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8/14/2019 Review of Regional Market Conditions and Trends
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Virginia Housing Development Authority
Review of Regional Market
Conditions and Trends
Charlottesville Area Association of RealtorsFebruary 4, 2010
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The Charlottesville area
housing market hasbegun a slow recovery
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Home sales hit bottom in the 3rd Quarter,
but remain below the level of a decade ago
Source: VAR
Existing Home SalesCharlottesville Area
300
600
900
1,200
1,500
9 9 - 2
9 9 - 4
0 0 - 2
0 0 - 4
0 1 - 2
0 1 - 4
0 2 - 2
0 2 - 4
0 3 - 2
0 3 - 4
0 4 - 2
0 4 - 4
0 5 - 2
0 5 - 4
0 6 - 2
0 6 - 4
0 7 - 2
0 7 - 4
0 8 - 2
0 8 - 4
0 9 - 2
0 9 - 4
'99-4
656
'06-2
1,173
- 45%
Four-Quarter
Rolling Average
'09-4
641
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The Charlottesville market continues
to track other “downstate” markets
Source: VAR
Existing Home Sales Index
25
100
175
0 3 - 1 0 3
- 2 0 3
- 3 0 3
- 4 0 4
- 1 0 4
- 2 0 4
- 3 0 4
- 4 0 5
- 1 0 5
- 2 0 5
- 3 0 5
- 4 0 6
- 1 0 6
- 2 0 6
- 3 0 6
- 4 0 7
- 1 0 7
- 2 0 7
- 3 0 7
- 4 0 8
- 1 0 8
- 2 0 8
- 3 0 8
- 4 0 9
- 1 0 9
- 2 0 9
- 3 0 9
- 4
I n d e x ( 1 s t Q t r 2 0 0 3 =
1 0 0 )
b a s e d o n 4 - q u a r t e r r o l l i n g a v e r a g e
Charlottesville-Central Valle y Northern Tier (PDs 7, 8, 9 & 16) Greater Richmond
Greater Hampton Rds Roanoke-Blacksburg-Lynchburg
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Four things are needed
in order to achieve sustainedhousing market growth:
1. Recovery of employment
2. Stabilization of home prices
3. Reduction in mortgage defaults
4. Revival of a stable privatemortgage market
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Employment
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Unemployment is up sharply, but
is well below rates in most markets
Source: Bureau of Labor Statistics and Virginia Employment Commission
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
Washington MSA (VA part)
Charlottesville MSA
Virginia
Staunton-Waynesboro MSA
Richmond MSA
Culpeper MSA
U.S.
Dec 2007 Dec 2009
Unemployment Rates
Charlottesville MSA
Virginia
U.S.
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Weak employment will likely
remain a significant market drag
• Area employment is stabilized by large public
and agricultural sectors, and a lower share of
manufacturing jobs than in other markets.• However, employment and income levels
could suffer from prolonged state and local
fiscal distress.
• The losses in employment and income have
been steep and will take time to recoup.
