Virginia’s economy has boosted nearly every industry in the state over the last decade, and the housing sector is no exception. Thanks to the Technical Services and Leisure and Hospitality sectors, the entire state has seen steady job growth for quite some time. Most recently, employment levels appear to have been slightly more insulated from the pandemic. While unemployment spiked in the first quarter of 2020, it has recovered nicely in Virginia. As a result, sales activity in the Virginia real estate market has maintained a steady pace, even in the face of rapid appreciation. Once inventory arrives, which should be sooner rather than later, Virginia should reach a balance that favors everyone: buyers, sellers, and investors.
Residents are more optimistic than ever that things are heading in the right direction. The setback experienced at the beginning of 2020 appears to have been temporary and may have even served as a catalyst to ignite what is now a hot housing market.
The Top Virginia Real Estate Markets
While the best real estate market in Virginia is up for debate, here’s a list of the cities investors may want to pay special considerations to:
Unemployment Rate: 4.9% (latest estimate by the Bureau Of Labor Statistics)
Population: 8,517,685 (latest estimate by the U.S. Census Bureau)
Median Household Income: $68,766 (latest estimate by the U.S. Census Bureau)
Percentage Of Vacant Homes: 10.29%
Foreclosure Rate: 1 in every 27,085 (0.3%)
Virginia Median Home Prices
The median home value in the Virginia real estate market has ridden many of the same tailwinds as the rest of the country over the last decade. Thanks, in large part, to a strengthening economy, improving sentiment, exponential increases in demand, and a lack of available inventory, home prices in Virginia have been increasing since they bottomed out during the Great Recession. For more than eight consecutive years, in fact, real estate in Virginia has increased in value. Over the last 10 years, the Virginia real estate market has appreciated an impressive 24.71%, which comes out to about 2.23% each year. Even more impressive, however, is what the market has done in the last two years. In just 24 months, the median home value in Virginia has increased 9.23%. After decades worth of appreciation, the median home value in Virginia is now $291,233.
To put things into perspective, the median home value in the United States is $266,104 (9.4% lower than the Virginia real estate market's average). While lower, the national average has increased at a faster rate than Virginia in recent history. Over the last 10 years, the median home value in the United States has increased 58.3%. In the last year alone, the median home value in the U.S. increased 8.4%, which nearly doubled Virginia's pace.
Moving forward, the national average is expected to outpace the Virginia real estate market once again. Over the next 12 months, the median home value in Virginia is expected to increase 9.3%, but the national average is expected to jump 10.5%. There is room for appreciation to temper or increase, but one thing is certain: prices will rise. Inventory shortages, which were stretched even thinner when builders were forced to quit working during the pandemic, will continue. Additionally, stay-at-home orders and record low mortgage rates have given prospective buyers the financial motivation they need to make a purchase. As a result, demand greatly outweighs supply across the country, and the Virginia real estate market is no exception. Look for massive demand to create competition over the little inventory that is available. The sheer volume of offers sellers are expecting will drive up prices for the foreseeable future.
Virginia Foreclosure Trends & Statistics
The Virginia real estate market has developed a reputation for hosting a fairly low foreclosure rate. With one in every 27,085 homes in some stage of distress (default, auction, or bank-owned), the state foreclosure rate is an admirable 0.3%. Thanks—in large part—to the same factors that have facilitated the latest bout of appreciation across the state, Virginia's foreclosure rate is something other states would hope to achieve sooner rather than later.
While Virginia has done well with foreclosures, some neighborhoods inherently have a larger distribution of distressed homes than others. Here's a list of the neighborhoods in Virginia with the largest distributions of distressed homes:
Southampton: (1 in every 3,796)
Portsmouth City: (1 in every 4,543)
Newport News: (1 in every 5,532)
Madison: (1 in every 6,027)
Buckingham: (1 in every 7,365)
The overwhelming majority of Virginia's foreclosures are of the auction variety. In fact, 82.0% of the state's distressed inventory is either already up for auction or will be at some point soon. The remaining foreclosures are bank-owned, which means the loan originators have already repossessed them. Therefore, any Virginia real estate investors looking to secure a deal below market value should consider participating in auctions located in the previously announced neighborhoods. Doing so will surely increase the chances of finding a foreclosure.
