|January 21, 2008
Hatteras Island Real Estate: State of the market report
By TOM HRANICKA
is traditionally a time for looking back at the previous year and
looking forward to what the next 12 months may hold in store.
With the final year-end statistics for 2007 just available, it seems
like a good time to take stock of the real estate market on Hatteras
Perhaps the broadest summary statement that might be made about the
island’s real estate market is that some aspects appear to be
stabilizing, while other areas continue to deteriorate. More
specifically, the gap between the supplies of cottages and lots that
are for sale and the corresponding buyer demand for these properties
remained relatively stable during the past year. The other side
of the coin is that with supply exceeding demand by a wide margin,
selling prices continued to decline. Let’s take a closer
look at the various dimensions that defined the real estate
market. Graphic displays of these trends can be viewed in the
“Market at a Glance” segment on the Real Estate and
Business page of this Web site.
Supply vs. Demand
The supplies of residential properties and unimproved lots changed very
little throughout 2007. Similarly, the number of properties sold
remained fairly constant. In round numbers, approximately 500
cottages and 300 home sites were consistently listed for sale, while
about 10 homes and four lots were sold each month. Comparing the
supply and demand statistics, throughout the year there was a 3.5-year
supply of residential properties available for purchase and a six-year
inventory of lots.
Going behind the numbers, a good case could be made that a stalemate
exists in the market between sellers and buyers. Sellers have
generally been reluctant to lower their asking prices to a level that
will motivate buyers to enter the market in significant numbers.
Buyers, on the other hand, appear to be waiting on the sidelines in
anticipation of further price declines. This attitude is
reinforced by fear-based, daily news reports in the national media that
often have limited, if any, relevance to our local market (see last
month’s article – “A Glass Half-Empty or
Another factor that comes into play is the discretionary nature of the
Hatteras Island real estate market and resort markets in general.
In contrast to major metropolitan markets where people need to purchase
primary residences, in resort areas, sellers, for the most part, do not
have to sell and buyers do not have to buy unless market conditions
coincide with their personal preferences.
The supply/demand imbalance is at the heart of the challenges facing the island’s real estate market today.
Classic economic theory tells us that when supply exceeds demand prices
will decline. That, in fact, is what we have been seeing in the
Hatteras Island real estate market since the summer of 2005 when the
buyer’s market began.
Compared to 2006, the median selling price of residential properties
fell around 18 percent last year, and the median selling price of
unimproved lots decreased by about 11 percent. Cumulatively, the
selling prices of residential properties have declined by 44 percent
since the second quarter of 2005, and the selling prices of lots have
fallen 23 percent. The silver lining associated with the
magnitude of these price declines is that they may signal that we are
getting closer to the point of a market turnaround.
Another price-related observation that may be of interest to both
buyers and sellers is the ratio between selling prices and listing
prices. During 2007, the average residential selling price was
around 92 percent of list price, and the average sale to list price
ratio for unimproved lots was 87 percent.
Last year, buyers definitely showed a preference for residential
properties in the lower price ranges. Almost 25 percent of all
residential sales were in the $300,000 to $400,000 price range, and 70
percent of residential transactions were priced below $500,000.
Only 8 of 129 total home sales had selling prices that exceeded $1
The Pending Home Sales Index
The Hatteras Island Pending Home Sales Index is a leading indicator of
future residential sales. The index measures the number of
residential properties that are under contract relative to the average
number of properties under contract in 2001, the first of the recent
The Pending Home Sales Index gave strong signals that the real estate
market may have reached a turning point last April when it showed an
upward trend for the following six months. Economists at the
National Association of Realtors consider a trend to be statistically
meaningful when it has persisted for three or four months.
Unfortunately, our hopes were relatively short-lived when the index
dropped to new lows toward the end of the year. Deepening
mortgage market troubles and the threat of a recession in the national
economy apparently sent buyers back into a defensive posture.
Geographic Distribution of Sales
Geographically, sales on the island were spread almost evenly among the
northern villages, the Avon/Buxton area, and Frisco/Hatteras.
Avon was the village that accounted for the most sales in 2007,
followed closely by Frisco and Hatteras. The soundside in Frisco
was the most active market segment, although the oceanside in Rodanthe
and Salvo were very close in the number of sales. The oceanside
in Salvo was notable for the increase in sales over the number reported
All areas of the island experienced decreases in both the average and
median selling prices of residential properties except Hatteras village
The financing of transactions was not a factor in the performance of
the real estate market on Hatteras Island during 2007. While
underwriting requirements became more rigorous across the spectrum of
loans, financing was readily available for qualified buyers.
Interest rates continued to be very attractive and approached the
historical low points seen a few years ago. Recently, the
interest rate offered by a major lender for 30-year fixed rate loans of
$417,000 or less was 5.75 percent. The interest rate for larger
loans was 6.5 percent with the payment of one point. A point
equals one percent of the loan amount. Some lenders were
advertising even lower interest rates.
As might be expected, the fortunes of the construction industry on the
island mirrored the trends in the real estate market, especially those
related to unimproved lots. By the end of 2007, 65 new single
family detached residential building permits had been issued.
This was down 64 percent since 2004.
When all is said and done, toward what conclusions do these numbers and
trends lead us and what implications do they have for the coming
year? Quite obviously, we are continuing to experience a slow
real estate market on the island. Yet, within this weakness lie
the foundations for the next upward cycle. Interestingly, when
the stock market began its recent decline, there was a very noticeable
increase in the number of online viewings of properties for sale. It
remains to be seen if the volatility and weakness in the stock market
will translate into a new flow of funds into real estate, and the
psychological impact of reductions in the federal funds rate could also
be a positive stimulus for the real estate market.
In my opinion, there is a tremendous amount of pent-up buyer demand for
residential resort real estate. Prospective buyers appear to be
sitting on the sidelines waiting for some sign that the time is right
to buy. Eventually, they are going to reach the conclusion that
the purchasing environment is as favorable as it is going to get for
them, and they will re-enter the market. When you look at the market factors currently favoring buyer interests,
it is hard to understand why they are not purchasing in significant
numbers. There is a large inventory of properties from which to
choose. There is little competition from other buyers.
Interest rates are near historical low points, and prices have declined
nearly 50 percent from their highs in mid-2005.
Only time will tell how these factors will ultimately play out, but 2008 appears to be looking better every day.
(Tom Hranicka is an
associate broker with Outer Beaches Realty. Questions, comments, or
suggestions for future articles may be sent to Tom Hranicka at P.O. Box
237, Avon, NC 27915, or e-mail to [email protected] )
Copyright©2007 Tom & Louise Hranicka. All rights reserved.