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2018-02-07 / Real Estate

Housing forecast: Prices heating up

BY JIM McCONNELL STAFF WRITER


Construction crews work on new homes in Magnolia Green last fall. Rising demand, and shrinking inventory, is driving up prices across the region, says economist Elliot Eisenberg. 
JAMES HASKINS Construction crews work on new homes in Magnolia Green last fall. Rising demand, and shrinking inventory, is driving up prices across the region, says economist Elliot Eisenberg. JAMES HASKINS Even as economic indicators suggest solid growth through the remainder of this year and 2019, wages are unlikely to rise enough to meet skyrocketing home prices across the Richmond region.

“The problem is you’re not building enough homes,” said economist Elliot Eisenberg, addressing a group of homebuilders, developers, mortgage lenders and real estate agents last week at the Home Building Association of Richmond’s local forecast seminar.

“It’s Econ 101: When you have big demand and low supply, prices go up,” Eisenberg added, noting there currently is a shortage of about 4 million single-family homes nationwide. That certainly has been the case in the Richmond metro area, said longtime Chesterfield homebuilder Lloyd Poe, who also spoke during the annual event at the Hilton Richmond Hotel and Spa in Short Pump.

According to Poe, the number of single-family home listings hit a 10-year low in the fourth quarter of 2017; meanwhile, the average sale price for a new home rose to nearly $384,000.

“That’s a pretty high number for Richmond,” he said.

It was even higher in Chesterfield, which has the region’s hottest real estate market. For the first half of last year, the average new home sale price was $398,467. Full-year sales data isn’t yet available.

Mercer May, director of government affairs for HBAR, said there simply aren’t as many homebuilders as there were in 2007, prior to the nationwide housing market collapse and resulting recession.

“A lot of smaller builders went out of business. The people who are left are working at capacity,” he added.

In addition to shrinking inventory, homebuilders cite government regulation, rising real estate values and the cost of labor and building materials for driving up new home prices.

Federal, state and local regulations represent about 25 percent of the sale price of every new home, said David Owen, president of Boone Homes and legislative chairman for the Home Building Association of Virginia.

New homes priced at $250,000 or less now make up just 18 percent of the regional housing market. Such homes made up 44 percent of the market just seven years ago.

“We don’t have a low-end housing market anymore,” Poe said. “We just can’t build in that price range.”

The result has been a shortage in housing that is considered “affordable” for teachers, police officers and others in moderate-income professions.

New, high-priced residential developments also have had an impact on existing home values. Clover Hill District Supervisor Chris Winslow noted recently that he heard from constituents in several older neighborhoods whose 2018 county real estate assessments increased by 10 percent or more this year.

“That would seem to indicate our stock of affordable housing is becoming less affordable at a rate that I am uncomfortable with,” he said .

The good news, Eisenberg said, is that even with rising home prices he sees no indication of another “housing bubble” like the one that exploded in 2008 and crippled the worldwide economy.

“Barring a meteor shower that lands on Earth, or some unforeseen geopolitical problem, this looks to be a really good year [economically],” he added. “It’s not as good as it was in 2006 or 2007. But it is as good as it has been since.” ¦

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