2005 Year End Market Report

2005 will be remembered in the Charlottesville area for two things – the once in a lifetime Rolling Stones Concert and a real estate market that, in the words of Mick Jagger, Shattered records. For the seventh year in a row, the local real estate market set a record for closed sales of residential properties. The 2005 sales figures ended the year 9.1% higher than last year’s record setting pace and prices climbed so fast that homebuyers were often heard singing that Stones classic You Can’t Always Get What You Want.

Transactions Closed
In the first half of the year, the residential home market ran like Wild Horses, but settled down in the second half and cruised to another record mark. Results by area are mixed with Fluvanna, Greene, and Charlottesville showing modest decreases in sales and Nelson, Louisa and Albemarle showing strong increases. Albemarle’s large increase in buyers singing Gimme Shelter is thanks to a very strong condominium sales, and Louisa’s swelling market appears to be related to the search for affordable housing. Nelson’s gain, on the other hand, is linked to the booming resort market that is sweeping the country as baby-boomers buy second homes.

Median Sales Price
The median sales price is a better indicator of what the “average” home in our area sells for than is the average sales price. Our area is blessed with many estates and homes that often sell for more than a million dollars. In 2005, for instance, 93 transactions were closed for over one million dollars. Such properties distort the average sales price figures dramatically. The median sales price, on the other hand, is the number that represents the middle of the market. 50% of the homes in our area sold for more than this price and 50% sold for less than this price. The median sales price for the entire market area in 2005 was $255,000 which is $30,000 more than the previous year’s figure.

New Listings
One factor that affects the DOM statistic is inventory. If inventory is low, then there are fewer properties for buyers to consider and properties sell more quickly. CAAR tracks the number of new listings that come on the market each quarter to help us monitor the inventory of available homes. The inventory shortage that has plagued our area for the past few years saw great improvement during 2005. As of early January, 2006, our database has 1,588 homes actively listed for sale. That is an increase of over 500 more homes on the market than this time last year. We can expect around 300 homes to be purchased in January. That means that there are roughly 5.3 homes available in the entire market area for each buyer. While this higher inventory will cause a minor slow down the pace of price increases, we are still 20-30% down in inventory compared to the mid-1990’s. It will take a few more quarters of major increases before we will see a significant effect on the market.

Conclusions and Forecasts
At the beginning of the year, I predicted that 2005 would be yet another record year for home sales in the Charlottesville area. That was an easy prediction, but what I did not predict is more interesting. 2005 proved to be a market in transition. Inventory rose substantially, but the days on market dropped and prices continued to show strong increases. Normally, such a major increase in supply would cause properties to stay on the market longer and price increases to slow down. The fact that the market did not react to the increase in homes for sales tells us that we have still not reached adequate levels of inventory.

In 2006, we expect current trends to continue – perhaps at a more “normal” pace. We should set another record for sales, but only by small margin. We will continue to see prices increase, but by a more moderate rate in the 8% to 10% range. Homes will continue to sell quickly by historic standards, but probably not quite as fast as 2005. The shortage of homes for sale will ease slightly, but demand will continue to be strong. The baby-boomers will continue the frenzied pace of buying vacation homes. And finally, I’ll end with an easy prediction – The Rolling Stones will NOT return to Scott Stadium in 2006, but Dave Matthews will open the JPJ Arena.

Source: Dave Phillips, CAE RCE, Charlottesville Area Association of Realtors