In Henrico, high demand and low supply is squeezing some would-be homeowners

Henrico and the greater Richmond metropolitan area are in high demand for prospective and established homeowners, but market trends are reflecting a unique set of challenges for those seeking to settle in the region.

“We have tremendous demand for the very few units that are available,” CEO of Richmond Association of Realtors Laura Lafayette said. “That really has been driving our market for a number of years, and I think what will continue to characterize the market for the foreseeable future is that the demand is outstripping the supply.”

Compared to other local regions, Henrico is facing a notable lack of inventory, Lafayette said.

Pending sales for single family units in Henrico increased by 0.6% in a year-to-date analysis, according to a June 2021 local market update Lafayette cited. In Chesterfield, pending sales are up 9%, she said.

In addition to a lack of inventory in Henrico, the market is absorbing available homes at a much faster rate, Lafayette noted. A year ago, a house would be on the market in Henrico for an average of 20 days, but now a house takes just 13 days to sell on average, she said.

“We know that there are houses that go on the market and sell within hours, houses that go on the market and receive multiple offers – all-cash offers – and offers that have escalation clauses,” Lafayette said.

A variety of factors are driving this demand, such as the influx of millennials trying to enter the market and people looking to down- or up-size their homes, which contrasts the number of current homeowners deciding not to sell, she said.

The number of homes available to fill has shifted in recent years with vacancy rates decreasing for both renters and homeowners between 2018 and 2019, Henrico Planning Director Joe Emerson said during a presentation about housing trends at a July 27 Board of Supervisors meeting.

Additional challenges come from increasing difficulty in building new construction to meet the demand coming from a lack of existing inventory, Lafayette said.

Builders 'don't have a playbook' for current market

Price volatility of construction materials has stood out as a significant challenge for people interested in constructing, whether they are buying or remodeling, said CEO of the Home Building Association of Richmond Danna Markland.

“Builders are blindsided by material price increases weekly,” she said. “That has been what has really thrown the whole process into a market that we don't have a playbook for.”

Pressure on the side of new construction has challenged the ability to meet demand with recorded increases of as much as 17% in some building materials over the period of one week, Markland added.

“It's really unprecedented on so many levels,” she said. “The supply and demand is really the center of the issue, and we have so much demand.”

Similar to the price volatility, a national supply chain crisis has impacted all forms of new construction,” Markland said. In the span of time it now takes builders to receive materials for homes, an entire project could have been finished under normal circumstances.

Some builders have had to hit the pause button on sales entirely because of the confluence of factors that have contributed to the current market, Markland said.

In Henrico, data showed an overall decline in the number of new units approved in recent year – 2,000 in 2020, down from 3,500 in 2019. And those units that were built included more multi-family dwellings and fewer single-family homes, Emerson told supervisors last month.

Construction of multi-family developments – including townhouses, condominiums and apartments – rose from 2019 to 2020 to hit the mark of nearly 1,400 recorded or approved developments, while new single-family developments conversely fell from more than 300 recorded or approved developments in 2019 to fewer than than 200 in 2020.

Increased costs also are affecting homebuyers, as homes are being listed and sold for higher prices in shorter amounts of time.

“Every stage, every age, every market segment is impacted because these prices apply to every job,” Markland said. “Particularly, millennials can be put at a disadvantage. That's a huge buying population entering the market [that is] competing for resale homes with purchase prices far beyond the listing of the home.”

A home priced at $250,000 one year ago could cost $300,000 or more today because of material cost increases, she added.

Current market trends, including price volatility and supply chain delays, are expected to continue through 2021, Markland said.

“The position that the industry is in now is a shared struggle,” she said regarding the issue of supply and demand. “It is a challenge for everyone, and we are all working together to try and mitigate these struggles as best as we can.”

Resale homes that are affordable to first-time homebuyers, such as millennials, also are in short supply, Lafayette said.

People 'want to live in Henrico'

In the Richmond region, thousands of seniors who own their houses outright are facing valuations at less than $200,000, leaving little room to sell, she said. Affordable options for seniors who would like to sell their homes are not widely accessible, which leaves their homes off the market instead of in turn being affordable options for other homebuyers.

Additionally, people who do not have equity in their homes would prefer to rent units rather than sell them, Lafayette noted, allowing the types of available housing to impact potential buyers’ options.

“I don't see anything on the immediate horizon that is going to bring a tremendous number of houses to the market,” Lafayette said. “And I don't see anything that is going to argue for a tremendous decrease in the demand that we have in our market, so the good news is we do have demand [and] people do want to live in metropolitan Richmond, they want to live in Henrico.”

Being in an area with no demand would present a far greater set of challenges, Lafayette added.

Despite the current challenges presented by a lack of inventory in the region, Lafayette said she was grateful to see that demand exists because it indicated that established and prospective homeowners believe in the quality of life and future of the region.