It has been the best time ever to buy real estate. Mortgage interest rates have been lower than 5%, real home prices are low, and sellers are motivated. To make things better, the government has offered huge incentives to buy a home. First time buyers get $8,000 in tax credits when buying a house.
The government incentives have had an influence. First time home buyers include about 45% of real estate transactions. In Virginia, we've also seen a large increase in the purchase of new construction homes.
Despite these favorable buying conditions, Richmond home sales have been down. Last month, Chester (a Richmond suburb) home sales were down considerably compared with May of last year. Powhatan trends also show a remarkable decline from last year.
Why is it that home sales are down even though purchasing real estate is so advantageous? People can't buy because they can't sell their current homes, they have no equity, no down payment, and can't get mortgage financing, or they just don't feel certain with their job stability.
Some of the government incentives have concluded. The sub 5% interest rates have increased to around the 6% range. A one percent increase in interest rates is a huge deal for housing affordability. A $150,000 home loan at 6% is around $100 a month more than at 5%.
What will happen when the government incentives end? It's difficult to say. The economy and housing market do show signs of recovery, but it looks like the Richmond Real Estate market won't greatly improve in the near-distant future.