Autumn 2019 Market Update
The real estate market in Virginia’s Piedmont is quite seasonal, and the ‘big’ season is the Fall. If we could bottle the crisp, clear days of October for 12 months of the year, we’d probably not be having to have this update. But it’s more than just the weather that drives this change. It’s back to school, back to the office, and back to the daily grind that helps shape the “need” for a country place. It’s hard to focus on how much better you life would be with a country place when you’re already on vacation in July and August, and life is a bit slower. But once the kids are back in school, or off to college, and you’re a real ’empty nester,’ or once you’re back slogging away on the work that seemed a bit more tolerable with half day Fridays and casual dress in the summer, you start to think about how better life might be with a cozy escape somewhere away from crowds and traffic, where you could nurse a cup of coffee in a quiet country garden, or take a walk with the dogs on mellow autumnal day and come back to a warm and inviting fire in the fireplace and the sun setting over the mountains.
This reverie occurs to DC’s professional classes almost every year, and they venture to the country to pick up a pumpkin and some cider, have a nice country drive, and a dinner at an inn and say “gee, honey, maybe we should get a place out here.”
So, at least that’s the plan that we’re set up for in September 2019. And the market fundamentals, local trends, and economy all seem to be aligned to make this happen. I’m hoping for a great season. And yet, there are a few warning clouds on the horizon that give me pause, and I’d not be a good agent for you if I didn’t point these out as well and figure out the best way (if possible) to mitigate them. So here’s the good, the bad, and the plan of attack to deal with both.
First the good. We are on the outskirts of one of the ‘best’ metropolitan areas in the country for potential buyers of country properties. DC has the highest rate of dual income professionals of any metro area in the country, a growing population, and very sophisticated population as well. These are a lot of people used to “making things happen” in their lives and they have the money, drive and determination to follow their dreams. So we’re ahead of any other areas in a lot of ways. Added to this are a number of other “good” things:
- The Amazon effect – This is all smoke and mirrors actually. Amazon is adding on some 70,000 high paying jobs over the next 10 years. No one is in place yet, and the Amazon campus isn’t even built yet. Also, we add that many high caliber jobs EACH YEAR in the DC metro economy, so in reality it is not much more than a drop in the bucket. But the PERCEPTION is there, and we can capitalize on it. We are working to convince the buyers to get in the market locally before the Amazon executives and others drive up the prices. And it’s not only Amazon. A number of big global corporations like the area for its highly educated work force and quality of life. Companies such as Nestle, Hilton, etc, have all chosen this area for their executive offices. These are all upper level executives with salaries that make a country/weekend house within financial reach. Our goal is to reach those individuals before they’re even aware that they want a country house. We’re doing just that. Washington Fine Properties is THE high end real estate company throughout the region in DC and suburban areas. We are the company that is selling them their city homes and they turn to the same agent that sold them their home in Bethesda and ask “we’re thinking of a place in the country for the weekend. Who would you recommend we talk to?” I get the call. That network is essential to my business. I get referrals from other agents all the time. The beauty of this, is that it’s not just my company that refers business to me, but others as well where I’ve cultivated the image as the ‘go-to’ guy to get their clients a home and I give them a nice big fat referral fee in the process. It works quite well.
- The Economy – This cuts both ways, but on the whole, we’re so well positioned for this fall. Mortgage interest rates are at historic lows. It’s so cheap to borrow money and mortgages are (still) deductable. The overall economy shows signs of a long bull market coming to a close, but it hasn’t yet. Stock market jitters due to trade wars and other political shocks can affect us – but in positive as well as negative ways. Most properties in our market are likely to be sold to someone as a second home. As such, the buyer doesn’t ‘need’ this home, they ‘want’ this home, provided they feel wealthy enough to afford a second home and the costs that it would entail. Sometimes when the stock market stumbles, those buyers pull back. They feel less wealthy. Other times, they think, ‘hmm, maybe I should diversify and put some of my investments into real estate.” It’s that kind of thinking I encourage, and convince them that their country property will provide them with a nice equity return over time. It helps to have an economics degree and have worked at the World Bank as an economist when chatting with these clients – as they’re usually fairly sophisticated in this regard.
- Market Dynamics – The local market is in a state of flux. It’s still very much a buyer’s market. Demand is not very strong and our inventory remains high overall. However – in certain sub-markets that is shifting – and Rappahannock County is where that market is shifting most. Rappahannock County is really coming into its own in terms of recognition in the wider world and in the DC metro area in particular. Where once the ‘weekend crowd’ was oriented towards the Delaware shore resorts of Rehoboth, Dewey, and Bethany beaches, those places are now very congested, expensive, and hard to get to (travel times to the beaches average 4-5 hours and then parking once you arrive is likewise a nightmare). The Eastern Shore in Maryland is another ‘weekend’ destination, but unless you’re into boating, it really doesn’t have much to offer. So where in an hour or two from DC can you find a place with stunning scenery, world class restaurants and inns, art galleries, theater, brew pubs, wineries, hiking, antique shops? Well, Rappahannock seems to hit that sweet spot. And the appeal seems be spread nicely among every age bracket from millennials to baby boomers. This has translated into a massive reduction in local real estate inventory for the Rappahannock Market. Since the 2008 financial meltdown when our prices plummeted and the market flat-lined, Rappahannock has been slow to recover. We generally have about 140-150 residential properties on the market at any one time. In 2018 that number effectively halved. While there was (and is) still enough inventory to not put pressure on prices just now, the trend seems to be heading that way and if it continues, that market will switch from a buyer’s market to a seller’s market. This year we’ve averaged about 90 or so residential properties on the market at any one time. At the time of this writing we’re down to 69 such properties. However, this is the time of year when we add new inventory, so expect that number to go up significantly in the next few weeks. If we stay below 100 properties, I think we’ll be well positioned.
