Jul 20, 2023 - Real Estate

Why Virginia's housing supply is locked up

Illustration of a handcuff on a keychain in a lock

Illustration: Sarah Grillo/Axios

The sharp spike in mortgage rates over the past year is locking Virginia homeowners in place and leaving weary buyers with fewer options.

What's happening: A whopping 66% of homeowners in Virginia with mortgages had a rate below 4% as of late last year, per Redfin data shared with Axios.

  • Nearly 28% have rates below 3%.

Meanwhile, just 15% of homeowners in the state have a rate of more than 5%, as of the latest data from October of last year.

Why it matters: Mortgage holders are experiencing the "golden handcuffs" phenomenon: They might have a great rate now, but likely can't move without spending a lot more cash, according to Redfin chief economist Daryl Fairweather.

  • Those cuffs are keeping housing inventory on lockdown.
  • Richmond metro saw a 35% drop on new listings year over year in June, according to data from the Richmond Association of Realtors.

State of play: A higher rate can lead to significant differences in monthly payments.

  • For a home with a sales price of $310,075 — the median Virginia sales price in 2021 — a monthly payment at a 3% interest rate would be $1,493 assuming a 20% down payment.
  • At 6.4%, the payment would jump to $2,008.
Monthly mortgage payment in Richmond metro area
Data: Redfin; Chart: Alice Feng/Axios Visuals

Zoom in: And median sales prices and home values keep rising, in part driven by a lack of inventory, according to Zillow.

  • Richmond saw the highest year-over-year increase in home value in the nation last month, Zillow reported.

Zoom out: It's not just a local issue. Nine in 10 U.S. homeowners secured mortgage rates below 6% as of late 2022, per the new Redfin report.

  • Meanwhile, mortgage rates have swung between 6% and 7% nationally in recent months.

Yes, but: Buyers are also exploring adjustable-rate mortgages or buydowns in hopes of a lower monthly payment, Fairweather says.

Reality check: Lower rates could loosen up some supply, but not enough to meet demand, Fairweather says.

  • New construction isn't keeping up either. Fairweather predicts it'll take the U.S. a decade to repair its housing shortage.

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