In July, Inman gazes at the glitter and glam of the luxury real estate market. Snapshots of the country’s top luxury markets, advice from leading agents, features on what affluent homeowners want now and a breakdown of the top sales of 2023 (so far) are all in the cards leading up to Inman Luxury Connect, Aug. 7-8 at the Aria in Las Vegas. Make plans to join us now.
This is the third article in an 11-part series spotlighting housing markets in Virginia, Texas, Florida, California and New York and the U.S. market. Read the entire Summer Cooldown series here as stories are published throughout July.
Alexandria, Virginia-based Keller Williams team leader Kristin Francis is no stranger to change.
Within the first five years of her 19-year career, Francis experienced a then-unprecedented feast and famine as easy money and ample inventory transformed from a gift into a curse amid the Great Recession. So when mortgage rates began to climb last year, Francis was already prepared for the slide in consumer sentiment and sales in her market.
“Mortgage rates hit a wall in May last year, and it really slowed the market rapidly. There was the whiplash for the buyers,” she said of the first months after the Federal Reserve began rate hikes. “We had this period, this lull where not much happened. But the past six months have brought back the original seasonality.”
“Our market picked up at the beginning of January as predicted and has cruised through till now,” she added. “We’ve always been a very strong real estate market because we are insulated from a lot of the volatility nationwide,” she added. “We have government, industry, military, and technology to support us.”
As the sales pace is moving back toward historical means, Francis said Virginia’s real estate market has plenty of challenges ahead as elevated mortgage rates, low inventory, and booming home prices place buyers and sellers in limbo — as neither side has full leverage over the other.
Bidding wars abound, but buyers’ are putting their feet down
Francis and her contemporaries across Alexandria, Richmond, and Norfolk said bidding wars have made their resurgence this summer; however, they look much different than they did in 2020 and 2021.
‘We’re still fighting over the same potato in a famine,” said Francis, who leads the Kristin Francis Team in Alexandria. “When you are looking at the list price to close price, we’re over 100 percent, which tracks that we are still in short supply.”
She added, “Now what I am seeing that’s different, which keeps us a little bit more balance, is that contingencies are staying in place whereas in the last several years, those contingencies were the first things to go.”
RE/MAX Allegiance broker Charles Klein seconded Francis’ experience and said today’s buyers are less likely to give up contingencies, thanks to the growing number of early-pandemic-era homebuyers who now regret offering five to six figures above the asking price for homes they no longer want due to life changes or major, unseen structural issues.
“We still are advising people to be competitive and the people that win are giving offers that are no regret offers,” he said of his clients in Northern Virginia, which includes buyers and sellers in Washington D.C. “If they lost at a higher escalation price, they would not be upset. And if they win, they will not regret it either.”
“Cash wins mostly first, and then it’s little to no contingencies,” he added. “No contingencies for appraisals, no contingencies for home inspections, and no contingencies for financing will usually win — every single time, but most do,” he added. “This is what’s the most challenging thing for anybody — they would like some protection.”
Beyond contingencies, Compass Jenny Maraghy Team owner and CEO Jenny Maraghy said homebuyers in Richmond are rejecting overpriced homes and taking more time with making offers. As a result, the average days on the market have extended from one day — a common tale at the apex of record-low rates — to one week.
“We will have homes that will get one offer and others that get multiple,” she said. “But it might take us a week to get an offer whereas, say a year ago, we would’ve had offers in the first 24 hours.”
Maraghy said homes that get multiple offers are always turn-key — another change from the early pandemic when almost any home could get sold above the asking price without much work.
“Anything that’s turn-key, and high quality with good finishes is definitely top of the list,” she said of what sellers need to stand out. “Also outdoor space. Pools are very much still in demand, perhaps not quite as much as they were during COVID, but still very much a high priority. Also, with an aging demographic, first-floor primary suites are a must-have.”
“Those turn-key properties in our hotter areas around Richmond, it might still go hundreds of thousands of dollars over and with no contingencies. You’ll need cash in those areas, or you don’t really have a shot,” she added. “But most buyers aren’t accepting those absolutely crazy asking prices.”
Virginia is for lovers — and new condominiums
Although buyers have additional leverage in the market, existing-home inventory is far and few between in Virginia’s top markets.
While well-qualified, well-financed, and repeat buyers are able to navigate their way through intense multiple-offer situations for single-family homes priced in the $500,000 to $600,000 range, first-time and millennial buyers are turning their attention to the new home and condo markets to get their foot in the door.
Century 21 Nachman agent Cliff Wells said first-time buyers are finding Norfolk’s military-heavy market to be an impenetrable wall, as median existing-home prices reach toward $600,000. Wells said listings between $800,000 to $1.2 million have less competition but are still hot commodities for luxury buyers who want to bask in Norfolk’s natural beauty and deep history.
“This is not just a military area,” he said. “Virginia Beach is 20 minutes from about anywhere in Hampton Roads. There’s lots of hiking, lots of bike trails, and horseback riding is huge. You can be in North Carolina in a few minutes and you can be in the historic triangle — Jamestown, Yorktown, and Williamsburg — in a matter of minutes.”
