Bacon's Rebellion

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Prospect for Virginia Housing Prices: Grim to Dismal

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by

James A. Bacon
in ,

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If you’re a homeowner hoping to see your house increase in value, or if you’re a local government looking for assessments and tax revenues to rise, Virginia is just about the worst state of the union to be in right now. According to a new projection of housing prices published by the Demand Institute, the price of the median house in Virginia will increase only 7% between 2015 and 2018, tied with New York for the third most abject performance in the country.

The lousy housing market for Virginia reflects the truly abysmal prospects for the state’s largest metropolitan region, Washington, which ranks at the very bottom of the list for the nation’s largest metros — an increase of only 3% over the three-year period. But it reflect weakness in the Richmond region as well, which is expected to see gains of only 6%. Hampton Roads is forecast to be among the stronger-performing regions, with 12% gains.

Some of the housing price rebound experienced in recent years has been driven by bottom feeding by institutional investors snapping up distressed properties to repackage as rentals, say Louise Keeley and Kathy Botjancic in “A Tale of 2000 Cities.” That force has largely played itself out. The prime driver now is household formation, which should snap back to 1.3 million net new households yearly, the report says.

Overall, housing construction will remain restrained. And the housing type will shift:

In every state … the number of single-family home completions will remain below the previous peak over the five-year period. This is to be expected, given that speculative fever pushed single-family housing construction well above what the underlying fundamentals could support over the longer term. By contrast, completions of multi-family homes will continue to rise in many states and remain at a higher share of total completions than pre-crisis, reflecting a shift in demand from owners to renters.

More multi-family housing? I’ll let you draw your own conclusions of what that means for the sprawl vs. urbanism debate.

— JAB

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13 responses to “Prospect for Virginia Housing Prices: Grim to Dismal”

  1. NewVirginia Avatar
    NewVirginia

    Falling housing prices are often a sign of a poor economy and will probably have a negative effect for a while. But they are not all bad… for renters and people attempting to buy houses, it means they are cheap and available. Additionally, many economists think that housing is still overpriced in many markets, even after the collapse, suggesting prices ought to fall. Perhaps this will serve as some relief for people struggling with the high cost of housing in Northern Virginia.

    Did you see this New York Times piece? It’s a fantastic look at our approach to homeownership and the perverse incentives that sneak their way in… like the urge to protect home values that leads us to protectionist policies that discourage new construction.

    http://www.nytimes.com/2014/05/06/upshot/everyone-wants-to-be-a-homeowner-why-not-a-foodowner.html?_r=0

  2. Breckinridge Avatar
    Breckinridge

    Yes, economic malaise is the new normal. It is showing up as well in the anemic state revenue, which may fall short of projections come June 30. Sorry, New Virginia, I don’t see much of a good side in an economy edging toward true deflation, which is by far a more dangerous situation than inflation. But it is one way to deal with income inequality.

    1. larryg Avatar
      larryg

      did you say liquidity trap? holy bat crap.

  3. Darrell Avatar
    Darrell

    Earlier this year the local news rag was highlighting how home prices were going up. That sparked a stampede around here of homeowners posting For Sale signs in their front yard. Now it’s May and those signs are mostly gone into hiding in the garage. Housing is not going to be ‘cheap and available’ unless the current owners throw in the towel and take what they can get for their underwater homes. They aren’t going to do that because thanks to Congress these homeowners will catch a huge tax penalty on their windfall. No, they will just sit on the property until they pay it down enough to cover their potential loss.

    1. larryg Avatar
      larryg

      anyone who really wants to know what’s going on with underwater homes needs to pursue a little IRS document called Collection of Debt.

      people do not realize it but when someone you owe writes off debt you owe – it becomes taxable income on your taxes.

      but never fear – the rules have been changed to “relax” that rule in most cases …if the mortgage holder takes the home back.. you do not owe taxes on the difference between what you owed and what the house was worth when the mortgagee took the house back and it involves a concept called recourse and non-recourse – another subject worth boning up on.

  4. larryg Avatar
    larryg

    making houses the core of our economy is dumb.

    why in the world do we allow more than one tax deduction for one house at a median price and cap the deduction?

    think about this. We won’t let you deduct health care expenses until they exceed 10% of your adjusted gross but you can deduct every penny of interest on a home, two, or three homes, and RVs.

