This article was originally published 8/12/2020 in the Charlottesville Area Association of Realtors Real Estate Weekly.

Covid19 and the real estate market have a lot in common.

Two basic factors control the spread of Covid19: increasing the physical distance from the virus, and avoiding exposure to anyone while they are contagious.

Space and time.

These same factors impact the real estate market.  Is now the right time to buy or sell, and what kind of space do I want in my home?

Time and space.

“Covid19 as expected took a toll,” reports Michael Guthrie, Broker/CEO with Roy Wheeler Realty Co., referring to Central Virginia’s residential real estate market.  “The second quarter has ended and as we promised in April, the number of sales dropped dramatically (15%) in comparison to the same time period in 2019.”

Low inventory makes it difficult to have high sales numbers.  But the real estate profession has responded quickly to encourage sellers by creating a safe selling environment.  Meanwhile, low mortgage interest rates are enticing buyers to forge ahead.  Together, that has buyers, sellers, and agents feeling optimistic about the remainder of 2020.

Changing the Business Model

Open houses have become a rarity.

“The days of cruising around looking for open houses are over, at least for now,” says Paul McArtor, REALTOR® with Avenue Realty, LLC.  “The only people out looking are serious buyers, resulting in sellers having fewer showings with the same number of offers.  Now a house in a popular neighborhood may still get a ton of showings, but the casual lookers are staying home.”

That’s just one of the changes.

Area REALTORS® have pivoted to get buyers all the information they need with none of the exposure.  Buyers rely more on pictures, videos, and online information to filter listings down to just a few properties to view.

“Buyers are approaching the transaction a bit differently than before,” says McArtor.  “With UVA, the hospital, and the military, this area has a strong demographic of people forced to move periodically, so the demand for housing is still there.  But lots of house hunting trips were canceled.  Many buyers either find properties online and have their agent do the walk-through or they pull into town, check into a hotel and stay until they close.”

Jamie Waller, REALTOR® with Loring Woodriff Real Estate Associates, says, “More homes are empty, as sellers who are able, vacate the home prior to putting it on the market.  And for all homes, every closet and cupboard door is open and all lights are on so the showing is as contactless as possible, thereby reducing the risk to the seller and prospective buyer.”  Add in masks, hand sanitizer, and foot coverings and a home viewing is a pretty low risk endeavor.

Falling Inventory and Interest Rates

“Interest rates and inventory are crazy low,” says McArtor.  “Charlottesville has had a shortage of properties under $400K forever.  The shortage is pushing into higher ranges now because if people don’t have to move, they’ve decided to take a wait and see approach.” 

Keith Davis, Partner/Principal Broker with Nest Realty Group, agrees. “There has been no shift in buyer attitude.  There is a strong demand, but sellers are nervous.  They don’t want strangers traipsing through their homes.”

“A lack of inventory is the biggest problem buyers face,” notes Waller.  “There are certainly shortages of homes in the $700K plus range.  Homes are moving fast, and most are going for the full ask.  For sellers that are willing to brave the market, the last few months have been great.  It’s a seller’s market, especially in places like Glenmore and Wintergreen.”

But that doesn’t mean it’s all bad news for buyers.

The best news is that the mortgage interest rate is hovering near historic lows due to monetary policy related to Covid19.  Not surprisingly, mortgage providers are seeing incredibly high volume.  Jay Domenic, Branch Manager at Movement Mortgage, says, “We’re seeing record month after record month.  Some of that is refinancing, but the purchase volume is also remarkably high.”

Covid19 has also impacted mortgage underwriting.  “The industry’s immediate reaction was to require higher credit scores.  That has eased some.  But there are precautions due to the volatile employment environment.  We used to verify that borrowers were still employed 10 days prior to closing.  Now we verify employment at the same pay with at least the same number of hours within 5 days prior to closing, and then again within 48 hours of closing. Unfortunately, some buyers had to hit pause because they were furloughed.”

Borrowers may also experience a bit longer process because Covid19 has slowed down everything from appraisals to title searches.  But the low interest rate can help buyers afford more home than in a higher interest rate environment.

Another silver lining for buyers is that new construction was only mildly affected.  There were very few delays.  Guthrie reports that 19% of homes sold in the 2^nd quarter were new construction, up from previous years.  These closings took place prior to Covid19.  “We project builder closings will once again be strong in the 3^rd quarter because some of the contracts were signed in March and April before tighter restrictions were put in place.  Additionally, model homes were easier to show because they are vacant and many of the builders already had the virtual online showing feature in place.”

