Submitted by Kindly_Boysenberry_7 t3_yfumj3 in rva
Richmond real estate agent here. I haven't posted one of these in a while, and the Richmond real estate market has completely changed since the summer. I figured it might be worth doing another "Ask Me Anything" to address the new normal. So any questions you might have about RVA real estate, I'll try my best to answer.
My lawyer answer: It depends.
To some extent I'm kidding, but actually not really. What I am seeing is less competition for houses, less activity through new listings in terms of number of showings and activity at open houses. So there is definitely a drop off - in activity, in sales, in offers. All the national data is tracking this too.
However, on the ground I am still seeing move-in ready homes in desirable neighborhoods that are priced correctly selling fast and sometimes with multiple offers and still over asking. However, that seems to be places like the Fan, the Museum District, Near West End, River Road corridor, etc. where there is a very constrained supply and still exceedingly high demand. Above a certain price point ($700,000ish) I am still seeing cash offers, so these people are not sensitive to the interest rate hikes.
Some of this is also being driven by people moving to RVA from high cost-of-living markets who think our prices are cheap, compared to what they are used to.
ETA: Punctuation
> My lawyer answer: It depends.
With that kind of answer, you could get a job at BCG/KPMG/Deloitte as a Managing Director making $380k easily!
Ha! The funny thing is in my previous life I was a Big Firm Lawyer. So I say "my lawyer answer" with more than a little of my tongue planted firmly in my cheek.
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I wouldn't say the waive inspection/sells on Day 1/no appraisal stuff has completely gone away. In the last few weeks I've had clients compete on an $850,000 City listing, they waived appraisal - although not inspection - and offered a not-insignificant-amount over list, and did not get it. The seller started showings on Friday, evaluated offers on Saturday, and made a decision by Saturday night. There were at least several other offers and the agent told me someone was trying to fly in from California to see it in time to write. So houses that are completely "done," in premiere locations are still commanding multiple offers with waiving all contingencies.
The good news for buyers: If you are willing to buy something that's not perfect, might need a bit of TLC, the buyer definitely has more bargaining power. But it's not 100% a buyers market by any means. The average Days on Market ("DOM") in the Central Virginia MLS has gone from 6 DOM in July 2022 to 8 DOM in September 2022.
Also an agent. Outside of the city (an important perspective to have considering how unaffordable most of the city is for your average buyer) things are cooling off considerably depending on the area you're looking. I've seen A LOT of properties sitting for more than a week or two that would have been snatched up quickly just a few months ago. The rate hikes and price increases have eaten into everyones buying power a ton and the market is beginning to reflect that.
There are still hot spots here and there though. Short Pump is still sought after. Atlee and VCC are really starting to see a spike in demand. Some parts of Chesterfield are still pretty hot but down there it's very school district dependent.
southside of the city is still pretty reasonable. Fan/MD not so much
Vcc spike is a relief. Selling in the spring and am starting to worry it won’t go for enough to cover the new (build) house.
We live in the VCC area and I sometimes pull comps for our home. It's been nuts because I have very pessimistically priced out my own home in a sort of worst case scenario and it still comes up higher than I feel it should.
Nationally we've had 8 consecutive months of sales decline.
Prices are already falling.
We're looking at houses now - there's one we like, but not in the area we'd prefer. That said, it seems like houses haven't been coming on the market nearly as quickly, and we're fearing that there won't be anything new from November until March. I know you don't have a crystal ball, but does the market typically go quiet during the holiday months?
The market definitely ramps down from Labor Day to Thanksgiving, and typically goes pretty quiet from Thanksgiving through New Years Day. Then once you are into the new year the market slowly ramps up again until the "typical" Spring market. This year the market hit a brick wall in late summer, and it seems like there is less coming on the market than we would normally see in that Labor Day-Thanksgiving listing burst. I have to think it's the interest rate rise, combined with the general economic uncertainty.
That's all based on my personal observation, and gut feel. I haven't drilled down into the actual data, I'm going to do some of that over the weekend.
Anecdotally, I know a few people who planned to list later and rushed to market to capitalize on the conditions knowing rates were rising and the economic outlook was murky. I’d imagine others did the same.
The market does slow down around this time, but also consider a lot of sellers are staring down the barrel at the same interest rates buyers are. What incentive is there to move aside from changing jobs? Most people don't want to fuck with the market and are willing to let rates fall before they do anything again.
No questions but thanks for your responses. Always enjoy reading your stuff.
Awww......thanks! I really appreciate that. Hopefully it's helpful to someone. I understand the real estate market and the entire home buying process is more than a little opaque. There are still way too many misconceptions about buying real estate.
What’s your take on ARMs now? Still too risky, or more likely than not rates will go down in a couple years?
Well there is a saying in the real estate/mortgage world - "Marry the house, date the rate."
I don't necessarily think ARMs are too risky, but like everything else, it depends on your specific circumstances. Right now they are a much better option than the 30-year fixed rate. I had clients close yesterday with 5.75% on jumbo money on a 7/1 ARM, which looked great compared to some of the rates I've seen lately.
TBH, I've been doing only fixed rate 30-year mortgages for so long now, I am going to have to completely reeducate myself on creative financing options. You should be getting guidance from a good mortgage lender who will help you understand all the options and choose the right one based on your circumstance. If the lender won't take the time so you feel fully educated on the process and your choices, you need another lender.
Also, people don't seem to be talking about assumptions right now, and I'm not sure why. An assumption lets you step into the shoes of the current mortgage holder and take over their loan at their rate. I just don't know enough about assumptions right now to give good advice, but you should at least raise it with your lender.
Problem with an assumption is they take 90ish days, has to be an FHA or VA loan currently, and you have to bring cash for the difference. I think it would have to be a much stronger buyers market for sellers to be willing to wait that long to get their house sold.