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The recovery in jobs will take longer
than in all but the 2001 recession
Data for the 2007 recession is through Nov 2009
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Home Prices
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Price changes generally lag
behind changes in sales volume
Source: MRIS
Example: Prince William Market Area
$
$,
$,
$,
$,
$,
O c t - 9 9
A p r - 0
0
O c t
- 0 0
A p r - 0
1
O c t
- 0 1
A p r - 0
2
O c t
- 0 2
A p r - 0
3
O c t
- 0 3
A p r - 0
4
O c t
- 0 4
A p r - 0 5
O c t
- 0 5
A p r - 0
6
O c t
- 0 6
A p r - 0 7
O c t
- 0 7
A p r - 0
8
O c t
- 0 8
A p r - 0
9
O c t
- 0 9
M e
d i a n E x i s t i n g H o m e
P r i c e
0
300
600
900
1,200
1,500
E xi s t i n gH om e S al e s
( 1 2 -m on t h r ol l i n g av er a g e )
25 months
Home Sales
Home Prices
14 months
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Unsold inventory must first decline
in order to put a floor under prices
Source: MRIS
Example: Prince William Market Area
-50%
-25%
0%
25%
50%
O c t - 0
3
A p r - 0
4
O c t - 0
4
A p r - 0 5
O c t - 0
5
A p r - 0 6
O c t - 0
6
A p r - 0 7
O c t - 0
7
A p r - 0 8
O c t - 0
8
A p r - 0 9
O c t - 0
9
-20
-10
0
10
20Months of
Unsold Inventory
Annual Change
in Median Price
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The Charlottesville area’s unsold inventory
is still large and must decline further
in order for home prices to stabilize
Source: Federal Housing Finance Agency (FHFA)
Annual Change in FHFA Existing Home Price IndexCharlottesville MSA
-5%
0%
5%
10%
15%
20%
2 0 0 1
- 1
2 0 0 1
- 3
2 0 0 2
- 1
2 0 0 2
- 3
2 0 0 3
- 1
2 0 0 3
- 3
2 0 0 4
- 1
2 0 0 4
- 3
2 0 0 5
- 1
2 0 0 5
- 3
2 0 0 6
- 1
2 0 0 6
- 3
2 0 0 7
- 1
2 0 0 7
- 3
2 0 0 8
- 1
2 0 0 8
- 3
2 0 0 9
- 1
2 0 0 9
- 3
Calendar Year Quarter
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In the Northern Tier, the reduction in
unsold inventory has occurred in two ways
Source: MRIS / data reflect 12-month rolling averages
Example #2: Greater Piedmont Are
Sales volume remains weak,
with inventory reduction mostl
due to falling listings
50
125
200
275
350
425
500
575
D e c - 9 9
D e c - 0 0
D e c - 0 1
D e c - 0 2
D e c - 0 3
D e c - 0 4
D e c - 0 5
D e c - 0 6
D e c - 0 7
D e c - 0 8
D e c - 0 9
Existing Home Sale
New Listings
Example #1: Prince William Area
Rising sales and falling listing
have played equal parts in
reducing the unsold inventor
250
500
750
1,000
1,250
1,500
1,750
2,000
D e c - 9 9
D e c - 0 0
D e c - 0 1
D e c - 0 2
D e c - 0 3
D e c - 0 4
D e c - 0 5
D e c - 0 6
D e c - 0 7
D e c - 0 8
D e c - 0 9
New Listings
Existing Home Sale
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Increased affordability is still needed in
Charlottesville to sustain increased sales
• In the Northern Tier—
especially in Pr. William—
price declines have
returned affordability topre-boom levels.
• Downstate, prices are still
correcting (chart), with
Charlottesville pricesremaining most out-of-line
with affordability norms.
Source: VAR and Census Bureau
Ratio of Median Home Price toMedian Household Income
0.0 1.0 2.0 3.0 4.0 5.0 6.0
Danville
Lynchburg
Roanoke
Richmond
Hampton Rds
Charlottesville
Pre-Boom:April 2000
Peak of Boom:June 2007
Post Boom:4th Quarter 2009
Charlottesville
Historic affordability
threshold
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Home prices continue to face
several major headwinds
• Tightened credit and down payment requirementsoffset declining sales prices.
• During the boom, rising prices in the adjacent andmuch larger Northern Tier and Greater Richmond
markets supported price inflation in Charlottesville.• Now the substantial inventory of distressed homes
in the Northern Tier and economic weakness inGreater Richmond undercut the area’s ability tosustain higher values.
• The federal tax credit has put a floor under salesand prices, but has not generated a strong enoughmarket rebound to fully offset the strong foreclosureand economic undertows.
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Mortgage Defaults
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Area foreclosures are rising,
but remain relatively low
Source: RealtyTrac and Census Bureau
Trustee Auction Notices
0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00%
Staunton-Waynesboro MSA
Charlottesville MSA
Richmond MSA
Virginia
Washington-Arlington-
Alexandria MSA (VA part)
Culpeper MSA
Share of Homes with a Mortgage
Feb 2010
Aug 2009Charlottesville MSA
Virginia
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Rising area foreclosures have not
created a large “distressed” inventory
Source: RealtyTrac and Census Bureau
Inventory of Bank-owned Homes
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
Staunton-Waynesboro MSA
Charlottesville MSA
Richmond MSA
Virginia
Washington-Arlington-
Alexandria MSA (VA part)
Culpeper MSA
Share of Homes with a Mortgage
Feb 2010
Aug 2009Charlottesville MSA
Virginia
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Lower area foreclosures are the
result of fewer high-risk loans
Source: 1st American CoreLogic and Census Bureau
Subprime & Alt-A Share of Home MortgVirginia Metropolitan Areas
0% 5% 10% 15% 20%
Blacksburg-Christiansburg-Radford
Kingsport-Bristol (VA pt.)