    And we do not tax imputed rent either.

    these are tax expenditures – subsidies if you will.

    we used to allow interest to be deducted on cars. no more. good policy.

    why don’t we limit mortgage deductions like we do health care?

    isn’t it ironic that someone who has significant out of pocket expenses – basically has to be in near poverty to be able to deduct those costs – but unless they also have a mortgage deduction – they can’t even itemize at all.

    we have a screwed up economy because we basically subsidize home ownership – … that’s okay for one median priced house -but it’s downright idiocy the way we do it right now – and the irony is – it’s what led directly to the near depression … that we are now trying to recover from.

    and … it drives sprawl… people would be a lot more circumspect about buying a home in an exurban community if they knew it was not going to gain more in value than what they owed in debt for it.

    that would be a game changer.

    and let me remind those who call me a “leftist” that my views on subsidizing home ownership are yet another example of very “non-leftist” positions based not on left wing ideology but common sense fiscal conservatism. Why in the world do we subsidize home ownership?

  5. Greg Avatar
    Greg

    This trend I recently read on policymic.com doesn’t help, “The Class of 2014 Just Made History in the Worst Imaginable Way ” – the most debt from attending our universities.

    The New York Times reports a sound correlation between average debt and the plummeting number of 27- to 30-year-olds taking out home mortgages.

    http://www.policymic.com/articles/89551/the-class-of-2014-just-made-history-in-the-worst-imaginable-way

    It appears the ridiculously high tuition fees are costing all of us something.

    1. larryg Avatar
      larryg

      oh.. and I forgot about that…

      both non-refundable and refundable tax credits for college on Page 2 of the 1040 and that’s IN ADDITION to being able to subtract the loan interest from you taxable income on page 1.

      but the guy working a 40-50 hour week at a minimum wage job with no health care – can he write off his out-of-pocket health care expenses like the deductions and credits for college?

      nope.

      we have a tax system that grotesquely and arbitrarily favors some folks of some means and just totally screws the working poor who will never be able to afford a house or college – AND who are the bleeding edge of our current economy.

      We have “Whiners’ who have “underwater” mortgages (that’s the govt will ‘forgive” and we have the folks who live in double-wides and apartments and cannot deduct their own out of pocket health care expenses.

      sorry – the working poor had no role at all in the collapse of the economy but they sure as heck feel it.

  6. JohnS Avatar
    JohnS

    Looking at the study methodology it appears that the projected housing performance in the 2000 or so select cities was used to draw conclusions about the regional and state markets. For Richmond, I believe the cities selected were Colonial Heights and Petersburg.

    And now we’re back to the issue of Virginia being such an odd duck jurisdictionally. What conclusions can we draw about Henrico, for instance, you have to reconcile the far west end with the troubled areas in the east. Now take a crack at Fairfax and Chesterfield… yeah, it doesn’t really make sense to do this exercise in VA. So an analysis of “cities” or municipal performance- how relevant is that in Virginia? The OD is a strange bird indeed.

    1. James A. Bacon Avatar
      James A. Bacon

      John, obviously you dug deeper into the methodology than I did. (I confess, I did not dig into the methodology at all — that’s what commenters are for!) What is your basis for saying that the housing performance for the Richmond region was based upon Colonial Heights and Petersburg? What would be very strange indeed.

      1. JohnS Avatar
        JohnS

        I just perused the report (didn’t dig too deep really) and saw that CH and Petersburg were the two highlighted in the Richmond area.

    2. Acbar Avatar
      Acbar

      You’re right, conclusions based on the Clifton area of Fairfax do not apply in Culmore or Burke Lake or Hybla Valley. All I can say is that my eyes see the prices for single-family-inside-the-Beltway homes going up steadily, 20%, 30% or more this Spring, in older residential areas of northern Virginia like Arlington, Falls Church and Alexandria. There’s an inventory shortage still, also, with plenty of in-fill construction and even tear-downs. Clearly the price of commuting is high for young families wanting some face time over the dinner table. In that context, Larry, I agree, there’s no reason to induce sprawl by subsidizing home ownership relative to rentals.

      1. larryg Avatar
        larryg

        I keep urging people to get out and drive to older sections of urban, suburban and rural and look at the housing stock.

        it’s not your typical modern single-family detached – subdivision.

        It’s older homes – 40, 50, 60 years old – and older – kept in decent repair and often added onto and/or remodeled but they are in no way, shape or form McMansions nor McMansion wanna-bees.

        Many of them are completely paid for and so any change in valuation is “paper” not consequential to personal wealth or taxes.

        this is , by the way, the way that housing works in Canada who had no such near depression because of housing policies

        Our system is distorted and dysfunctional and we’re judging our “recovery” on how well we go back to the way things were before before we cratered.

        We need to get rid of the mortgage deduction – period.

        that, in turn, will knock out half or more of itemized tax returns

        remember – this is the guy that Bacon and DJ label as a “leftist” and both of them are apologists for the mortgage deduction even though Bacon talks the talk on the forces that drive sprawl.

        kill the mortgage deduction subsidy and watch our economy grow like it is supposed to and not be near as vulnerable to “bubbles”.

        tell me how many GOP and self-proclaimed “conservatives” who say they want a smaller govt – come right out and advocate for the removal of the mortgage interest deduction?

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