Good to know. I need to take you to lunch next week so you can educate me about lending options. I swear I've only done 30 year fixed conventional and some FHA, maybe a VA loan or two over the last 14 years!
It can be less time. I originate assumptions and my bank is closing in 35-45 days barring any crazy hiccups as long as we have responsive borrowers. That being said, we're taking more and more assumption apps and have only one underwriter on government assumptions currently so that could certainly slow down.
Also - adjustable rate loans out of their fixed period are technically also assumable, but those are certainly less attractive in this environment.
The extra cash thing is a huge downside - it's definitely a niche product and not for everyone.
Is that from when they first call or when they get to you? I have heard most people have 30 days from initial request to when they can get to someone to take the application.
Good point - and I know my bank is lacking in that side of things and a lot of the customer service side doesn't seem to know assumptions exist or how to get to one of the LOs who work them. And of course, the buyer has to work with the current servicer so that could be a delay. The closed assumption deals I've worked, for the most part, the seller reaches out to the bank as they are listing and I give them my direct info for a buyer to reach me so they don't run into trouble. I have no idea how many potentially assumable loans wound up just being a normal purchase because no one could find my team.
Yes I forget which bank it was but someone said it took a month of calling customer service to get even transferred to someone who knew what they were talking about and then that person said the first application appointment would be in 35 days, and 60 day processing time. Yikes. I do think they’re a great option for transactions between family members, divorce, things like that where there isn’t quite as much of a timeline. There’s just a ton of agents out there talking about “mortgage lenders don’t want you to know this ONE TRICK” on Facebook and it’s not quite so simple all the time. Good info that some servicers aren’t as much of a mess though. I helped a client with one back in the day where he needed a co signer and then assumed the loan to get his dad off and I am 100% sure the delays with his servicer were on his end with turning in documents lol
Is rent going to go back down or is it a situation of once it’s out of the box it can’t go back in?
For rent to go down you'd need to decrease demand for rentals OR increase supply of rental units.
On the supply side, they keep building more apartments. I mean, just Scott's Addition and Manchester must have added 1,000s of units over the last 2-3 years. And I keep saying "There is NO WAY they are going to get $____ for a 1BR unit!" and/or "There is NO WAY we still need all of these apartments in RVA!" And guess what? I keep being wrong. People way smarter than me build more units, and they fill right on up.
NOTE: As an aside, if there is anyone out there who has counted up the number of units added to RVA's apartment inventory since 2018, or knows of a source where I could find those numbers, please share!
On the demand side, more and more people keep moving to RVA. The influx from Northern Virginia/DC ALONE is azy-cray. And many of the people moving in are coming from high cost of living markets - think NoVa, DC, NYC, the West Coast - and they may be making their high cost-of-living salary while working remotely here in RVA. So our rental rates look cheap to them. So unfortunately, for those of us from here, or for those of us who have been here a while, especially if you are making a normal Richmond wage, and not a NYC remote worker wage, these rental rate increases are putting rents in the core of the City out of reach. I mean, I don't understand why any one person would pay $2,000/month to rent an apartment. That's just crazy to me. But the days of $1,200/month 2BR apartments in the Fan is I think, sadly, over.
So it's not that rents CAN'T go down. It's just that we need to have an oversupply of units and/or a whole bunch of people moving out of Richmond.
I've lived in Richmond since the early 1980s. My older brother lived here in the 1970s. Sadly, there has NEVER been a time when apartment rents in the city decreased. There were some years when the average rent prices remained flat, so it can be argued that they decreased relative to inflation. Unfortunately, the genie is out of the bottle. I doubt that rents will ever actually decrease.
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Rent will keep going up. First of all the prices on everything have gone up, it's much much more expensive to do building up keep now than it was 2 years ago. Inflation effects everything. Taxes have gone way up and those get passed through to tenants. Labor costs have gone way up. Etc etc
On the other side there's a huge shortage of housing as people keep moving here.
Supply is going up and that helps but all it's doing is keeping rent from rising even faster than it otherwise would
Do you think the rising interest rates will force more people in Richmond to rent instead of buy, thereby forcing average rents higher? It seems like the original consensus was that rent increases would be flat this year.
Well, the rising interest rates will unfortunately knock some people out of buying a home, that's definitely an effect. I think what's forcing rents higher is (i) not enough rental inventory; and (ii) in-migration into Richmond. I saw something somewhere recently - how's that for a documented source! - that said the vacancy rate in Richmond was something insane like 2%. If that's the case, and there is more demand, because more people are moving to Richmond, rents will inevitably rise.
Another impact on rental price increases - I think it's a fairly small one at this point, although it could become a much bigger issue - is what were yearly rentals turning into Airbnb/VRBO-type rentals.
ETA: OK, property management is not my thing, but I hate saying dumb stuff like "I saw something somewhere" so I figured I'd do a quick Google search. This site - I don't know how reputable it is, but it is *some* data - says the average apartment rent in Richmond as of June 2022 was $1,459/month and INCREASED 14.3% YEAR-OVER-YEAR.
https://www.point2homes.com/US/Average-Rent/VA/Richmond.html
That's crazy. And creating huge problems.
The building I rent in got bought last year by a big nova firm. More than half the building is empty. They don't seem to give a shit.
They may be doing that on purpose, because they may want to empty out the building to renovate the units, to then put them back on the market at a much higher rate. Happens a lot when apartment buildings are sold.
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We have a huge structural shortage of rentals in Richmond. 5% is what I've always heard as the functionally zero vacancy number. 2% is just absurd.
A lot of stuff is getting built but it's getting filled up as fast as people build it.
We need to make it legal to build more housing. Not just the big five plus ones but the fourplexes sixplexes and duplexes and adus that people actually want to live in
How do you think we go about making that happen? I for one would love to put a ADU on my property but hear getting it passed through zoning is virtually impossible.