For buyers who want to stay in Norfolk or must stay due to military duties, Wells said the new-home market offers a handful of opportunities as builders price their homes around $250,000 — 58 percent below existing-home trends. However, a more affordable price point means competition is still fierce.
“You’ve got to be ready to move with it comes on the market,” he said. “You can’t say, ‘Let me think about this for a day or two.’ If you stop to think about it, you will never get to sleep in it.”
Francis, Maraghy and Klein described similar situations in their markets, with homebuyers pouncing on a limited number of newly built single-family homes. For buyers who aren’t finding luck on the single-family side, Richmond-based Napier ERA co-leaders Jim Napier and Mark Joyner said the condominium and townhome market is offering new hope.
“A little ray of sunshine is our condo-townhouse market. It’s actually, year to date, up 10% in new listings and up 6.8 percent in pending,” said Joyner, Napier ERA’s president and principal broker. “It’s still off 11 percent in closing, but it almost looks like that trend is making that turn from negative to positive on a year-to-date basis.”
“A lot of that is probably forced because of the lack of inventory and the affordability crisis — even though the market is cooling, prices are still going up,” he added. “Our average sales, average sales price in single-family homes is up 4 percent year over year, and the average price for condominiums is up 2.7 percent. So condos are still in our area is still about $100,000 cheaper.”
Maraghy echoed Joyner and said fatigued buyers are turning to condominiums and townhouses as their last resort before looking toward Richmond’s outskirts or bowing out of the market altogether.
“We are seeing a shift to, ‘Okay, I know I can’t find a single family or it’s gonna be extremely difficult. I will pivot to a condo or a townhouse,’” she said. “So buyers will switch into the condo market or even say, ‘Hey, I’m gonna have to rent for six to 12 months and just wait. And if something comes up, I’m just gonna have to pay extra to break my lease.”
While condos and townhomes are a God-send in central Virginia, Francis said the condo and townhome market in Alexandria and Washington D.C. is just as tight as the single-family market.
“Depending on which side of the city you’re on, single-family homes are floating above that million-dollar mark for the most part,” she said. “Condos are more affordable than single-family homes, but they’re still between $400,000 and $5,000 depending on if you’re in Arlington or Alexandria, and they’re still going over list price and selling within two or three weeks. A buyer could end up spending $750,000 for a townhome.”
Amazon, government jobs, and the return to the office
Although home sales metrics currently are down, Francis, Maraghy, Klein, Joyner, Napier, and Wells are optimistic about the state and their respective markets as Amazon’s $2.5 billion HQ2 development, a new carbon-neutral Lego factory, and CoStar’s $460 million expansion of its Richmond campus keep demand high in addition to a steady stream of opportunities in the military and federal government.
“With COVID, people scrambled,” Francis said. ‘They ran as fast as they could away from the area when they realized that they were not going to be recalled back into the office anytime soon. They didn’t have to pay D.C. home prices and could keep their D.C. job and salary. It was the best of both worlds for people.”
“What we’ve seen this year is the big recall,” she added. “People, especially those who work for the federal movement, are starting to get recalled back from places like North Carolina and Tennessee. People who moved to the suburbs and are now having to do that commute, have lost patience with it and are now saying, ‘I have to come back.’”
For buyers who want to exit the intensifying battle for jobs and real estate as Amazon stakes its claim in Northern Virginia, Napier and Joyner said Richmond and surrounding suburbs have become an escape.
“We’re getting a lot of transfers into Richmond, and especially into our suburban areas from Northern Virginia, and in the DC area,” ERA Napier owner and co-owner Jim Napier said. “A lot of that is one because of taxation, but, also because transportation. It is almost impossible to drive anywhere up there during the workday with any sort of efficiency.”
“We have a lot of population in the city, but it’s not concentrated. We have space,” he added. “Planned urban development, walkability, parks, and lots of resources out in the suburbs are bringing people south.”
Each of the agents Inman spoke to anticipate spring and summer trends to continue throughout the year, with an upswing in sales coming in the first quarter of 2024 — the time economists expect mortgage rates to cool back down. A few agents are also counting on a boost in inventory from homesellers looking to exit the short-term rental market, as renter interest and profits steadily fall.
“A lot of people have become accidental landlords. They were relying on the Airbnb type of short-term rental, and that market has been completely saturated as well,” Francis said. “We’re seeing a downturn in the short-term rental market, and as we see more pain points in those properties not getting rented and putting more of a liability back on the original homeowner, I think we’re gonna see some of that inventory free up because they can’t carry those vacancies,” she added.
As agents wait for the tides to turn, Maraghy said agents must figure out how to make the current buying and selling process bearable.
“The process is currently gut-wrenching for purchasers, many of which just sold a home,” she said. “And what we do is if someone needs to sell something in order to be able to write a stronger offer, we help them get into a short-term rental.”
Maraghy said sellers are able to move out at any time, whether it takes another week or another month to find a new home.
“That’s been very helpful for us. I’ve been in the business for 30 years, and I also happen to know a lot of the larger landlords in town so we’re constantly tapping on our friends and investor clients to try to help,” she added. ” That’s our job — to make this whole procedure more palatable until things get better.”