The Nest Report

3rd Quarter, 2009

A comprehensive and transparent

analysis of the residential real estate
market in Charlottesville, Albemarle,
and surrounding counties, prepared
quarterly by Nest Realty Group.
 3rd Quarter, 2009

The Bottom? or Just a Pause?

Summary
By all accounts 2009 has been a miserable year in real estate. Prices are down in nearly every sector.
Looking back to 2000, there has been only one twelve month period with fewer closed transactions - the period
ending just 90 days ago. Days on market remains high. Short Sales continue to plague our market. The only
demand for new construction one can say is pent-up is the demand from builders to get back to work. And yet...
The third quarter numbers show positive signs almost everywhere we look. In both Albemarle and the City
of Charlottesville, days on market is down. The actual number of detached home sales in the 3rd quarter
increased 20.0% from Q2 to Q3 across the entire EMSA- the strongest growth in more than a decade for a third
quarter. Contrast this with 2006 and 2007 when actual closed transactions were off by 20.6% and 25.3%
between 2nd and 3rd Quarters. Prices have dropped, and while this may not seem positive in the eyes of
individuals currently seeking to sell their home, it is an indication that the market corrections are occurring, and
that they are having the appropriate and needed impact.
In short, we will not know when the Charlottesville market has hit the bottom until we have the benefit of
twelve to eighteen months of hindsight. As it stands, we believe that the market is making appropriate
adjustments to price and sales levels. We anticipate growth in sales volume to perhaps slow for the 4th quarter
and then pick up for the nine months that follow. However, we do not see home prices flattening or rising until the
third or fourth quarter of next year.

The Broad Market

Across the greater Charlottesville area (including the counties of Albemarle, Fluvanna, Greene, Louisa,
and Nelson), the figures for the 3rd quarter look rather positive. Average prices are down roughly 5%, but Days
on Market have remained flat and the actual number of closed sales has picked up from 2008. The number of
sales of 541 is up 20.0% from 451 sales in the prior quarter.
Rarely do we put much weight in quarter-over-quarter changes in sales volume. We look instead to year-
over-year changes in sales levels. The reason is that the historic trends of seasonality provide such dramatic
changes to the number of sales that a decrease from Q2 to Q3 is to be expected. A quick look at the graph of
historic sales volumes on the following pages demonstrates this precisely. However, in 2009, the exact opposite
has happened. The sales in the 3rd quarter dwarfed the historic seasonally high 2nd quarter. This is a huge shift
that cannot be pushed aside.

EMSA* - 3rd Quarter Detached Home Sales

Average Sale # of Closed Volume of Days on
Price ($000) Sales Sales ($M) Market
2009 347.4 541 187.9 113
Change -8.1% 2.9% -5.5% 0.0%
2008 377.9 526 198.8 113

EMSA - Albemarle, Charlottesville, Fluvanna, Greene, Louisa, & Nelson

However, understanding this shift may not be so simple. Above, you see the 3rd quarter sales
comparisons, but the graph below exposes the real weakness - a horrible 1st and 2nd quarter. Below are the

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 3rd Quarter, 2009

sales figures for the same geographic region, but for 2009 YTD against the same period last year. While Days
on Market stayed relatively flat, the quantity and prices were down, resulting in a year that is 26% behind last
year thus far in terms of gross volume. (So much for a good third quarter.)

EMSA* - YTD 3rd Quarter

Average Sale # of Closed Volume of Days on
Price ($000) Sales Sales ($M) Market
2009 361.3 1223 441.9 118
Change -9.8% -18.0% -26.0% 0.9%
2008 400.7 1491 597.4 117

EMSA - Albemarle, Charlottesville, Fluvanna, Greene, Louisa, & Nelson

Early this year, we projected price drops between 5 and 12% for 2009. We are currently running right
on pace with our projections. Despite the fact that we saw volume pick up in the 3rd quarter, there is little
expectation that prices will stabilize in the near future. What we are seeing is a reaction of buyers that prices
are becoming reasonable once again, and - armed with $8,000 tax credits - they are willing to buy, but are
being selective in their purchases. Not all homes are being priced realistically, and the data support that. The
homes that sold in the 3rd quarter have an average price per finished square foot of $145. The homes actively
on the market average $201.