While Virginia's foreclosure rate is low, it's safe to assume defaults will increase sooner rather than later. The financial strain placed on many homeowners by the Coronavirus is expected to increase defaults by year's end. It is too soon to tell just how many foreclosures are expected to hit the market within the next year, but there's a good chance Virginia will have more foreclosure in 2021 than in previous years. Therefore, investors who position themselves well now may simultaneously help homeowners in the future and land a good deal.
Tax Lien Investing
Tax Lien or Deed: Tax Deed state
Redemption Period: None after sale
Virginia Real Estate Investing
The rate of return on real estate investments over the last decade has been attractive, to say the least. Even over the course of a few years, following rapid rates of appreciation, investing has proven lucrative. According to Attom Data Solutions’ most recent Home Flipping Report, in fact, "Homes flipped in the first quarter of 2020 were sold for a median price of $232,000, with a gross flipping profit of $62,300 above the median purchase price of $169,700. That gross-profit figure was up from $62,000 in the fourth quarter of 2019 and from $60,675 in the first quarter of last year.”
It needs to be noted that years of appreciation have made attractive profit margins harder to secure. While rising foreclosure rates should enable investors to secure deals below market value, the truth remains: Real estate in Virginia is less conducive to rehabs than in years past. That's not to say Virginia real estate investors can't continue to renovate deals (the absolutely can), but rather that the new housing market created by the pandemic is more suited for long-term investors. In particular, today's most prominent indicators appear to lean heavily in favor of rental property owners.
In addition to historical appreciation rates making attractive profit margins harder to come by, investors may want to consider building a rental property portfolio because of today's interest rates. If for nothing else, the Fed announced it would keep interest rates low to provide a spark for the housing market, and it worked. As recently as December, the monthly average commitment rate on a 30-year fixed-rate mortgage was 2.68%, according to Freddie Mac. To this day, it has never been cheaper to borrow institutional money. In fact, rates are so low that they may simultaneously help justify high acquisition costs and increase monthly rental property cash flow.
Landlords will find plenty of demand for their properties. With a state-wide price-to-rent ratio of 15.11, it's more affordable to buy a home in Virginia than to rent one, but inventory levels remain insufficient. While more people want to buy, a lack of available housing is relegating many people to the renter pool. Even those who want to buy are forced to rent. As a result, landlords will find their assets receiving plenty of attention and perhaps even demanding a premium rental rate.
Virginia Housing Market Predictions
The Virginia housing market has had a great run, much like the rest of the country. For the better part of a decade, in fact, real estate in Virginia has exhibited many of the same characteristics as its national counterparts. Price increases, confidence in the market, and several other indicators are in line with national trends, but what does that mean moving forward? What can the Virginia real estate investing community expect moving forward?
Secondary cities will gain more popularity with millennials: Some of Virginia's biggest cities (Arlington, Norfolk, and Richmond) are growing too expensive for both buyers and investors. As a result, more people will turn to secondary cities. Millennials, in particular (who make up the nation's largest population of buyers) will look towards cities where their dollars can buy them more. If such an exodus occurs, prices could easily rise in secondary cities as demand increases.
Inventory shortages will prevail: Listings across the entire Virginia real estate market have been relatively sparse for quite some time. Additionally, demand continues to increase in the face of rising home prices. This unique convergence of trends suggests demand will remain tight for the foreseeable future. Prices will increase for at least the next year and continue to do so until more inventory is brought to market.
Mortgage rates will drive up competition: Despite high prices, more people appear willing and able to buy because of today's low interest rates. Directly correlated to government stimulus, today's low interest rates are so attractive to prospective buyers that it's hard to at least not consider taking out a loan. At today's rates, borrowing costs are closer to justifying higher prices.
The Virginia real estate market experienced a scary setback in the first part of 2020. At the time, the pandemic had spread fear and uncertainty over the entire state's real estate sector. In a matter of weeks, the Coronavirus threatened to destroy nearly a decade's worth of growth. Fortunately, the setback was only temporary and actually may have stimulated the local market. Thanks, in large part, to a relatively insulated jobs market, Virginia was able to not only rebound but thrive in 2020. Demand and home prices increased in conjunction with each other and sparked activity on a level nobody could have imagined. Now that we have turned the page on 2020, 2021 looks like it will carry on the momentum and continue to allow the market to thrive.
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