City is actually getting a lot more open on that I'm amazed. They are looking to change the zoning
What you can do is tell your city counselor you want to see it happen. Planning department wants it city council just has to approve it
This is such an amazing change in perspective from the city that my mind is boggled. Their old attitude was that they hated to see buildings built on empty lots in the museum district and fan and they have done 180° turn. It's amazing if we all keep pushing it will happen
Do you think it's the same in Chesterfield County? I talked to someone in zoning over the summer and he basically said none had ever been approved to his knowledge. That was mind boggling to me.
no clue, but I'd be very pessimistic in Chesterfield. None have ever been approved sounds like don't bother.
The city used to have that approach, and has now actually seemed to realize it's idiotic, and is permitting ADUs with SUPs, and moving to change the code. This is awesome for homeowners and for renters, which should make it a no brainer, so my mind is utterly boggled that it's happening.
So while I'd guess Chesterfield would be the very last place in the area to approve it, who knows? Stil call your representatives
When should I buy a house? I’ve got some money saved up, but real estate prices were scary in late 2020 and now mortgage rates are scary. First time home owner, 5 ppl, 2 kids, 3 adults w/ income.
According to an August 2022 article in Bankrate, the winter is the best time to buy a house.
https://www.bankrate.com/real-estate/best-time-of-year-to-buy/
That makes sense to me and tracks my experience, based on more "normal" markets, before we went into the white hot Covid market from June 2020-July 2022. Usually there are fewer people looking to buy in the winter, just because of the distraction of the holidays. There's also usually less inventory in the winter, but the people that are trying to sell are more likely to have to sell for a life reason - job transfer, death in the family, divorce, etc.
That all said, I feel like right now we are at the most volatile place we've been in the financing world in a long time. Are we at the height of the interest rate hikes? I don't know. Some people think there may be another rate hike, and then I've seen predictions that interest rates will come down into the high 5s by the end of 2023.
https://www.morningstar.com/articles/1106505/why-we-expect-the-fed-to-cut-interest-rates-in-2023
So I think it really comes down to what your family's specific needs are. If you don't buy are you going to need to renew your lease soon? If so how much will you be paying in rent? If you start paying a mortgage rather than rent, you are building wealth for yourself and your family. If you pay rent, you're building wealth for your landlord. An adjustable rate mortgage can also adjust down. And mortgages have no pre-payment penalties now, so if interest rates were to plummet, you could always refinance. That old "marry the house, date the rate."
Real estate generates wealth for you in three main ways - you build equity with your down payment + a piece of every monthly mortgage payment, you get appreciation, as the value of your home increases over time, and there is a tax benefit because the mortgage interest is tax deductible. [NOTE: With the increased personal deduction this is not a given anymore].
I think real estate is an amazing investment, and I've had success with real estate from well before I had any involvement in the real estate business, which is my second career. It's highly leveraged, meaning you can control an appreciating asset by only contributing a fraction - 3%-20% - of it's value in the purchase. It's forced savings. And you need somewhere to live. Why not own vs. rent?
But on your timing question, when should you buy, I wish I had a crystal ball. When you feel comfortable and confident doing so is probably the best answer.
Fed already announced more rate hikes are incoming, how many is what the question is.
If you plan on staying long term, but what you can afford. You may not be able to afford it later.
I 100% agree with the advice buy what you can afford. Do not stretch for a house. Make sure you figure in all the additional costs (utilities, a "slush fund" for unexpected repairs, and then another cushion just to be safe, like for increases in your real estate taxes or homeowners' insurance premium). The general rule of thumb is you should not be spending more than 30% of your gross income on housing. But if you have huge student loans, or major childcare expenses, or love to take expensive vacations 2x a year, you may need to spend less than that 30% rule of thumb. Whatever you do, just make sure you are not going to be house poor. That's how things go off the rails.
Is it 30% gross, not 30% net?
From a lenders perspective they rate debt to income on gross
I thought it was 30% of gross, but certainly 30% of net would be more conservative. It's really only a rule of thumb, so you have a rough way to measure. At the end of the day, what are you comfortable with?
I watch listing for fun. We won't be ready to seriously look to buy until sometime next year.
I am not seeing sellers dropping list prices on new listing yet. I assume they are still in the denial stage of grief for the market change.
Are you also seeing a lack in dropped listing prices? Talking sub $600k listings
Watching real estate for fun is actually one of the reasons I got into the business. :)
Actually I feel like I am seeing a LOT of price drops. Some of that may be the sellers are in the denial stage of grief, and are forcing their agents to list at the now-aggressive-price that might have flown in May 2022, but ain't flying in October 2022.
But I think new construction projects are probably a good indicator, since they are building a whole bunch of very similar product. The Outlook at Brewers Row (I think that's the name, I can't be bothered to look it up, sorry) has had a number of price reductions. I am also getting video messages from the sales office people - "send your clients this weekend! We'll do everything!" AND some builders are even offering bonuses. So I think the market is definitely softening, especially for something like that, which is a commodity product.
But if you are looking for a $600,000 single family house in Westham, and something completely renovated came on the market, I suspect there would be multiple offers waiving contingencies.
So the most desirable locations in move-in ready condition are still commanding tip top dollar. And that's a reflection of the fact that even though the market has slowed down a bit, we still have an inventory shortage.
Knowing you don't have a crystal ball, just going by gut instinct. Do you think come spring, if rates are still higher, buying new constriction will be the best decision price / investment wise
No. Here's my reasoning:
If you are buying new construction in a still-to-be-built-out project, the new units will always be more valuable than your unit. Here's what I mean. Say I bought a unit at the Libbie Mill townhouse project in the first phase of the project. Say the total project has a 2-4 year build out. What happens if you want to move in Year 3? Isn't someone going to buy a brand new unit, rather than your unit?