City of Charlottesville, Detached Homes

City of Charlottesville - 3rd Quarter Detached Home Sales
Average Sales Median Sales Average # of Closed Volume of Sales Days on Market
Price ($000) Price ($000) Price / Sq. Foot Sales ($M)
2009 310.2 285.0 $177.34 97 30.1 86
Change -4.1% -4.7% -0.5% -4.0% -7.9% -1.1%
2008 323.4 299.0 $178.30 101 32.7 87

The city of Charlottesville had a very strong 3rd quarter considering the market around us. With prices only off
a tad shy of 5% from year prior, those preparing to sell or currently on the market should find some comfort in
these numbers. But again, the numbers are still down in terms of prices, numbers, and total volume. Days on
market remained flat.

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 3rd Quarter, 2009

City Detached Home Sales by Price Category ($000)

Jan 1, 2009 - Sept. 30, 2009
The pie chart to the left shows very clearly what has
<250
250-324
happened in the city this year. Year to Date, 69% of all transactions in
325-399 1%
3%
3%3% the city were below $325,000, and nearly two thirds of these
400-499 9% transactions were below $250,000. Less than 10% of the total
500-599 transactions in the city have been above the half million mark so far. In
600-749 13% 45% 2008, I pointed out that one of the problems with the - then current -
750-999
>1000 market was that the high end homes were selling, but not the low end.
There was a disconnect between consumer demand and ability to
24% obtain credit for entry level buyers. This year, the opposite holds true.
With $8,000 tax credits, available mortgages, and low
interest rates, entry level buyers have returned to the city market in
droves. They have pushed our quarterly sales figures up and they have
helped to start the market from the right space: the entry level buyer. Without this critical piece, the market
would not be able to move fluidly again.
This brings us to the following chart which shows the sales history going back to the beginning of 2000.
The average over this nine year period is actually on 86.8 sales per quarter. With the exception of the last
quarter of 2008 and the first quarter of this year, our numbers are right on par with where we would hope to
see them.

Number of Sales by Qtr - City of Charlottesville

150.0
147 142 139
112.5 130 126124 129
108104 105 108
99
92 96 93 92 95 93 97
75.0 86 84
80 82 85
72 67 72 70
64 59 64 66
52 57
37.5 46 50
41 39 41

0
Q1 00 Q4 00 Q3 01 Q2 02 Q1 03 Q4 03 Q3 04 Q2 05 Q1 06 Q4 06 Q3 07 Q2 08 Q1 09

Eyes have been focused on the Days on Market and the rise in these numbers since the market began
slowing in the middle of 2006. Inventory began growing, and the time to market began increasing. The days on
market appear to be going down, but we caution two things: DOM always goes down at this time of the year,
and we are not confident that these numbers are all that accurate.
Agents have the ability to remove a listing from the MLS and re-enter that listing, in essence resetting the
DOM to zero each time. Further, new construction that can be marketed for 9 months or more before the
foundation is poured is considered to have zero days on market if it is sold before construction begins. This
practice is becoming more and more common. Until we can fully process these differences / inaccuracies, we will
continue to provide you with this information, but we do so with a note of caution. Therefore, we will continue to
focus on trend lines and not specific numbers of days on market.

