Given all the national news about the real estate market slowdown over 2018, I thought you might find some local stats to be interesting. So, I dived into the details comparing 2016 with both 2017 and 2018. One statistic that makes an evaluation of market trends difficult is the relative lack of inventory this year compared with last year. However, my opinion is that will show up in price increases if that is the only factor impacting the performance of the market. Please consider the following statistics. Let’s start with overall sales:
Waterfront Homes down 11% to $150MM
Condos & Townhomes down 26% to $28MM
Water Access Homes down 16% $22MM
Total sales over 2018 are down 14% from 2017, from a high of $251MM in 2017 to $216MM in 2018. The number of properties sold has also decreased 11% from 624 total unit sales in 2017 to 557 in 2018.
Sales were down in all categories, except for water access lots. The year over year changes are as follows:
Waterfront Lots down 21% to $15MM
Water Access Lots up 106% to $1.7MM
The question is, what is causing this decline? There have been many theories in the news: Increasing interest rates reducing affordability and therefore reducing demand; Higher prices making homes less affordable and also resulting in decreased demand; Reduced inventories resulting in a lack of supply and causing increased demand for the available alternatives. All of these factors certainly will have an impact and overall sales volume only tells part of the story. To gain further insight, we need to look at what average prices have been doing. One thing we can generally count on is basic economics; when supply and demand tilts to the supply side, prices generally decline and when it tilts to the demand side, prices generally increase.
Clearly from 2016 to 2017 the supply demand balance shifted to the demand side in all property categories. Total sales were up in all property segments and prices were up in all property segments.
However, from 2017 to 2018, things began to change. Sales were down in all property segments, with the exception of Water Access Lots. Prices were down in all Waterfront catagories as well, but they were up for Water Access Homes and Water Access Lots.
OK, way too much detail. So, here’s a few conclusions:
In summary, between 2016 and 2017 total real estate sales were up for every property type and therefore also in total by 39%. From 2017 to 2018, total real estate sales are down for every property type except for Water Access lots. Overall, sales declined 14%. Between 2016 and 2017, prices were up for every property type, while between 2017 and 2018, prices declined for all waterfront properties and increased for both water access property types.
So my conclusions are based upon considering the relationship between total sales and average prices. While there are a few price bands which differ from the general conclusions and should be taken into consideration when selling or buying property, when both total sales and average prices are declining, that is a sign that demand overall is less than supply, even if supply is limited. This is a sign the market is weakening. This is the case for all waterfront property in the region over 2018. When total sales are declining, but prices are increasing, then the overall market is slowing but demand is still greater than supply. This is the case for Water Access homes. When both sales and prices are increasing, that is considered to be a strong market and this year was only the case for Water Access lots.
Except for Water Access lots, year-over-year, the Smith Mountain Lake real estate market cooled over the past year. With this is mind, remember that when compared to 2016, total real estate sales are still up in every property category and almost 20% in total.
Water Access Homes has been the strongest performer of the Smith Mountain Lake real estate economy among the homes segment and Water Access Lots the strongest performer for lots.
While Water Access homes and lots have been the strongest price performer over the last two years, there have been healthy increases for Waterfront homes, condos & lots when taking a 2-year perspective. It is healthy for the market to take breathers to stay in balance long term. A side note for Water Access Lots – this property category has been down for so long that limited demand is finally turning around, potentially helping to fuel a resurgence of new building activity. Maybe now is the time to build before building prices take a jump?
If you are thinking about selling or buying, there are lots of short term twists and turns to navigate here at The Lake. Please don’t take either decision lightly and consult a real estate professional well versed in all the details to help you make the best possible decision.