I guess it's possible the entire project could increase in value, such that the new units have increased so much in price over and above what you paid that even at a discount to the new unit price you'd be making more than you paid. But the other issue is timing. How are you going to sell your (used) unit unless it's cheaper than the new units? And how much cheaper does it have to be to be "worth it" to not buy new?
Maybe I am not thinking of this correctly, and I freely admit I have not sold a lot of new construction. But I did represent developers who did a number of condominium conversions in 2006-2010, and we definitely experienced that. If there was a "new" unit available, and an existing owner wanted to sell, they needed to provide a pretty significant discount relative to the new unit.
But for people that want new construction that's a personal preference and it might be worth it for those reasons. And if you plan to be there 5+ years, beyond the build out of the whole project, maybe it doesn't matter.
Yeah the plan is for our next house to be home for 20+ years barring a major life change
Yes I'm in what I call my "carry me out in a box" house. 😆 I do not plan on moving.
I know inventory is a bit sparse right now, but how much of that do you think is due to a market shift vs regular seasonality or the insane market earlier in the year pulling sales forward?
I'd also be interested in your informed guess about whether or not spring will bring the usual uptick in listings. My wife and I are getting our ducks in a row to buy and it would be nice to have a bit more selection (and some more competing listings to make sellers more willing to negotiate).
I think the inventory right now is sparse for all the reasons you named: market shift + normal seasonality + higher than normal sales activity since really June 2020.
We should see the normal uptick in listings in the Spring. Even if it's not as much as it's been in the past in a "normal" Spring, I just think we will have more to sell in the normally highest volume sales season. I guess if there is some insane world event, that could change. But I find it hard to imagine what that could be, absent something truly horrible that arises out of the Ukrainian war.
Keep in mind, while you will have more selection in the Spring, you will also have more competition in the Spring. More buyers will be out looking to buy, so more inventory doesn't necessarily translate into better negotiating power. Winter is typically when buyers have the most leverage over sellers, because generally buyers selling in the winter market really have to sell for some reason - death in the family, divorce, job relocation.
There's going to be a weird stall, not clear how much it will affect the spring Market but it's definitely there. Basically a huge amount of sellers are trapped by 3% mortgages. It's just not going to make any sense to sell out of those for a lot of people
And the building recession is already hitting tract housing so people are dialing back hard on supply
What area do you think will grow the most in the next 5/7 years?
Grow the most in terms of added housing units?
North of the River: I think all of "Greater Scotts Addition" which according to the City planners is now everything east of Arthur Ashe Boulevard, north of Broad, all the way to at least Lombardy, maybe even Harrison, including the Diamond District, the Sauers' parcels, and everything going up around Hardywood Brewery on the Hermitage corridor all the way over to Brook Road (Northside).
South of the River: Manchester/Blackwell. Every time I go over there I am amazed, it feels like someone has just plopped down another 10+ story tower. Unfortunately most of what is going up in Manchester/Blackwell seems to be rental, it doesn't seem like there are many for sale units. I'd really like to see more condos/townhouses/houses, not just rental. [NOTE: I could be wrong on that, the amount of "for sale" stuff, I am much more immersed in the north of the river neighborhoods because that's where I grew up and currently live].
But these are not the most undervalued neighborhoods IMO if you are looking to buy, if that's what you are asking. For that I'd pick Randolph and Maymont (North of the River) and Blackwell and Woodstock (South of the River). I also really like Hammond Place and Rosedale in Northside.
Yeah I live on the Randolph side of S Meadow and I have no idea why it's still so seemingly overlooked considering proximity to the Fan, etc...
I think it's the totally different home styles compared to surrounding neighborhoods. Doesn't have the typical Richmond aesthetic.
That's a good explanation. I also think people must just not be aware of it. I mean it's literally in the middle of all the parks next to the fan in the middle of the city. The location just kicks butt
I have no freaking clue the location is amazing for the price and nobody looks. Okay prices have gone up a lot but they are still cheap for the location
I think with the restoration of the spring rock area and improvements slated for the Southside plaza area, Southside and even parts of N Chesterfield stand to be good places to see value growth. They will be building alot more units around here soon as well.
Adjacent to Blackwell is Oak Grove and I've been seeing more houses being built on empty lots, or old houses being torn down to rebuild on the land around here. Just within a 2 block radius of me there are 6 houses I can think of off the top of my head that are either new builds or remodels with another one under contract.
And of course, I must add, still no grocery store.
Yes, TONS going on in Oak Grove too. On the grocery store thing, another real estate saying, albeit from the commercial world, is "retail follows roof tops." I have to think with all the new apartment units going in, as well as the single family houses being rehabbed or built, there will be a grocery store in Manchester soon. I mean, how many units have come on line since 2020, and how many more are in the planning and development stage?
Totally agree though I still can't figure out whether Woodstock is Woodstock or woodhaven.
Randolph-maymont has gone up a lot but it's still way underpriced. I haven't looked at City stadium for a while but maybe that too
That is super helpful, especially the undervalued city neighborhoods bit. Thank you! Any take on where you would buy if you were considering going out to the burbs?
Okay I know NOTHING about Chesterfield County. That's my partner's expertise, so can't help you there. Same with Hanover County, I just don't know it well enough to be value added.
Lots depends on budget, need for decent school district, etc. If you are looking at $300,000+ but need a good elementary school, I like Westhampton Annex. If you don't need a decent elementary school, I really like Bryan Park and the area around Westwood Racquet Club. But I also like older homes, if you prefer new construction you'd probably look other places.
Thank you so much for replying (twice) and being so helpful! I am house-hopeful and new to the area so I really appreciate the advice from someone with experience!
If you want to DM me your budget and your list of wants and needs, I'm happy to send you some thoughts. Welcome to RVA! Hope you are liking it.
