County Executive  |  Economic Indicators -- Housing Prices Under Pressure
   Albemarle County, Virginia

October 31, 2010     

Quarterly Economic Indicators


Prices in Albemarle’s housing market continue to face downward pressure as the result of an ongoing surplus in the supply of unsold homes.  As a general rule of thumb, a residential real estate market is in equilibrium when a five or six month supply of unsold homes exists in that market.  The term “equilibrium” means that prices are stable, with no tendency to rise or fall.  


In the case of Albemarle County, as of the end of FY 11 Q1, there existed an 11.12 month supply of unsold single family detached dwelling units, compared with an 8.76 month supply in FY 10 Q1.  Note that Q4 of FY 10 marked the end of the federal government’s homebuyer tax credit; the marked increase in inventory from FY 10 Q1 to FY 11 Q1 likely reflected the expiration of the tax credit, which essentially subsidized the purchase of housing.  The surplus of single family units for sale in FY 11 Q1 indicates that downward pressure on prices continues to exist in this segment of the housing market.  Single family detached homes account for roughly two-thirds of the County’s total housing stock, so this situation has broad implications for Albemarle.


In order to understand how this 11.12 month number is calculated, consider the information contained in Graphs I through III below.  As shown on Graph I, in FY 11 Q1, there were 686 single family homes for sale in Albemarle.  During this quarter, as shown on Graph II, an average of about 62 homes sold each month.  These numbers mean that, at the rate at which homes sold during the quarter, it would have taken about eleven months to sell all of the homes that were on the market, i.e., there was about an eleven month supply of unsold inventory, as shown on Graph III.

The downward pressure on home prices that persisted during the course of the past year is reflected in the Charlottesville MSA home price data shown in Graph IV, below.  The U.S. Federal Home Finance Administration’s Home Price Index (HPI) for the region declined by about 5% between FY 09 Q4 and FY 10 Q4.  It is worth emphasizing, however, that this FHFA data includes outlying counties, not just Albemarle, and covers only purchases or re-financings in which conforming mortgages were involved. 

These two quirks in the HPI numbers mean that (a) the data from the outlying counties, where the region’s housing prices, according to local Realtors, have declined the most, might be influencing the regional index number disproportionately; and (b) the HPI numbers likely do not include a significant portion of sales or re-financings that took place in Albemarle County, since Albemarle tends to have a larger percentage of higher-end homes than do the outlying jurisdictions, and the sale or re-financing of higher-end properties in many cases involves the use of “jumbo” mortgages, rather than conforming mortgages.

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