Over the past 12 months, the housing market in Virginia—and really around the country—could only be described as hot. Or maybe frenzied. Perhaps on fire. And while conditions are still very positive, there are signs that the housing market is cooling a bit in some places across the commonwealth. As conditions change, it is more important than ever to pay attention to local markets and factors that impact local demand and supply.

Why Might the Housing Market Be Cooling?

After a year of the housing market running on all cylinders, it is not surprising to see a downshift in market conditions. There are several reasons why the hyper competitive housing market will ease:

• Extremely low inventory and rising home prices have frustrated some would-be homebuyers who have decided to take a pause on their home search.
• More homeowners may be listing their homes to try to capitalize on the record home prices in most markets.
• With the opening up of the economy, individuals and families may be looking to spend their money on other things—including travel and celebrations—instead of a home purchase.

As housing market conditions ease, we would expect slightly slower sales activity, a bit more inventory, and a lengthening of average days on market. Home prices will continue to rise, though the pace of price growth should moderate slightly.

Where are Markets Cooling?

Markets with lower pending sales activity

Statewide, the number of pending sales dropped 5.5% between May and June. Pending sales are listings that have gone under contract in the month and is a leading indicator of where the closed sales numbers will be a month or two out. In a typical year, there tends to be a slowdown in pending sales between May and June; however, in some local markets, the drop off in new contract activity has been much more pronounced than it has been in the past.

Pending sales have slowed in markets across the state, including in most of Northern Virginia and Central Virginia. For example, in Rappahannock County, there were just eight pending sales in June 2021, down from 20 in May. In Caroline County, the number of pending sales in June 2021 was down by nearly 60% compared to a month earlier.

When the number of new contracts on homes slows, that is an indication of a slowdown in buyer activity, and it means that the number of closed sales will post lower in the months to come.

Markets with rising inventory

At the end of June, there was a total of 19,346 active listings statewide. Inventory is about 18% lower compared to the same time a year ago. However, the pace of inventory being drawn down has slowed and inventory levels have expanded month-to-month for four consecutive months. At the end of June, the number of active listings was up 7.5% compared to the end of May.

Inventory expanded in June in nearly all markets across the commonwealth. The main exceptions are the Northern Neck and Upper Peninsula, where inventory continues to decline month-to-month.

But inventory is up in most places in Virginia. In the City of Lexington, for example, there were 100 active listings on the market at the end of June, which is up 56% compared to May. In Warren County, the number of active listings increased by 52% between May and June.

Outlook

Housing market conditions across Virginia are still strong, though there are signs of an easing of the housing market for many local markets. A cooling housing market is good for buyers, who will have more options and more time to make decisions. Even with a shifting market, inventory will remain relatively low and prices will continue to grow, albeit a bit more slowly. Over the next few months, pay close attention to local market conditions and trends, rather than national figures. All housing markets are local, and this is particularly true during a period of market transition.

Click here to send any comments or questions about this piece to Virginia REALTORS^® Chief Economist Lisa Sturtevant, PhD.

*Information as of 08/12/21