ETA: Spelling
Randolph is a great option for in the city. Fulton may be worth a look as well.
Is it cheaper to build rather than buy right now? My dream is a tiny house and studio with trees and quiet, relatively close to civilization. I've got blueprints, looked at property, but haven't actually gotten a sanity check from someone in the industry. Pipe dream in this economy, or decent possibility?
And no I'm not wealthy. Single, two good income streams, vet, no kids. Not hurting, but not wealthy.
There are some folks on here that are much better sources of information for the construction cost stuff than I. For example u/Charlesinrichmond can probably tell you what current costs of construction are for something that is X square feet.
But it just so happens that I am obsessed with tiny houses, so I will share what I know. Of course everything depends on materials, and right now between Covid supply chain mess and the number of people who decided "Hey, I'm stuck at my house for the next 12 months, why don't I do that ____ project I've always wanted to do", construction materials are still through the roof. Like 3x and 4x what they were. I'm personally hoping that is calming down. Charles, is that wishful thinking?
Of course if you do something with a container, or do something like a 3D printed house, maybe the costs are way below this. But from what I was looking into a 750/SF "tiny" house could be built for somewhere between $125,000-$150,000. That's with a bathroom and a kitchen, not on a trailer, fixed in place. I am not sure what it would cost you to buy a lot - I'd say certain parts of Church Hill and Northside you can buy a lot for $20,000.
Does that seem about in line with what you've guesstimated?
It is calming down thank god. I've actually gotten a little obsessed with designing 600 ft houses lately we should go to dinner you and your SO might find the whole thing pretty interesting
I'm trying to get the numbers to work out at 50k without soft costs
Containers will put the cost through the roof. Lots don't seem to be going much below 35k lately on south side. Cava has bought up a lot of them which is pushing the price
Honestly it's pretty close. I was looking at doing about a 500 sqft house, one big room for living and kitchen, with a bathroom and loft for a "bedroom". Then another 500 sqft building just for an art studio/office. Essentially two of the same building, just one without a kitchen or bathroom. Both 3d printed and container have their benefits, but my happy place is lots of exposed wood and windows.
I rounded up on estimated building costs, and then figured 50k as a good budget for land with trees, though I think that might be wishful thinking for something close enough to Richmond that I can still say I'm "in Richmond". But I came up with what feels like a decent budget of 250k. Ideally, under 200k though. I think finding the right property is going to be a real challenge.
Glad to see I'm not too far off estimate wise. Makes me feel a bit more confident about the entire thing. Thank you, your wisdom is appreciated. And if you have any advice I welcome it!
I do a fair number of construction loans- more lately than before, that’s for sure, but enough to have seen a lot of bids from a lot of builders. I have had many people come to me wanting to do what you describe and have become somewhat of a dream crusher on the topic, so my apologies in advance but hopefully this is all useful info:
The first problem with building a small/tiny house is that some costs do not scale at all with size of house- the septic system for a 500 square foot house is not 1/10 the cost of the system for a 5000 square foot house, getting utilities to the site is the same no matter what, the well is likely the same (or if you are talking city utilities, the cost to hook up to sewer and water is the same for any hookup) and then tradespeople will all have a kind of minimum “make it worth my time to drive there” figure, so you’ll find the roof and framing etc won’t scale directly to house size either. I have not seen someone end up building anything that didn’t roll in on wheels for less than 285k.
250 you might be right there, if you can find a lot that both allows two buildings of that size and has access to public utilities, but keep in mind that you won’t be able to get a mortgage on such a project since mortgages require appraisals that show sold prices of comparable properties, which you probably won’t have. You also will have your resale value limited by the fact that future buyers will also have to pay cash, which knocks out a big part of your already kind of limited buyer pool.
I think something like this is mostly a passion project and something you do if it’s your dream and money isn’t an object- if you’re just trying to keep a 250k budget and want somewhere charming with some privacy, and don’t mind not having a ton in the way of creature comforts, I think if you keep an eye out you can find something that you would be able to get a loan on (or have resale prospects to people who need a loan) with some land in Varina
Dream crusher! :)
No, seriously, I'm glad to hear the information from a lender. I 100% agree, unless you can do this all with cash, you are better off buying a cabin/small house in [pick your location]. If you don't have to be in RVA and are willing to consider other locations, I'd suggest (personally) Fluvanna, Nelson, Bath Counties. Staunton is super cool IMO, as is Lynchburg.
Very good advice saved me writing it
250k ex lot is very easy to do. 250k with lot is doable in fact almost easy in the right situation but it has to be value engineered.
You should know that two buildings will cost much more than one building to end up with the same square footage
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One of the benefits to tiny homes is that, well, they're tiny. Often just two rooms consisting of living space and bathroom. Materials cost goes down quite a bit when you don't have a ton of interior walls, and you don't have to run plumbing all over the place.
I think the bigger deal is the inability to get financing. That means you have to do the entire thing with cash. However, if you buy a property with a home on it - like a cabin, or a small rancher - you can get financing.
Do you think that prospective homebuyers that did not take advantage of high 2% loan rates missed the boat considering that now loans are north of 6% and likely to stay there for a while?
Yes.
OK. I'm not trying to be an *sshole, I promise. And if you are one of the people who were waiting to buy, and missed the 3% rates, it can't feel good to hear me say that ship has sailed, but....that ship has sailed.
3% rates were INSANE and historically low, and likely never to be seen again. It was a result of the Greatest Depression since the 1929 crash. So it's a once-in-a-100-year type deal. The entire housing market in the United States crashed, because people who had absolutely no business borrowing to buy a house were borrowing on crazy adjustable rate mortgages, acting like the appreciation wave was going to go on forever, and using their houses as piggy banks to pay for fancy cars, vacations, whatever. Then the ARMS adjusted and all of a sudden borrowers were paying $1,000s more a month on their mortgage payment. Then the mortgage industry collapsed, people's homes lost 25%+ of their value, people were all of a sudden underwater on their mortgages, and the foreclosure wave happened.
