still a lot of closings every month in our area. I also would like to say that I'm not trying to get under your skin nor trying to sell you on me. There's plenty of that going on around here already. Just wanted to give another perspective of someone who is very busy in the business. I wish you the best in your next purchase.
0 votes Thank Flag Link Tue Nov 25, 2008
I agree mostly with Drew. I suspect the author of the article, to which Drew referred, pulled that 5.2% equity figure out of thin air, because no 2 sales are exactly alike. It's impossible--and ignorant--to use such broad and sweeping strokes to analyze that which is a collection of niche markets. No 2 markets are exactly alike, no 2 sellers are exactly alike, no 2 buyers are exactly alike, and as I stated earlier no 2 deals are exactly alike. Besides, most conventional lenders are requiring their borrowers--who aren't investors--to bring 3%-10% equity (ie the down-payment) to the deal (depending on the loan product used to finance that transaction). So, most recent borrowers are going to start off with 3%-10% equity in their purchase, and--as Drew alluded to earlier--they won't build up that much more equity beyond that down-payment within the first year. (Actually, 30-year, amortized mortgages are designed so that borrowers pay a large portion of the interest upfront within the first 5 years.)

Nevertheless, I'm not surprised. I took issue with another, ignorant remark the author made: "In some spots, super-low down payments are to blame." (I voiced my concern via a comment on another post, "Contradictions.....or a Different Way of Interpreting Data?") I'm not rejecting the notion that there might be a correlation between the amount of one's down-payment and the loan default rate; rather, I'm saying his feeble attempt to connect those dots flew like a solid, lead balloon--not very far.

On the other hand, I do agree with the second part of Drew's quote (from that author), "34.5% [of buyers who bought this year] owe more on their property than it's worth, . . ." because I've seen similar numbers confirmed via other reports. (I also don't pay a lot of credence to Zillow's numbers; yet, sometimes their numbers aren't far off--if at all.) Anyway, that stat shouldn't be all that surprising, because many of the Q1 buyers purchased their homes for more than they are worth NOW. We're in Q4, so only 3 quarters have passed, so it should make sense intuitively--and mathematically--that roughly 1/3 of the buyers paid a price that is higher than the current market value of the property.

Dan, I like the way you think; I suspect you might also know a thing or two about real-estate investing--based on some of your comments. Yet, I think you're kind of misapplying that "3 times the median income" sales price (aka the equilibrium median sales price). Your analysis of that market is correct; it's overpriced. Your determination to use the value, 3 times your household income, as a ceiling is also correct. However, your point, "there truly was an economically sound reason prices shot up that fast, . . ." and your point about being unable to get the kind of house you want in your price range, are irrelevant for what you want to do.

The main reason, why prices shot up so high and fast there, is that most buyers in that market were willing to pay those escalating prices--but knowing this doesn't help you. So what they paid those prices; that doesn't mean YOU have to pay that price too. Go find several properties that fit your criteria, and make an offer that makes sense to you on one (or more) of them. So what if your initial offer gets rejected; if the seller counters, then you two might end of negotiating a price that you could live with.

I suspect you wouldn't feel taken if you ended up paying 3 times your household income + $100; of course, that value - $200 would be even better. ;)
0 votes Thank Flag Link Thu Nov 20, 2008
Jeff,

You really need to go back and read what I said. "I have seen homes in the $200k range."?? What does that mean? What exactly are you looking for in home where every house you've seen at $360k is a total joke? Again, it's taste sensitive. I know of homes right now in Va. Beach, in that price range with nearly 3000 sf, in-ground pool, and large lot. It's all a matter of perspective I guess. Hope you find what you're looking for.
Web Reference: http://www.homesandfood.com
0 votes Thank Flag Link Wed Nov 19, 2008
Dan:

I totally agree with your observations as I am a potential buyer in the VA Beach area. I too think that for our market and job base, prices are still significantly too high and need further correction.

In our market people have been maxing out the front (28%) and back ratios (36%) for lending requirements in order to stay out of the over-priced cracker jack box. With that and past creative financing making this ratio even worse, it's no wonder we now see the huge financial distress this can cause, people have hugely over bought IMO. To me these ratios seem way too high. They should be based on net income or more like 15% front & 25% back ratio. There is no way anyone should be house poor with years more of a recessionary economy looming.

The only other market I am familiar with, West Tennessee, is part of what has spoiled me. That is certainly not a comparable market, but seeing friends and family in ~$100 sq/ft new high quality construction homes just makes it feel like it's a rip-off paying our markets sq/ft price.

This comes back to your 3x income scenario. My wife and I have about $120K combined gross income that we would use for a mortgage. That means a $360,000 house at 3X. The Jeff in the post below says he has seen houses in the $200K range. We have been looking and EVERY house I saw in that range was a TOTAL joke. Currently, every house I have seen listed (not the sold price) in the $360K range is a joke too.

Im waiting it out to the absolute bottom just so I don't have buyers remorse and feel like I was ripped off in this market.