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 3rd Quarter, 2009

Days On Market
150.0

112.5

75.0

37.5

0
Q1 03 Q3 03 Q1 04 Q3 04 Q1 05 Q3 05 Q1 06 Q3 06 Q1 07 Q3 07 Q1 08 Q3 08 Q1 09 Q3 09
Albemarle Charlottesville Average Alb Average City

Albemarle County, Detached Homes

Albemarle County - 3rd Quarter Detached Home Sales
Average Sales Median Sales Average # of Closed Volume of Sales Days on Market
Price ($000) Price ($000) Price / Sq. Foot Sales ($M)
2009 435.3 358.0 $158.62 228 99.3 110
Change -12.5% -12.6% -10.1% 6.0% -7.2% -10.6%
2008 497.4 409.4 $176.44 215 107.0 123

This quarter, for Albemarle County, we are providing numbers for both the full county, as well as each
high school district individually. The basic stats for the county reflect the overall market with median prices being
down and number of sales rising. Both Monticello and Western Albemarle saw an increase year-over-year.
Albemarle High School, however, saw a modest reduction in price as well as a reduction in number of homes sold.
Total volume in Albemarle was down nearly 25% for the quarter.
We have been pointing to the Northern Virginia market for the last 12 months as our harbinger. In NoVA,
prices dropped, followed by a period of increasing sales and price drops, followed by a leveling of prices and a
strong sales volume. If this holds true in Central Virginia, then we should expect price drops to continue until sales
begin to pick up in earnest.
We have adjusted our numbers throughout this report to remove outliers. In 2008, there were two
transactions that totaled over $36 million in volume according to the original statistics. In 2009, there was a
single sale that accounted for 17.3% of one district’s total sales volume for the quarter; a transaction that would
skew the average price and the average price / s.f. a large amount if we did not make necessary adjustments.
These examples highlight the fact that every property deserves individual market analysis.

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 3rd Quarter, 2009

Albemarle High School - 3rd Quarter Detached Home Sales

Average Median Average # of Closed Volume of
Sales Price Sales Price Price / Sq. Sales Sales ($M)
($000) ($000) Foot
2009 369.3 348.5 $144.06 78 28.8
Change -18.7% -13.4% -11.8% -7.1% -24.5%
2008 454.1 402.3 $163.27 84 38.1

Monticello High School - 3rd Quarter Detached Home Sales

Average Median Average # of Closed Volume of
Sales Price Sales Price Price / Sq. Sales Sales ($M)
($000) ($000) Foot
2009 429.4 332.0 $164.80 72 30.9
Change -3.0% -6.1% -3.5% 20.0% 16.4%
2008 442.7 353.5 $170.85 60 26.6

Western Albemarle High School - 3rd Quarter Detached Home Sales

Average Median Average # of Closed Volume of
Sales Price Sales Price Price / Sq. Sales Sales ($M)
($000) ($000) Foot
2009 506.8 412.5 $167.47 78 39.5
Change -16.1% -17.5% -13.9% 13.0% -5.2%
2008 604.1 500.0 $194.43 69 41.7

As with the city, we are providing a ten year history of sales in the county. The county actually remains lower in
relationship to average than does the city. The average over the ten year period is 251 sales. Only in 2008 and
2009 were 2nd and 3rd quarter sales figures below the ten year average. Number of transaction remains
sluggish across all price points, but especially in the high end.
Number of Sales by Qtr - Albemarle County
500

375 405
393374 377
341 353362 332 330
309 313324
250 306 305
275 271
251 254 254 240
226 228 214 214 207 221218 224
125 174 182 183 194 177
165 145 152
124 116
91
0
Q1 00 Q4 00 Q3 01 Q2 02 Q1 03 Q4 03 Q3 04 Q2 05 Q1 06 Q4 06 Q3 07 Q2 08 Q1 09