Harrisonburg
Charlottesville
Lynchburg
Danville
Roanoke
Washington-Arlington-Alexandria (VA pt.)
Richmond
Winchester (VA pt.)
VA Beach-Norfolk-Newport News (VA pt.)
Culpeper Micropolitan Areas
Charlottesvill
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The recession was triggered by foreclosures
on high risk loans, but now unemployment
is driving a new wave of mortgage defaults
Source: Mortgage Bankers Association (MBA)
Subprime Foreclosures
Prime & Govt. ARM Foreclosures
Prime & Govt. Fixed Rate Foreclosures + 6,400
Virginia Foreclosures
Change 2008 to 2009
- 500
+ 3,800
3rd Qtr. 200930,500 Active Foreclosures
35%
30%
35% Prime &Govt. Fixed
Rate Loans
10,700
Prime & Govt.
Adjustable
Rate Loans
9,300
Subprime &
Alt-A Loans
10,600
3rd Qtr. 200820,900 Active Foreclosures
21%
26%
53%
Prime &
Govt. Fixed
Rate Loans
4,300
Prime & Govt.
Adjustable
Rate Loans
,
Subprime &
Alt-A Loans
11,100
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In the past, delinquency was driven
by job losses, and lagged recovery
Source: Mortgage Bankers Association (MBA) and Virginia Employment Commission (VEC)
Experience of Last Major Recession in Early 1990's
.%
.%
.%
.%
.%
1 9 9 0
- 1
1 9 9 0
- 2
1 9 9 0
- 3
1 9 9 0
- 4
1 9 9 1
- 1
1 9 9 1
- 2
1 9 9 1
- 3
1 9 9 1
- 4
1 9 9 2
- 1
1 9 9 2
- 2
1 9 9 2
- 3
1 9 9 2
- 4
1 9 9 3
- 1
1 9 9 3
- 2
1 9 9 3
- 3
1 9 9 3
- 4
1 9 9 4
- 1
1 9 9 4
- 2
1 9 9 4
- 3
1 9 9 4
- 4
Calendar Year Quarter
S e r i o u s D e l i n q u e n c y R a t e
( 4 - q u a r t e r r o l l i n g a v e r
a g e )
3.0%
4.0%
5.0%
6.0%
7.0%
Un em pl o ym en t R a t e
( 4 - q
u ar t er r ol l i n g av er a g e )
Serious Delinquencies
Unemployment
15 months
Peak in
3rd Quarter 1992
Peak in
4th Quarter 1993
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This time, defaults led job losses, but
are still likely to trail a jobs recovery
Source: Mortgage Bankers Association (MBA) and Virginia Employment Commission (VEC)
Current Recession
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2 0 0 5
- 1
2 0 0 5
- 2
2 0 0 5
- 3
2 0 0 5
- 4
2 0 0 6
- 1
2 0 0 6
- 2
2 0 0 6
- 3
2 0 0 6
- 4
2 0 0 7
- 1
2 0 0 7
- 2
2 0 0 7
- 3
2 0 0 7
- 4
2 0 0 8
- 1
2 0 0 8
- 2
2 0 0 8
- 3
2 0 0 8
- 4
2 0 0 9
- 1
2 0 0 9
- 2
2 0 0 9
- 3
2 0 0 9
- 4
Calender Year Quarter
S e r i o u s D e l i n q u e n c
y R a t e
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Un em pl o ym en t R a t e
S
e a s on al l yA d j u s t e d
Serious Delinquencies
Unemployment
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The wave of sub-prime resets is over,
but “option ARMs” are now at risk
Source: Loan Performance, Amherst Securities
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A large majority of “option ARMs”
is substantially “under water”
Source: Loan Performance, Amherst Securities
Balance Distribution (by CLTV), January 2010
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Problem loans, depressed prices and
unemployment will keep defaults high
• “Option ARM” loans pose major risk of loss. Loan
resets could generate “strategic” defaults that
would destabilize weak local markets.