Jeff
0 votes Thank Flag Link Wed Nov 19, 2008
Dan,

I'm totally with you and probably just as frustrated with how the market has evolved over the last 5 years. One of my biggest frustrations was concerning the many clients that I had several years ago who made a good living, had good credit, and yet couldn't find a decent home that they fell in love with. They had to settle for something else. I'm not sure what you mean by finding a home for 3X your family income though. If you make $60k, can you find a decent home for $180k? I guess that's opinion sensitive. What you think is decent may be different than someone else. I do know that you can find great detached homes in Va. Beach, Chesapeake, and Norfolk for $200k or even less. By the way, these same homes sold a few years ago in the mid $200's. I'm all about realism and don't like the whole hype thing. I do have a very busy real estate life and in my experience sellers have gone down as far as they can go in most cases. You may find yourself a sweet heart deal every once in a while but not often. Last week I did close on a home where the asking price was $699k and we offered $630k. The sellers accepted! The home appraised at $785k......This was out of the ordinary. Today I wrote an offer that is in competition with another buyer. Imagine that, a bidding war?? It is what it is and every seller is different. Today, in our area, a buyer can purchase a home that they didn't qualify for just last year!! I do wish you well though. I know this experience is frustrating. I'm actually considering building another home and rest assure, I will work the builder down to the lowest I can get him.
0 votes Thank Flag Link Tue Nov 18, 2008
As is typical the professionals here don't actually talk to the real issues concerning potential buyers. For instance, can you get a nice home in a decent school district for 3X your family income? Good prices? Compared to what? Last year? maybe so. But has the market adjusted enough to compensate for the run-up (I think about DOUBLE) that occurred between '01 and '05 due to sub-prime mortgages, easy money and sometime downright mortgage fraud that no longer exists? This is the proverbial "elephant in the room" that the professionals just will not address. Let's take a closer look at it. Maybe I'm being pessimistic and there truly was an economically sound reason prices shot up that fast. Did incomes in the area double along with the housing prices? Did energy and food prices plummet during that time in Hampton Roads while the rest of the country saw substantial rise in these costs? I have tried in vain to get the professionals on this site to actually discuss the true issues facing the market. I asked a very simple question a few weeks back asking about the tried and true "should you pay more than 3X your income on a home pruchase" and I got exactly one response. ONE!!! I thought it was a legitimate question.
0 votes Thank Flag Link Mon Nov 17, 2008
Yes homes are still selling but not as fast. A buyers market is 4-6 months and that is what we are in. It is really more that buyers do not want to commit. They are waiting for the bottom of the market to hit. We have a large inventory of homes with good prices and sellers willing to make deals but I find that buyers are not willing to move. When the bottom hits we go up from there and they will have already missed it.
0 votes Thank Flag Link Mon Nov 17, 2008
One has nothing to do with the other. You can "ride out a recession" while you're renting. I just relocated to this area and was out with a real estate agent looking last week. I make about 15% more than the median income in this area and the houses we were shown in my price range (260K-280K) was apalling. It's amazing what people expect for their run-down cracker jack boxes. You can get a decent home in this price range but you'll spend what you save on flak vests and brushing up on self-defenses course for your kids so they can go to school. When the average family can afford a decent home in an area where their kids don't have to walk through metal detectors to try and get an education THEN qualified buyers will start testing the waters again and think about buying. Until then, it looks like this qualified buyer will continue to be a renter.
0 votes Thank Flag Link Mon Nov 17, 2008
The recent run up didn't have to do with "flipping investors" we've always existed. It had to do with media hype and creative loan products and lots of speculators. Over zealous mortgage brokers making things work when they shouldn't, ie mortgage fraud. I know people like to use us as the fall guys, but it was speculation that drove prices higher. Not flippers. We don't pay market value and try to resell immediately for a profit, we market to find sellers that need to sell quickly, and we buy junkers that need work. We rehabiliate neighborhoods, not speculate.

My concern to your question would also be if the Virginian-Pilot did an article saying that, bigger issue since they are here and have a better picture of what's going on. Overal data doesn't always show the right picture as the Forbes article illustrates.
0 votes Thank Flag Link Sun Nov 16, 2008
In a quick nut shell...real estate is a local business. Prices vary from neighborhood to neighborhood, home by home and determined mainly by condition and location. When you look at real estate as an investment it has always been a long term play until the recent run up brought flipper investors out by the droves. With that said to answer your question...buying right solves most of the problems! For a new home buyer I suggest...do your homework and choose wisely. For the person who recently purchased...be happy that your a homeowner in a great house and you got in at a great interest rate and hopefully you bought smart. Remember real estate is a cyclical market...it will go back up. As for the national media...your question says it all!
0 votes Thank Flag Link Sun Nov 16, 2008
I have to disagree greatly with the information in the new article. I'm a real estate investor here locally, not an agent, so it doesn't matter what the market is doing, I make money so I don't need it to look rosey or not. I don't understand this quote "Virginia Beach homeowners who bought homes this year possess a paltry 5.2% of home equity, and 34.5% owe more on their property than it's worth, according to Zillow.com, a real estate research group." How is it that all owners who bought this year already have equity? and 34.5% owe more than it's worth? You can't have both it's either one or the other. The biggest problem is when you categorize all home prices together as a lump and not separate price points. You buy a million dollar home and the neighbor needs to sell and prices it to 900k. Yeah, you're now underwater technically. But the same doesn't go in all neighborhoods. I do not agree with anyone buying this year actually having equity. But to go with Zillow figures is like buying stocks because your friend told you it's a good choice. Zillow isn't hardly accurate, that's why they have a disclosure about it. Every city is the best place to ride out a recession, provided your real estate is still affordable when compared with the median income of the area.

California real estate is dropping because really, who can make 75k a year and afford a 750k house? You can't, so prices drop back to more affordable prices. And if no creative loan products ever exist again, prices will continue to decrease in my opinion. If you can't find new buyers at higher prices you'll never sell your house and move to anything else.

So Virgina beach is fine to ride out a recession in, but Hampton Roads is horrible as far as a place to buy rental property that cash flows without putting a ton of money down. There are better cities where your return on investment is substantially higher than Hampton Roads, and it's not anywhere close.

I have a link to that forbes article on my website if anyone is interested, it's under Local news.
0 votes Thank Flag Link Sun Nov 16, 2008
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