But everyone needs to understand that was a mortgage lending-driven crash. It was the FINANCING that was completely screwed up. And yes, developers were borrowing money to build more housing, and that also came to a screeching halt when the mortgage markets fell apart.
The economy was so screwed up the Fed lowered the federal funds rate to 0%. And it stayed there until this year. Which allowed for major economic growth, and a resurgence in the housing market, and then the weird Covid-accelerated and manipulated real estate market and now.....the Fed is trying to put the brakes on inflation. And the only tool they have is raising interest rates.
So the crazy low interest rates = result of a 100 year event, 2007 market collapse.
And I understand that if you are 30 years old right now and looking to buy your first house, the 2007 collapse happened when you were 15, and you have only been an adult in the world of 3% interest rates. But that's not normal. It is in fact completely abnormal. 6% is actually historically pretty low. My parents bought their first house when interest rates were 12%. Of course, their first house cost $12,000. But that's a discussion for another day.
If we get to mid-5% rates anytime in the near future, I'd jump on that. Now there are going to be options for adjustable rate mortgages ("ARMs") that offer rates somewhere in the 5s and they aren't "evil," they are a tool, so long as you understand what they mean and how they work. Another option may be an assumption, which allows you to assume the seller's mortgage and whatever their interest rate is. I need to educate myself on how assumptions will work moving forward. But I'd certainly raise it with my lender.
Reading this only makes me feel better that we sold our house and built new last year. We had initially thought about waiting a few more years but then circumstances came together and we jumped on it. We locked in a below 3% rate and we never would have been able to afford what we have now if we had waited another year or more with rates being what they are.
On the flip side, we bought our first house in 2006 and got hosed when the housing market collapsed, selling it for a significant loss in 2014. So this sort of made up for it.
You can't time the real estate market any more than you can time the stock market. Sorry to hear about the 2006 house purchase, but you probably got into new for around 3% for 30 years, which is amazing. So hopefully it all balanced out.
We ended up at 2.875 and had it not been for a couple small material construction delays we probably could have gotten it slightly lower. We’ve done a few refi’s over the years on the other houses we’ve owned and while they were relatively easy I’m glad to not have to deal with that down the road either.
I’ve run the numbers for curiosity sake and our payment would have been roughly $700 more a month if we locked in at today’s rates. And that doesn’t factor in the higher price our builder is now charging for our model.
FYI from a former lender - assumptions have to be built into the note when the loan was first taken. Most people don't think then about having assumability so its not very common. A buyer would also only be able to assume remaining balance. So that means a higher down payment to cover the difference
I believe at least FHA loans now have that assumability built in. Not sure about a regular conventional. But I did forget you can only assume the balance, so you'd need to be able to bring a chunk of change to closing.
Ah, yes, I have a feeling I will be doing lots of education with lenders in the not-distant future, to re-learn all the stuff about ARMs, and assumptions, etc. It's been nothing but 30 year fixed rate deals since 2008.
Another important part to consider - if the loan has been modified, it's no longer assumable. So many people did long covid forbearances and modified the loan to tack the balance on the end, which prevents that loan from being assumed.
Thanks for the incredibly detailed response. I was thinking more of my nieces and nephews with this question - we are incredibly fortunate enough to own our home outright.
The equity in our home is equal to the value we bought it for. Any suggestions? We don't really want to take on anymore debt.
I don't think I understand your question. What did you pay for your house? How much did you put down? And lastly, how much do you owe on the loan?
Ten-ish years into a 30 year loan. Can't remember what we put down, probably around 10k. Now our equity is equal to the amount of the original loan 190k. Would we be wise to get an equity loan? Is there anything we should change or just stay the course?
People in general should not get home equity loans. It's a path to wealth destruction
If you are 10 years in you have a good rate keep paying off your loan, 20 years and you will be mortgage free which is a great thing
One should never apply Modigliani Miller or any variation to one's own housing without a deep understanding of what one is doing. And arguably not even then
Okay just trying to make sure I understand. You paid $X (unknown) for house, You put $10,000 down, your original loan was $190,000. You've probably paid down $40,000 on that $190,000 loan. You're saying the house is now worth $X, which gives you $190,000 in equity.
Your question is: What should you do?
IF YOU ARE DISCIPLINED: I'd consider getting a home equity line of credit ("HELOC") against the equity in your home. Basically that is a line of credit - like a credit card.
BUT......
I personally would only do that if you are disciplined, won't use it, it's only there for some unforseen emergency. Because you are effectively using the equity in your home as a potential credit card. And the interest rate will be prime + points, so it's like a credit card interest rate. This is exactly what got people in huge trouble in the 2007 recession.
But in an uncertain financial environment it can be a positive to have access to cash if you absolutely need it
Talk to your financial advisor, if you have one. And if you will be tempted to use a HELOC for wants, rather than needs - new car, vacation, etc. - don't even open the door.
good theory, but didn't they shut down a lot of HELOCs in 2007 right as people needed them? I feel like they can be called or frozen, though a long time since I've seen the language. But banks don't want to be handing out bad credit puts.
I kind of think Helocs should be illegal.
You are exactly right, banks did close out HELOCs during the crash. Which was probably smart, if you are a lender you sure don't want people spending more money from their "equity" if their house is already under water.
I think there is a time and place for HELOCs, like for home renovations, but they are certainly VERY dangerous if they are not used responsibly.
yeah, and the average person uses them for bad things from my observation sadly
The main question you need to ask yourself is: "What would I do with the money?"
If the answer is that you would purchase a new car, go on lavish vacations, and just simply spend, spend, spend, then the answer is no, you probably shouldn't touch the equity in your home.