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 3rd Quarter, 2009

Attached Home Sales

When buyers think of real estate, the first image that comes to mind for many is the classic brick colonial,
next door to other similar properties, each with their own piece of land. But in reality, a major portion of the
housing market, and new construction inventory and pipeline shares walls with other homes. Whether the
property is a duplex, or one of eight in a string of attached homes, many buyers look to the townhouse market to
solve their housing needs.
Charlottesville is no different from other areas in this regard. Whether buyers are looking for more
affordable solutions, or lower exterior maintenance, attached housing continues to play a significant role in
Charlottesville real estate. And 2009 has seen a significant increase in the attached housing market. The
attached homes contributed to just over 20.5% of the total housing market in the first nine months of 2008. In
2009, that number had jumped to 26.85%. The largest jump was within Albemarle county where attached homes
grew in their market share from 22.1% of the market by number of sales to 29.7% in 2009.
Because the median sale price of a detached home in the county is $112,000 more than the median
price of a townhouse, the impact on the gross volume is somewhat less, but still significant. Townhouses contributed
19.4% of the gross volume of sales in the county and 17.4% of the city’s gross volume. There were up from
12.2% and 19.4% in 2008 respectively.
We believe that much of this growth has to do with issue of credit availability in 2008 vs. 2009 that we
discussed earlier. The entry level home buyer was blocked from the market in many ways last year. If we look
back to 2004, the beginning of the run-up on the market, townhouse sales represented 22.4% of number of
sales and 12.6% of gross volume of sales. These five-year, and one-year growth numbers would suggest that a
real shift has occurred. We will continue to watch the townhouse market to determine if this is based on price,
location, maintenance, or new construction product offerings.

City of Charlottesville - 3rd Quarter Attached Home Sales

Average Sales Median Sales Average # of Closed Volume of Sales Average DOM
Price ($000) Price ($000) Price / Sq. Foot Sales ($M)
2009 224.1 226.3 $138.42 24 5.4 122
Change -2.4% -6.9% -2.8% -31.4% -33.0% 35.6%
2008 229.5 243.0 $142.34 35 8.0 90

City of Charlottesville - YTD Attached Home Sales

Average Sales Median Sales Average # of Closed Volume of Sales Average DOM
Price ($000) Price ($000) Price / Sq. Foot Sales ($M)
2009 234.0 242.0 $139.42 73 17.1 191
Change -5.6% -8.6% -2.0% -16.1% -20.8% 44.7%
2008 247.9 264.7 $142.27 87 21.6 132

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 3rd Quarter, 2009

Albemarle County - 3rd Quarter Attached Home Sales

Average Sales Median Sales Average # of Closed Volume of Sales Average DOM
Price ($000) Price ($000) Price / Sq. Foot Sales ($M)
2009 251.8 246.1 $135.77 96 24.2 91
Change -1.2% 3.2% -8.2% 57.4% 55.4% -3.2%
2008 254.9 238.6 $147.89 61 15.6 94

Albemarle County - YTD Attached Home Sales

Average Sales Median Sales Average # of Closed Volume of Sales Average DOM
Price ($000) Price ($000) Price / Sq. Foot Sales ($M)
2009 255.1 240.8 $138.06 236 60.2 97
Change -0.4% 1.2% -9.8% 28.3% 27.7% -5.8%
2008 256.2 238.0 $153.12 184 47.1 103

Condominiums
Go back to mid 2006 and try to explain to developers what was about to happen to the condo market
and you would not have found many who could appreciate the over building and over conversion that was taking
place. In 2008, condos underwent their worst financial funding crisis imaginable. The FHA, Fannie, and Freddie
simply stopped lending money to condo borrowers. And that crisis is still being felt to a certain degree. Several
projects locally are now getting their FHA funding certification, but it is certainly not the majority of the projects.
The end result is a third year of three toed sloths stuck in honey. Sales are down - way down. In 2006 there were
more than $18.3 Million in condo sales in the city during the 3rd quarter and more than $22.7 Million in the
condo sales in the County during the same period. This year, just over $5 Million in both the city and the county.