So much for the “good” stuff, now here’s the bad news:
- The Market is too Quiet at the Moment. While we’re about to enter our ‘busy’ season, July and August are our traditional summer doldrums. The kids are out of school, summer vacations, and things are hot and sticky and the country isn’t necessarily at its best (humid and buggy). But, we usually have some activity. In 2018 we had a lot of activity during these months. This year however – nothing. Nada. Zilch. I was worried and every other agent I talked to was worried as well. The market flatlined. Granted we had some economic turmoil and dramatic stock market drops, but there was no definable reason for the complete drop off. The only think we can think of is that the lower mortgage interest rates may be giving buyers the sense that have some ‘breathing room’ to contemplate a purchase decision. There’s no threat of rates rising in the near future. This has made a lot of agents very nervous about the coming season. We had a very mediocre Spring season, and the hope was that this Fall would make up for it. Time will tell. But the concern is there. We’re a week into September and the amount of traffic has yet to pick up. The next few weeks will definitely give us an indication of what to expect.
- Rappahannock is an Outlier. If you take the dramatic drop in inventory in Rappahannock County and look at all the other counties in the region, you’ll soon see that that particular market is very much an exception to the overall market trend in the area. The rest of the market has flat-lined and in some instances eroded. Culpeper, Madison, and Warren counties have seen some price drops. The big fish in the market – Fauquier County has also been a mixed bag. Southern Fauquier continues to develop with surburban sprawl, albeit at a slower pace. Northern Fauquier however, is a puzzle. It has pretty much the same scenery and mix of amenities (restaurants, inns, wineries, shopping, etc) as Rappahannock. But it has been dead in the water for the past two years. Part of the problem for Fauquier is that it has a lot of larger estates and farms that have very limited market appeal (too big and too maintenance demanding for most buyers) and these larger properties harken back to a day when such a farm was aspiration to most people who were financially successful. Today, not so much. And as these sellers move on in life (death or ageing out) there doesn’t seem to be a younger cohort willing to invest the time and energy into larger farms. We see this also in the dramatic decline in fox hunting memberships in both Fauquier and Rappahannock. Riding to the hounds was what made Virginia’s “Hunt Country” and drew people to the area. Local society revolved around the local hunts and their balls and general pageantry. Now however, they are declining rapidly. Older folks are no longer hunting as they age out, and there aren’t enough younger people coming in to take their places. Northern Fauquier is still getting day trippers in Middleburg, and the restaurants in The Plains and Marshall are still attracting customers, but the demand for a weekend/retirement home in the area is drying up.
- Our “Feeder Markets” are declining – I keep a very careful watch on the Bethesda, Chevy Chase, Potomac, McLean, Great Falls, Arlington, Alexandria, and Fairfax markets as well as the DC market. These are where most of our buyers come from. There are some from the rest of the country and elsewhere in the world, but the most likely buyer for your property is likely to come from one of those places above. In addition to frequent contact with agents in those markets, I also look at the sales data. Both anecdotal and hard data confirm that it is harder and harder to move the large suburban houses that constitute a lot of those markets and house a lot of our potential buyers. Much like the larger estates in the countryside are becoming white elephants, so are the larger “McMansions” of our area. The traditional scenario is that once the kids are out of the house, the empty nesters will sell their large home and buy a place in the country. That pretty much is my typical buyer profile. The husband wants to do ‘country’ things and the wife thinks the country house will be a family gathering place so that the adult children and their families will come back and spend holidays at this lovely home in the beautiful countryside. I’d wager that a good 75% of my sales in the past few years have been this very scenario. However, when you can’t off-load your big suburban pile in McLean, you can’t afford to fulfil your country dream – you’re stuck. And that’s exactly what’s happening to a lot of people right now.
- Market Demands are Shifting – the other thing that goes hand-in-hand with the empty nesters not selling their big suburban houses is that the market as whole is shifting and tastes are converging a bit across the generations. People in their 50s and 60s are looking forward toward retirement and ease. They want low maintenance and flexibility. Those are the same things that the younger market wants (especially those couples without children). So you have both the older and younger age cohorts competing for the same properties. That stylish two bedroom condo in downtown DC that is walkable to restaurants and amenities is what both baby boomers and millennials are fighting over and driving up the prices in those market as a result. In the country, both sets are sparking a minor feeding frenzy for cottages in Little Washington and Sperryville (I’ve had bidding wars in both places recently). That also translates into a very active market in the $500K to $950K market in Rappahannock. But above $1 million that activity drops off dramatically. Why? Well, those properties generally have more acreage (more maintenance) and the heftier price tag means that most potential buyers will have had to already have sold off their large suburban home in order to afford another home in that price range.