The Federal Reserve has raised interest rates several times over the past 12 months as part of its ongoing battle against inflation. One of the noteworthy impacts of the rate hikes has been in reducing demand for residential real estate by pricing some potential buyers out of the market, empowering those who remain to negotiate more aggressively with sellers.
Gone, for now at least, are the days of people buying homes sight unseen, waiving inspections and offering tens of thousands of dollars over the asking price in their desperation to take advantage of historically low mortgage rates.
In Chesterfield, however, sale prices for new and existing homes remain strong because demand is still significantly outpacing the inventory of available properties.
As a result, residential real estate assessments have risen by a countywide average of 8.82% since January 2022. That’s a drop of three percentage points from last year’s 11.92% increase, which broadly aligns with what many other localities are experiencing across the United States.
According to the National Association of Realtors, home prices increased by 10.2% nationwide in 2022. The most recently available Case-Shiller Composite 20 Home Price Index, another national measure of residential sales activity, registered a year-over-year increase of 8.66%.
“It’s basic economics,” said Melvin Bloomfield, Chesterfield’s director of real estate assessments. “Let’s say there were 100 potential buyers and you lost half of them because of rising interest rates. The other 50 are still out there looking. If there’s not enough supply – if there are only 10 houses on the market for them to buy – there is still competition for those properties and the market value remains resilient. We have to see what the spring market brings.”
Under Virginia law and the Code of Chesterfield, the Department of Real Estate Assessments is required to assess all real estate in the county on an annual basis. Such assessments are effective Jan. 1 and must represent 100% of a property’s fair market value.
One of the primary methods the department uses to assess residential real estate is by compiling home sales data and applying the sale price of each unit to comparable properties in similar neighborhoods.
“It’s not based on one person or one sale – it’s multiple sales, multiple people making multiple home purchases in the county over time,” Bloomfield explained.
While potential homebuyers are taking a more cautious approach these days, many still have the wherewithal to close on the right property. Adjustable-rate mortgages provide the flexibility of a reduced monthly payment for the first few years. Builders, likewise, are offering various financial incentives, such as interest-rate buydowns, to offset the Fed’s dramatic rate increases.
The trend toward teleworking also has outlived the pandemic, allowing workers in many industries the freedom to decouple their living situation from their employment and move where they can afford to own a home instead of renting.
Chesterfield continues to be the Richmond region’s locality of choice for people relocating from other states or Northern Virginia, offering housing options that are comparably far more affordable along with a robust economy, excellent schools, safe neighborhoods and overall high quality of life.
At the same time, the inventory of homes for sale in the county remains low – both a remnant of the Great Recession of 2008, when many local homebuilders went out of business and were never replaced, and a consequence of ongoing shortages in labor and building materials.
“Housing is a finite resource. You still have people who are willing to purchase at the current market pricing levels, but they may be a bit more discriminating on what they buy,” Bloomfield said.
Cognizant of the impact of rising assessments on household budgets, the Board of Supervisors reduced Chesterfield’s real estate tax rate by 3 cents per $100 of assessed value last year.
Real estate taxes represent the largest single source of local revenue for Chesterfield. Each one-cent change in the rate accounts for about $5 million to the county government.
The board already set Chesterfield’s maximum real estate tax rate for 2023 at 91 cents, ensuring that homeowners will receive at least another one-cent reduction from the current 92-cent rate.
It also raised the eligibility thresholds for the county’s real estate tax relief program for the elderly and disabled, preventing seniors from being pushed out of the program because of inflation-driven increases in their Social Security benefits.
Supervisors could opt to cut the real estate tax rate further by the time they meet in April to vote on the county’s budget for the fiscal year that begins July 1. In the meantime, they’ll have to balance the desire for additional tax relief against the still-rising cost of labor, particularly for the thousands of front-line workers (teachers, police officers, firefighters and sheriff’s deputies) that help make Chesterfield a great place to live, work, play and do business.
Like their peers across the country, the local school system and public safety agencies all are facing challenges in recruiting and retaining high-quality employees. As Bloomfield noted with home prices, the same market forces apply to labor: when demand for workers is high and the pool of available talent is shallow, hourly wages go up.