• Distressed properties and tightened credit
standards continue to depress values, and keep
a large share of mortgages “under water.”
• Now, unemployment is driving growing numbersof homeowners into default, especially those
who are under water and cannot sell.
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Mortgage Markets
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The mortgage market remains
highly reliant on federal intervention
• The private mortgage-backed securities marketremains dysfunctional, with access to affordablecapital still dominated by governmental entities(the GSE’s and Ginnie Mae).
• Non-conforming / non-government loans—especially jumbo mortgages—still pay premium prices.
• The federal government continues to stimulate the
market with historically low rates and tax credits.• However, two competing goals are being balanced—
1) stimulus to the market & homeowner debt relief versus 2) reduction in losses to FHA and the GSEs.
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The stimulus tax credit is only partially
offsetting the impact of tighter credit
• Minimum credit scores, tighter lending ratios and risk-based pricing—including higher mortgage insurancepremiums—are reducing the pool of first-time buyers.
• VHDA is continuing to provide a flow of flexible capital
through Ginnie Mae securitization and the sale of tax-exempt housing bonds to the GSEs through theTreasury’s bond support initiative.
• Our “Homebuyer Tax Credit Plus” and “FHA Plus”programs are providing needed down payment
assistance.• VHDA and other state housing finance agencies are
working with FHA to preserve flexible lendingstandards while addressing the need for prudent riskmanagement.
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In 2010, there are four challenges in
weaning the market off federal support
1. Maintaining a delicate balance betweenmarket stimulus and curtailment of credit risk
2. Modifying distressed but viable loans on asustainable basis that does not merelypostpone lender losses
3. Containing “strategic” defaults
4. Enabling private capital markets to restartwithout creating credit shortfalls and/or aspike in mortgage rates
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2010 brings major unresolved questions
as federal industry reform gets underway
– What impact will new federal regulatory
structures have on the availability and
affordability of mortgage financing?
– Can the private MBS and PMI markets
achieve sustained recovery?
–What is the future of Fannie Mae andFreddie Mac?
– How large a role can and should FHA play?
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What is the market outlook?
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The Charlottesville area market is likely
to remain weak in 2010 and into 2011
• Home sales, while rising, are likely to remain below
the pre-boom levels of the first half of this decade.
• Prices will remain depressed until inventories arefurther reduced and the foreclosure rate declines.
• The ongoing severity of loan defaults will depend on
how much further unemployment rises, how long
before jobs growth returns, and the magnitude of further price declines.
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Longer-term prospects for the
Charlottesville market are bright
• The local economy is strong and poised for growth.
• The region is projected to experience balanceddemographic growth—
– Household growth will be much stronger than in southernand western parts of the state with less severe impact of “graying” on growth as the population ages
– Nor will the region experience the growth challenges facedby the Northern Tier.
• Nonetheless, the market will experience fundamentaldemographic shifts with demand looking verydifferent from the recently ended “trade-up” boom.
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Market demand will be dominated by
first-time buyers and early retirees
Source: VEC and Census Bureau
Projected Change in Adult Population by Age, 2005-2Charlottesville-Central Valley
209
4,266
7,169
2,573
267
-3,233
-516
4,809
10,217 10,285
8,687
3,726
1,811
4,521
20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+
Age Group
Young Renters &
1st-Time Homebuyer
Middle Age
Trade-up Homebuyers
Empty Nester & Younger
Senior Homeowners
Older Seniors
with Special Needs
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36
Recovery depends as much on
federal actions as on traditional
demographic and economic drivers
• The federal restructuring of the mortgage market will
reset the playing field for who can obtain mortgage
credit and under what terms and conditions.• In turn, this will drive who enters the home purchase
market and the type of home they choose to buy.
• Over the next decade, these changes, coupled with a
generational shift in demographic market drivers, willfundamentally alter the housing market as we have
come to know it.