It's a good time to be a homeowner in Virginia, but affordability is becoming an increased concern for some areas...
A recent report compiled by the Virginia Tech Center for Housing Research and the Virginia Association of REALTORS® concludes that homeownership is affordable to the average family in most areas of the Commonwealth. The report divides Virginia into housing market regions and measures each on affordability, or ownership cost burden, based on the percent of income required for the principal and interest payment for owner-occupied housing. Areas where the average housing price requires less than 25% of the median family income are considered "affordable", and areas where the average price requires 25% or more of the median family income are considered "unaffordable" to the average family. In 2002, the five most affordable regions* compared with other market areas in the state for homeownership were:
• Southside (10.4%)
• Martinsville (12.8%)
• Dan River (14.4%)
• Richmond (15.0%)
• South Central (15.5%)
Only the top two of the five "least affordable" regions* listed below had ownership costs considered "unaffordable" (but just barely so) for the average family in that area:
• Lexington (25.8%)
• Greater Piedmont (25.1%)
• Chesapeake Bay and Rivers (23.1%)
• Fairfax-Northern Virginia (22.4%)
• Williamsburg (20.7%)
The rankings above are from the perspective of the affordability of homeownership to the average family within the designated market area-in other words, the affordability of Southside to Southsiders. Another perspective is the affordability of the market area to the average family in Virginia as a whole. From this perspective, four regions face serious affordability concerns if the average Virginia family were to move there: Fairfax-Northern Virginia, Dulles, Greater Piedmont, and Williamsburg.
The percentage of average median family income required to purchase a house in Virginia in 2002 was 18.0%, just below the national average of 18.6%. This is down over a point from 19.1% in the previous year.
The biggest boost to increased housing affordability in the state was the decline in interest rates (falling by 1.65 percentage points in 2002) leading to a two-year trend in lowered cost burden percentages. In some areas (Harrisonburg, Martinsville, South Central) the ownership cost burden fell three or more percentage points, representing a significant increase in affordability. However, for several areas, the ownership cost burden stayed constant or went up from 2000-2002: Fredericksburg, Prince William, Fairfax-Northern Virginia, Greater Piedmont, and Massanutten. Most of the housing markets where ownership cost burdens increased are in, or near, the Washington metropolitan area.
Some areas benefited from incomes increasing faster than housing prices, but on average, incomes increased 6.9%, just slightly below housing prices (7.0%) in 2002. Average home prices in the northern section of the state, however, increased dramatically at double-digit annual rates. Housing prices in these areas are substantially outpacing income growth by a multiple of 2 or more.
Overall, Virginia is a good area for homeowners, says Ted Koebel, Director for the Virginia Center for Housing Research, but he is quick to point out that affordability is a serious concern in some areas. "Virginia as a whole fares well in comparison with the nation in terms of homeowner affordability. However, steep increases in housing prices in northern Virginia have made that a less affordable region, particularly for anyone moving there from elsewhere in Virginia." Koebel also says the search for affordable housing in northern Virginia makes the lower costs in adjacent rural counties and small towns very attractive, prompting a ‘leap-frog’ effect. "Leap-frog development solves an affordability problem for people living in or moving to northern Virginia, but it often creates an affordability problem for residents living in the more rural outlying communities, causing their land and housing prices to increase. We have to plan for an adequate housing supply within a reasonable distance of jobs. That should be a key test to determine if growth planning is truly ‘smart’."
"Many factors make Virginia very attractive for homeowners," says Virginia Association of REALTORS President Carol Clarke, "but affordability continues to be a concern in some areas... and is spreading. Virginians should be able to live within reasonable commuter distance to their work, or we face other problems like sprawl, pollution and workforce pressures. Zoning and other growth controls must be balanced by the critical need to ensure home affordability... for the good of all."
Dr. Koebel, who was recently named the first Virginia Association of REALTORS® University Fellow, will address affordability and homeownership issues at VAR's Annual Legislative & Education Conference (February 5-8) at the Omni Richmond Hotel on February 5 at 2:30 p.m. Those interested in learning more about this topic are encouraged to attend this session.
The full report can be downloaded at the VCHR website at http://www.caus.vt.edu/CAUS/RESEARCH/vchr/VCHR.html. For more information, contact Ted Koebel at (540) 231-3993, or Lisa Noon, Director of Communications & Marketing for the Virginia Association of REALTORS® at (804) 264-5033.
* regions are defined in Table 6 of the full report.