For all the media hype about bubbles bursting, 2006 turned out to be the second-best year on record for real estate sales. Still, the market is clearly in transition and has experienced a significant downturn from the phenomenal sales of 2005. As of the end of the third quarter of 2006, total sales for the Charlottesville market area (including the City of Charlottesville and the counties of Albemarle, Fluvanna, Green, Louisa and Nelson) were down 11.5 percent from the same time last year.
The biggest contributor to the downturn? Increased inventory, says Dave Phillips, president of the Charlottesville Area Association of Realtors (CAAR) (www.caar.com).
Total sales for the Charlottesville market area (including the City of Charlottesville and the counties of Albemarle, Fluvanna, Green, Louisa and Nelson) were down 11.5 percent as of the third quarter compared to last year.
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“Inventory levels were really low for the past seven to eight years,” says Phillips, and that contributed to a market that was “overheated.” But inventory shot up significantly in the past year. As of the third quarter of 2006 there were 2,992 homes on the market—almost twice as many as in the third quarter of 2005, and days on market for listings has caught up accordingly. Both factors clearly indicate that supply exceeds demand as well as the transition to a buyer’s market. And you know from Econ 101 what happens when supply exceeds demand: prices fall.
Even further depressing the local market this past year, says Phillips, was the flight of the “speculative” investor—those short-term gain seekers who left the falling stock market trade seeking high returns in the real estate game. Now that prices have come down from the ceiling and they can no longer make exorbitant profits from flipping, Phillips says investors have headed back to the recovering stock market.
But all is not doom and gloom. Phillips says, historically speaking, the market is still very strong, long-term community investors are still “alive and kicking” and the changes in 2006 have paved the way for more rational and sustainable prices. The area’s median sale price still rose a very healthy 9 percent as of the third quarter. And Phillips says, “We are poised to have a great spring market in 2007.” To support his prediction, Phillips cites strong economic indicators like low interest rates (with the 30-year mortgage rate currently at 6.14 percent) and the low unemployment rate, and also the fact that thanks to UVA being the focal point of the local economy, the region is somewhat insulated from major swings in the national market.