If the answer is that you would like to take equity out of your home to reinvest and make more money, then that's certainly a viable option. HELOCs can be a great tool for building additional wealth, especially through real estate.
I recently utilized a HELOC myself when purchasing/renovating an investment property, and I have no regrets. The new equity I created by purchasing and fixing up the house far exceeded the amount of HELOC I withdrew. Not to mention, it's a good cash-flowing property.
I have money for a down for a good house but somehow am told I can't afford anything. thoughts?
What specifically are they saying? Is it because of credit - your credit score is too low? If your credit score is below a certain number you won't qualify for financing. Is it because you have too much debt relative to your income? There are limits on the debt-to-income ratio. Is it because you can't afford a house at a specific price point?
I need to know more about your specific situation. I will say a good mortgage lender should be telling you why you don't qualify, AND helping you come up with a plan to get qualified. Maybe you need to pay off some debt. Maybe you need to clean up your credit report. Maybe you need to have a larger down payment. A good lender will make sure you understand your issues and have a plan to fix them.
It's just my income lol... Ive got more than enough to do like 25% down on a lot of the lower end houses... I only make about 45k a year
Well if there are no credit issues your lender should be able to tell you how much you qualify for. It may be that the price point you qualify for is below what it is you want to buy, but under your scenario you should qualify for something, especially if you have cash on hand for a deposit.
Have you tried calling Housing Opportunities Made Equal ("HOME")? They have programs to help you get into a house, including free down-payment or closing cost assistance. At your income level you should qualify for some of the income-restricted purchase programs. Unfortunately there are not enough houses available in these programs to meet the need, but programs do exist.
I'd really suggest reaching out to HOME.
Yeah ill look into it. Trying to find a home for my homeless mom and brother :( both are disabled i just can't live with them full time ill loose my mind. Hoping I could find a duplex or something to buy
Well good for you for stepping up and taking care of them. They are lucky to have you.
I'd say your best bet for finding an affordable duplex would be in Church Hill, parts of Northside, or perhaps Manchester/Blackwell/Oak Grove. You might also ask your lender if you found a duplex, and your Mom and brother were going to pay rent to you for their unit, whether that income could be counted towards cash flow for the multifamily building. Especially since disability payments are guaranteed. It's certainly a unique situation. But if you could count them paying rent to you, it might increase what you could afford to buy. Good luck!
I wish I could just buy the duplex im in right now in northside even though its a POS. Says its worth 300K+. Very VERY VERY obvious that it needs a new roof all new windows among other things. I enjoy the house and area I just don't want to deal with another move lol...
Have you asked your landlord if they are willing to sell? I've known more than a few people who have ended up buying the rental property they were living in. Sometimes in uncertain times investors will want to do some profit taking. Of course this will NOT work if you are renting from an institutional landlord than owns 100s of units. But if you rent from an individual, it's certainly worth the ask.
I own a house already, but I constantly see my realtor friends say “buy now! it’s not going to get better” but the market has to come down or people will stop buying. I guess interest rates are going back up so maybe that’s a good reason.
Yeah, my "buy NOW!" guidance was directed at my first time buyer clients that wanted to buy, were qualified to buy, but were being very, very picky. I've got clients that could have bought a house with 80% of what they wanted, but passed multiple opportunities in order to find the PERFECT house. Which Does. Not. Exist. Now they will have to pay 3% points more on their loan, which adds about $1,000/month to the payment on a median priced home. Now they can't afford anything in their preferred area, unless it's a condo.
It's frustrating because I really do believe in the benefits of homeownership. Not only as a wealth building tool, but also emotionally, knowing that you own your own home. And it''s not because I'm a real estate agent. If you buy something you can afford - do NOT overspend for a house, ever! - then homeownership is the most consistent path to wealth creation.
If you're still answering questions, I'm thinking of selling and leaving RVA but I'm unsure if now is smart. I don't live in a popular area (outer edge of church hill) but my home is a starter home so sub 225k and only 3 yrs old. Or if waiting until spring would be better.
Here's the pros/cons of selling now:
PROS: Less inventory available than there will be in Spring, especially in the entry level price ranges.
CONS: Not as many buyers due to the season, but also due to the interest rate rise. And that's compounded by the fact that first time buyers are the most sensitive to the impacts interest rate increases have on their buying power. It directly erodes their buying power.
That said, the Fed has already signaled they are going to increase interest rates again. So the problem is getting worse, not better. Yet another real estate saying: The best time to sell was yesterday, the next best time is today, and the worst time to sell is tomorrow.
My recommendation is do what you feel most comfortable with. Some of that may tie into how badly you want to get out of RVA. Know that rates are likely to increase again, and while we are predicting impacts, making our best informed guesses, they are just that. We unfortunately have no crystal ball.
spring will almost always be better for sellers. The rule of thumb was always be on the market when the azaleas are blooming.
I have to say I disagree this year, with the already signaled rate rises. I think upper level price range stuff - $700,000+ seems to be about the break point - will be better to wait until the Spring, but stuff that is in the first time buyer price range might be better off selling sooner rather than later.
It's certainly going to be interesting to see what happens. I am assuming the investors are waiting on the sidelines with baited breath.
sooner even with 30 year rates already at 7? I don't see them going that much up from here, 8 would be the worst and I'm not sure we see that. So why not wait for more buyers?
10 year is 4.01 I note. So room for yield spread compression
National median sales price for single family homes hit peak this June at ~17% YOY.
They have been declining month over month for several months, currently down 8% from the peak.
That's a 35k drop in 3-4 months according to redfin data.
Point to note, this allows salespersons to say that home prices are "going up this year" in the sense that YOY price is still currently positive - until and unless it's not. They are not meaning that if you buy now that your home will appreciate between now and end of year, as that was not the case for anyone buying around June.
