• A significantly smaller number of homes are selling this year as compared to last year (25% fewer).
• Home prices seem to be staying relatively level (median prices increased slightly, average prices declined slightly).
• Leading to point #1, fewer buyers are committing to properties.
• Despite the overall lack of enthusiasm of buyers, homeowners are still putting their homes on the market in record numbers (44% more than last year).

Click on the chart for a printable PDF, or click here for some additional analysis of the Harrisonburg housing market in the first half of 2008.

Over the past 18 months (January 1, 2007 through June 30, 2008) 138 single family homes have been built and sold in Harrisonburg and Rockingham County, as reflected in the HRAR MLS.

The prices of new construction homes that are selling might be of interest to home buyers, home sellers, builders and developers...



Click on the graph above for a printable PDF.

In some parts of the country, they definitely are!  But since all real estate is local, I'm really more interested in what is happening with home sales prices in Harrisonburg and Rockingham County. 

In a given week, I talk with a lot of people about real estate including my past and present clients, my friends, other Realtors, lenders, appraisers, attorneys, the media, etc.  If I asked each of them whether home values are declining I'd get a LOT of different answers.

In the past, I've tried to examine this question from many different angles:

Trends in median price per square foot

Median home sales price trends (single family versus townhomes)

Median home sales price trends (single family combined with townhomes)

Year to year changes in median home sales prices (per my monthly reports)

Median sales prices over the past eight years during January to June.

But ultimately, homeowners really only care about whether the value of their particular property is going up or down.  The problem with all of the analysis referenced above is that it looks at trends across wide sets of data.  To better understand how home values are ACTUALLY changing, we need to look only at homes that have sold twice in a given time period --- and look at whether they sold for more or less the second time they sold.  Here we go....

In the past three years (7/2/2005 - 7/2/2008), there have been 4,209 residential sales in Harrisonburg and Rockingham County, as recorded in the Harrisonburg-Rockingham Association of Realtors MLS.

Of these 4,209 home sales --- there were 182 properties that sold twice in the last three years.  These 182 properties provide us with two data points so that we can measure ACTUAL APPRECIATION.  Here are some interesting facts about these 182 properties that sold twice in the past three years:

• 157 properties increased in value (86%), while 25 properties did not (14%)
  
• On average, these 182 properties increased at a rate of 28% per year.
  
• 8 properties decreased in value by more than 5% per year. 
  62 properties decreased or increased by less than 5% per year.
  112 properties increased in value by more than 5% per year. 

It would seem that many buyers in the market today are hesitating before making an offer because they are unsure of the current and future value of the home they think they want to purchase. 

While it's impossible to predict the future 100% accurately, I can definitely help you to better evaluate your buying decision.  Here are a few ways we could quantitatively analyze a property:

Price-per-square-foot trends

If you are buying a home in a subdivision where other homes have recently sold, we can certainly look at average price-per-square-foot trends to estimate the value of the home, and to see how those values have changed over recent months and years.  This graph shows price-per-square-foot trends for all of Harrisonburg and Rockingham County.  We would be doing the same sort of analysis, but with a smaller data set.

Comparative Market Analysis (CMA)

In my opinion, a CMA isn't just for a seller before they list their home for sale.  Comparing a property for sale to other similar properties that have recently sold can shed significant light on the potential value of the property.  The "comparable" sold properties would be as similar as possible based on features such as: age, bedrooms, bathrooms, location, condition, square footage, amenities, etc.

There are other ways we can approach this issue as well, but the main thing to remember is that it is important (in any market, but especially now) to understand the value of the home that you might purchase.  The listing price alone won't provide a full picture of the value of the home.

• Home values are declining in Harrisonburg and Rockingham County, or
  
  
• Less expensive homes are selling more often these days than more expensive homes.
  

• There aren't as many investors buying anymore. There were significantly more investor buyers in our market in 2005 as compared to this year. Low sales prices, low interest rates, high appreciation, and high loan-to-value opportunities, and high return on investments all contributed to many, many investor buyers closing on properties during our most active years (2004-2006).
  
  
• Increases in home values have priced many buyers out of the market. Back in 2005, when home values were significantly lower than they are today, many more buyers were qualified to purchase (as opposed to renting). Income levels have risen at a slower pace than housing costs over the past three years.
  
  
• Buyers have to plan to keep their home longer now. Admittedly, this is just a return to the conventional wisdom of the past --- don't buy unless you plan to stay in your home for 3+ (or 5+) years. However, during 2004, 2005, and 2006 it worked out fine for many buyers who bought, and needed to sell only a year later --- they walked away with impressive gains! That phenomenon, created by high appreciation rates, brought many people into the market to buy when otherwise they would have rented. Today, if someone isn't sure whether they'll be in the Harrisonburg area for more than a year or two, they often choose to rent, as they won't necessarily be able to buy, sell, and make money in a 1-2 year time frame.
  
  
• Loans aren't as easy to obtain any more. For several years, if you had a pulse, you could obtain a mortgage. Lenders didn't care whether you could verify your income or your assets --- a buyers word was good enough, and loans were being written for just about anyone who wanted to buy a home. Loan requirements have now become much more strict, which reduces the number of buyers in the market.

• home sales prices (and home values) are almost as likely to go down in any given quarter as they are to go up
• we don't have a large enough number of home sales in this area to make this type of analysis statistically significantly

• Sale volume is still down from last year (no surprise there), though the gap may be slowly closing.  Jan - March showed 2008 sales 24.71% below 2007.  Jan - April shows 2008 sales 23.38% below 2007.  The gap probably isn't yet statistically significant, but it will be interesting to see what happens when we include May sales as well.
• Prices keep going up, though only at a modest 4.27% over the past year.  This is great compared to some areas that have seen price declines.

Cap rates vary over time, as market conditions change.  Here is a brief analysis of current cap rates for single properties in the Harrisonburg area as of May 2008.

1337 Devon Lane, Harrisonburg = 6.5%
3 bedroom, 1.5 bathroom, 1254 SF townhome
Sold for $130,000 in March 2008
Projected rental rate = $900/month
( ($900 per month x 12 months) - ( $328 insurance + $778 taxes + $708 POA + $500 repairs ) ) / $130,000 sale price

1308 Bradley Drive, Harrisonburg = 6.7%
4 bedroom, 2 bathroom, 1352 SF townhome
Sold for $147,900 in January 2008
Rental rate = $100/month
( ($1100 per month x 12 months) - ( $373 insurance + $821 taxes + $1620 POA + $500 repairs ) ) / $147,900 sale price

1014-6 Blue Ridge Drive, Harrisonburg = 6.0%
3 bedroom, 2 bathroom 1108 SF condo
Sold for $103,500 in February 2008
Projected rental rate = $750/month
( ($750 per month x 12 months) - ( $261 insurance + $587 taxes + $1560 POA + $400 repairs ) ) / $103,500 sale price

You can see in the examples above, that current cap rates are in the 6% - 7% range.  However, these cap rates decrease if an owner is paying a management fee for someone else to manage the property for them.  With a management fee of 9%, the cap rates above would be 5.8%, 5.8%, and 5.2% respectively.  The cost analysis above also does not include utilities, advertising, or vacancy.

Related Posts:
Harrisonburg Multi-Family Cap Rates
What Is A Cap Rate?