City of Charlottsville - 3rd Quarter Condominium Sales

Average Sales Median Sales # of Closed Volume of Sales Days on Market
Price ($000) Price ($000) Sales ($M)
2009 219.8 184.9 23 5.1 90
Change -6.0% 4.7% -46.5% -49.7% -11.8%
2008 233.8 176.7 43 10.1 102

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 3rd Quarter, 2009

Albemarle County - 3rd Quarter Condominium Sales

Average Sales Median Sales # of Closed Volume of Sales Days on Market

Price ($000) Price ($000) Sales ($M)
2009 185.4 147.0 29 5.4 81
Change -9.9% -7.0% -35.6% -41.9% -21.4%
2008 205.6 158.0 45 9.3 103

Unemployment Numbers
Bismark, North Dakota may not be your top pick of places to live as we start into the winter months, but
they do have one thing going for them: the lowest unemployment in the country at only 3.3%. Charlottesville
remains the top ranked MSA in the state of Virignia, and as of August, 2009 was the 18th top MSA out of 372
MSAs in the US. While 5.6% may feel high to many here in town, feel blessed compared to our neighbors in
North Carolina, specifically RockyMount with unemployment of 13.8% or Yuma, AZ at a whopping 26.1%.
I first cited unemployment as an important number to watch in Charlottesville in the 4th quarter of last
year when the unemployment here was around 3.5%, but the rest of the nation had begun to feel the real effects
of the recession. The prices in Charlottesville had not yet begun to fall significantly (drops were localized) and I
posited that unemployment and pricing would be intimately tied. And this year, unemployment has doubled, and
prices have dropped dramatically.
But there is good news on the horizon. Both the statewide (green line) and the local (yellow line) have
shown several consecutive months of unemployment numbers dropping. Yes, the August numbers are still
preliminary, but while the national number climbed by 0.3% the state and local numbers fell by an equal amount.

Unemployment Rates
10.0

7.5

5.0

2.5

0
Jan 2000 Oct 2000 July 2001 Apr 2002 Jan 2003 Oct 2003 July 2004 Apr 2005 Jan 2006 Oct 2006 July 2007 Apr 2008 Jan 2009
National State Cville MSA
Source: US Dept of Labor, Bureau of Labor Statistics

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 3rd Quarter, 2009

Short Sales
At the beginning of this report, I stated that Short Sales plagued our market. A quick guide to short
sales : a short sale occurs when a seller has negative equity in his home, and a bank will need to take a loss on
their mortgage in order for a sale to be consummated. If a seller has the cash to cover the negative equity, the
bank need not get involved.
Across the country, estimates vary, with many experts placing the current number of underwater
mortgages at roughly 20% of the US public. What is clear is that we are better off than some areas, such as Las
Vegas, where Zillow estimates that 67.9% of homeowners are underwater on their loans. Deutsche Bank projects
this number could grow to as much as half the population by 2011. Whether it reaches 50% is really irrelevant
today. What is relevant is how these short sales are affecting our market and how prevalent they may be.
Prevalence is difficult to determine. I can point to agents who will tell you that they have closed a dozen
sales this year involving short sales. You will be hard pressed to find an active agent who does not have some
level of experience in either listing or selling short sales. However, the data in Charlottesville doesn’t support that.
Currently there are 315 listings active in Charlottesville, and only 5 are listed as short sales. Albemarle has 1039
active listings and only 22 marked as short sales. The reason for this small number of short sales has two
explanations: short sales are being handled directly from the bank to agents without the use of the MLS or agents
are unaware that their listings are actually underwater.
I find it impossible to believe that there are only 27 properties in Charlottesville and Albemarle that are
underwater on the market. In speaking with a local attorney this morning, he indicated that roughly 10-15% of
closings that he is handling are in fact short sales. CAAR has taken steps to correct this error. Agents now must
have their clients sign statements designating whether or not their property is underwater, and if so, they MUST
disclose it, or else not list with a Realtor. By the end of the year, I expect to see better compliance and more
accurate numbers. Until then, buyers need to be wary of the potential for massive time delays and roadblocks if
they do not take steps to protect themselves.

Page 9 ©2009 - Nest Realty Group