Land prices falling nationally 5-10%
https://twitter.com/rickpalaciosjr/status/1585680442463690753?s=46&t=HMMF6XB1hN-Obqhc08f60w
Major banks all projecting decline in home prices through 2023 of 5-10%
https://www.deseret.com/utah/2022/10/11/23397389/housing-market-predictions-2023-crash-bubble-recession?_true
Make of this data what you will.
5-10% is totally believable, and used to be downright normal. Also puts us only back to may of 2022 pricing or something ridiculous
Would love to know what’s up with fan duplex prices. Have one that was for sale pre market, and long story, ended up getting two offers full asking price but didn’t sell it. Felt like it was priced wrong but there are no comps 🤷🏻♀️
Edit: it never went fully to market. Our agent found off market buyers. First contract didn’t work out due to buyer financing, second one we got cold feet.
Ah! My area of expertise! I do lots of Fan stuff, live in the Fan and have sold bunch of multifamily both for and to my investor clients.
There are lots of Fan duplex comps. Why do you say there were no comps for your duplex? And unless you have some very specific reason you need to sell off market - which is possible, don't get me wrong - you will not maximize your return unless you put the property on the open market.
no comps?? That doesn't make sense.
Fan duplexes are hot and sought after. They have been so since 2012; They will remain so.
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Thanks for doing this! I’ve been renting for a while and lived in the same house in Lakeside for the last 3 years. We moved here because the rent was cheaper than our one bedroom Museum District apt at the time. Our landlords have been gracious enough not to increase rent at all for 3 years but let us know that when our lease is up to renew in June 2023 that it will increase. We are paying at least $500 below each month what most houses are renting for around us. But we’re itching for a bigger space that is our own. My fear is that we’ll end up with rent high enough to be a monthly mortgage payment if we renew but that we don’t have enough time to start the process of looking to buy. OR that it’s still not the right time. If any of that makes sense after my rambling, advice/opinions would be appreciated. First time buyers. Do we a) stay put, pay more in rent b) start looking to buy by June or c) wait it out til June, ask to go month to month while we search?
Here is my deal: If you know you want to buy, why not explore what would be required to do that? You could have guidance from 1-3 lenders (more opinions = better than fewer opinions!) by early next week. The lender is really the person that's going to tell you whether buying by June 2023 is do-able. Finding a house is the easy part!
And honestly, especially if you have a pretty clear idea of what you want, finding a house takes way less time than you expect. And it sounds like you are blessed by a kind and reasonable landlord. They might be willing to let you go month-to-month if it took you longer than June 2023 to find a house.
Working backwards, 45 days is plenty of time to get from contract to closed. So if you needed to be out of your rental by no later than May 30, that means you have to have something under contract by April 15. That's eminently do-able.
November to April is plenty of time to find a house to buy. You just have to decide if you are ready.
ETA: Spelling
don't worry about the market, worry about your own life. When it's time for you to buy, and you find a place you like that you can afford, buy it.
You have plenty of time. June is 8 months away. Thats a huge amount of time.
And yes, rent will continue to go up
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I don't have a question, just wanted to say I very much enjoy your point of view and appreciate your posts!
Awww...thanks so much! I really appreciate that. I personally find real estate fascinating, hopefully the local insights help some people.
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Without checking the numbers 7% is pretty close to a normal interest rate over the last hundred years.
The big issue is that prices jumped up on insanely low 3% money. At 7% the prices make much less sense but there is no obvious path to force sales. It's going to be really weird for a few years and very fascinating
Here's the last 50 years https://www.valuepenguin.com/mortgages/historical-mortgage-rates
Because that's what 30 year fixed is at RN.
I’m new to the Richmond area and not sure if you can speak on this. Just wondering what yours/other locals think is the best area to buy a house? Where can you get the most space/safe neighborhood/good schools for a decent price? Or any areas that should be avoided?
I can't speak to "best" neighborhoods, or to crime and relative ranking of schools. On crime, go to the Richmond Police website and look there. You can also look at statistics by precinct. On schools, you have to go to some of those sites like "Good Schools," or ask parents on the /rva subreddit what their opinions are on the topics. Real estate agents can't give you that kind of subjective information.
On most space or best value or something like that, I can tell you some neighborhoods I feel are undervalued and a bit overlooked in this market, like Randolph, Carillon, Maymont, Rosedale - all north of the river. But you will get best advice by figuring out your "must haves" vs. your wants and needs. Things like what your budget is, how much square footage do you need, how many bedrooms and bathrooms, do you have to have a big yard for dogs 🐕 or kids - those are the objective terms that will drive your home search.
Perfect! That was extremely helpful. Thank you
You're welcome!
Will real estate agents stop being so greedy and annoying and cold calling/knocking/texting us to list our houses?
Can't speak for anyone else, but I do not cold call, text or door knock. I might send a mailing or a note to someone who has been in their house for X+ years in a particular neighborhood, but hopefully that's not terribly offensive.
I am not going to rag on my colleagues that do cold calling and door knocking, but it's not something I'm good at or comfortable doing, and I wouldn't want someone to do it to me. So I understand your comment. Fair.
I honestly don’t know any Realtors doing this and think they may be confusing Realtors with investors and wholesalers. Those people who call and text and ask if you’d consider selling your house are usually not Realtors.
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Real estate agents are kind of dumb trash and I am one so no they probably won't stop. The market is slowing and they know business is going to dry up so they're doing everything they can to pad their sales pipeline. It's going to get worse before it gets better.
Sillloc t1_iu59nvy wrote
From what I've seen (not a ton for what it's worth) it looks like the market is beginning to cool and I've seen some houses selling for less than asking instead of 50K over asking.
Is this in line with your perception? Do you expect house prices to fall in the coming months as the Fed continues to hike rates?