Rethinking Location and Design

Quarantine is both a spatial and temporal buffer.  An emerging impact from Covid19 is how this current experience of quarantine and physical distancing inspires buyers to rethink where they want to live and what they need in a home.

Davis says, “We are starting to hear buyers say, ‘If our house has become work, school, gym, and home, we need a different space – inside and out.’  After years of urban growth and renewal, the pendulum is swinging and the interest in 2-acre properties is back.  Workers may not want a 45-minute commute, but all of a sudden, they’re looking at the exurbs to surround themselves with a few acres.”

One of the hallmarks of smarter growth in recent years has been the mixed-use development.  Suffering restaurants and retail establishments may undermine all the progress that has been made.  What happens if businesses in the neighborhood center close or have an uncertain future? Buyers will be less likely to seek out the density that comes with a mixed-use neighborhood.

As gyms closed, access to outdoors spaces became more attractive.  Room to exercise outdoors at home or a nearby park has moved higher on the priority list for buyers.  Fresh air, natural light, access to nature… all those things that keep us from feeling cooped up are increasingly important.  Creating an oasis from the outside world has moved from the ‘would-be-nice’ category to ‘how can we make this happen?’

How strong a push outward will there be from our urban centers in Central Virginia?   Davis asks “Do any of the neighborhoods close to town still work?  Or will everything have to be on larger lots further out?  Lochlyn Hill is over half-way through their buildout.  Will the lots remaining become more in demand or less?  Look at Earlysville and Free Union (in Albemarle County).  Both are having a great year because there’s plenty of room to spread out.”

Covid19 didn’t just increase the demand for more space surrounding the house; it’s different space in the house.  The number of people spending more of their day at home is triggering design changes.  With schools likely to include partial or exclusive online learning at least temporarily, and offices allowing more work from home, home workspace is at a premium.  In Davis’ experience, clients are saying, “Even if my workplace reopens, I still want to be able to work from home.  And so do my spouse and kids.”

In many homes, guest rooms are now offices.  Architects are drawing up plans with two home offices, and larger bedrooms. Flexible space that can be converted to accommodate whatever comes next, and anything that makes a home feel bigger is important now.  More functions are taking place by more people sharing the same space, and designers are figuring out how to keep everyone comfortable.

As long as there is no remedy for Covid19, people want to ensure their home stays virus-free.  Features that improve health and well-being move from being an afterthought to a must-have.  Informed buyers are paying attention to air filtration and exchange systems.  Sinks and changing spaces may move from the mudroom to the garage to keep contaminants outside of the living space.  Anti-microbial surfaces, larger windows, and amenities that enhance physical and mental well-being are trending upward.

The Next Wave?

Many health experts predict this fall and winter season may be as active as when the pandemic first hit our area in March.  If that’s the case, much of the jolt to the real estate market has already been absorbed, as long as the employment picture doesn’t worsen. 

The pandemic threatened to depress housing prices.  But Guthrie reports, “There was a nice surprise in that the median sales price rose from $314K in 2019 to $330K with only a slight change (57 in 2020 vs 53) in days on market.  Homes sold over $1,000,000 remained steady with 46 selling in the 2^nd quarter compared to 49 during the same time period in 2019.”

Many REALTORS® anticipate sales during the current quarter to look more like a normal spring market.  “Buyer demand is strong, especially because of the continuing low interest rates. What could prove this projection wrong is lack of homes to buy.  For example, in June, 508 new listings hit the market compared to 613 in June of 2019.”  Obviously, without homes to sell, sales numbers will go down.

Waller agrees.  “There is a subset of buyers that don’t have an immediate need to sell.  They are just planning to wait it out.  But buyers that are moving for work are plowing through.  If interest rates stay low, the demand will stay strong.”

The caveat in all this is that employment and businesses need to stabilize and shift towards the positive.  Tourism and hospitality are the lifeblood of this region.  If those sectors shut down again or don’t see a nearly complete recovery in a reasonable amount of time, there will be a downward shift in this area’s real estate market.  Guthrie says, “A spike in Covid19 cases could put a damper on things, especially if we begin to see people not being able to pay their mortgages due to not being able to work.”

While the future remains uncertain, we can take some comfort in how Central Virginia’s real estate market responded to the initial spread of Covid19.  Continued diligence and support for our neighbors throughout the area will benefit us all, whether homeowner, renter, buyer or seller.