What Happended to All the Affordable Housing?

Hello Hampton Roads,

What happened to all the affordable housing?  A recent conversation with one of my lender partners had us lamenting the fact that affordable housing in Hampton Roads is scant leaving many entry level home buyers willing but unable to buy.  We've seen an unprecedented rise in home values across the nation since the start of the pandemic.  Nationally home prices increased 45% in two years--the fastest increase recorded in the history of Case-Shiller index.  For the Southside of Hampton Roads, the median sales price of homes in December 2019 was $250,000.  Fast forward to August 2022 and the median sold price was $322,500.  This is an increase of 29%; incomes didn't increase 29%, hence we have an affordability gap.

What Happened to All the Affordable Homes?

So what caused the run up in prices?

 A trifecta of  the following:
  1. More cash for households and juicing the economy. For households think stimulus checks and expanded unemployment benefits and for the economy think of the $6 trillion the Federal Reserve poured into circulation from March 2020-March 2022 by buying treasuries and mortgage backed securities. 
  2. Low exisiting housing inventory.
  3. Extremely low interest rates (think cheap money).  During Covid, the  Fed cut the federal funds rate to a range between 0% - .25% making the cost of borrowing money extremely low. 
Covid stimulated the demand for telecommuting and more socially distanced housing in suburbs away from densely crowded cities.  Demand for housing increased prices due to a combination of sellers expecting and getting higher prices and buyers acting in the fear of missing out (FOMO).  But this can only last for so long--there's a saying that the cure for high prices is high prices.  In other words people are bound by what they can and are willing to pay. 

What's happening now?

Long-time readers know that the Fed is on a mission to cool the economy by lowering inflation.  When the Fed stopped dumping money into the economy, it began the steady and swift rise of increasing the federal funds rate which makes borrowing more expensive. This is seen in the rapid rise of mortgage interest rates in this year.  Consider that the 30-year mortgage rate in the beginning of the year was in the low3's and it recently reached a 15-year high last month of 6.7% according to Freddie Mac's primary mortgage market survey.

When interest rates go up, home prices go down.  It's a matter of supply and demand.  At a lower interest rate, buyers are able to afford more house for the money, but as rates rise their price range and buying power drop.  Fewer buyers means less competition and sellers see home prices taper.  For the most part year-over-year prices are up but median sold prices, compared to last month, are down. 

While this is a welcome breather for home buyers, the seller's market has cooled but is not gone.  We are still in a seller's market with the best homes still selling quickly and in many cases, still over the list price.  The market is shifting, but we are still not in a buyer's market. 

What's a home buyer to do?

Based on what I'm seeing locally and reading about nationally, home prices are and will continue to level off and homes will become more affordable.  How much prices will drop is yet to be seen, but I don't expect a housing like bust like we saw in 2008 simply becuase lending standards are tighter now.
As a home buyer today, there are several things you can do to put yourself in the best position to be able to buy:
  • Plan early and take a free home buyer class
  • Get a free copy of your credit reports from each credit bureau and address any discrepancies on the reports. 
  • Find out your credit scores.  Most loans and first time buyer programs require a minimum score of 620; while it is possible to get a loan with a lower score there are stricter requirements such as a higher down payment and or a higher rate. 
  • Find out if you qualify for any special financing programs for down payment assistance or closing costs assistance.
  • Save money for your cloing costs and other fees like appraisal and home inspection.
If you'd like help with any of the above and want to put together a road map specifically for you to buy a home, schedule a free strategy call here: https://calendly.com/liz-schuyler

Thanks for Reading,


Thinking of Buying a Home in Hampton Roads?


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