May 16, 2008

Hatteras Island Real Estate:  A market round-up



Cycles have always been an elemental part of life on the island. The tide ebbs and flows. The birds and the fish migrate according to recurrent patterns, and the winds shift direction as the seasons change. The island also has its economic cycles.  As you read about the changes that are taking place in the real estate market, try to get a feel for the underlying rhythms and for the broader trends that are reflected in the various indicators that we are evaluating. You may find the charts displayed in the “Market at a Glance” feature to be helpful in this regard.

The real estate cycle on Hatteras Island changed from a seller’s market to a buyer’s market during the third quarter of 2005 after four years of exceptional performance.  This was about six months before the statisticians marked the turning point for the rest of the country. Hopefully, this head start will translate into a recovery for the island’s market ahead of the major metropolitan areas.

From the broadest prospective, residential sales results on the island last year were at a level last seen during the 1997-1998 time frame.  Unimproved lot sales were below those reported in 1994, the first year for which I have records.

Since the summer of 2005, we have seen the supplies of cottages and lots increase while the demand for those properties declined.  As the gap between supply and demand has widened, the median selling prices of both residential properties and lots have decreased.  Residential selling prices have dropped 25 percent, and lot prices are down 54 percent since the second quarter of 2005.

The good news is that we are starting to see signs of stabilization in some segments of the market.  The relationship between residential supply and demand has remained relatively constant during the past year.  The number of homes for sale has hovered around 500 properties each month, while the number of sales (calculated at annual rate) has remained in the 130 to 150 range.  The same relativities have been characteristic of the market for unimproved lots with monthly supply holding steady in the 325 properties for sale range, and annual demand staying consistent at 50 properties sold.  It is very interesting to note that in the markets for both homes and lots, we have not had traditional supply/demand curves for the past 12 months.  We have had two parallel lines that look like a set of railroad tracks!

With this overview as background, let’s review the island’s real estate market during the first quarter of this year.

Residential Properties

When comparing the first quarter of 2008 to the same period in 2007:

•    The number of homes for sale remained essentially unchanged.

•    Both the number of residential sales and the associated dollar volume represented by these sales declined about 20 percent.

•    However, the median selling price of residential properties rose slightly (5.5 percent) to $442,000.

Unimproved Lots

Unimproved lot sales showed slightly more positive trends. 

•    The number of home sites for sale declined by 4.3 percent.

•    Lot sales rose by 16.7 percent, and the dollar volume represented by those sales increased 3.2 percent.

•    The median selling price of lots ($125,000) decreased by 21 percent in comparison to the first quarter of 2007.

As you evaluate the percentage changes in these statistics, please keep in mind that we are dealing with a very limited number of sales during the three month period – 26 homes and 7 lots.  The small numbers can magnify the percentage changes, making changes look larger than the absolute numbers actually reflect.

The Hatteras Island Pending Home Sales Index

The Hatteras Island Pending Home Sales Index (PHSI) is a leading indicator of future residential sales.  The index measures the number of residential properties that are under contract to be sold relative to the average number of properties under contract in 2001, the first of the recent boom years.

The PHSI provided a bright spot in the first quarter results.  The index increased by 50 percent from January to March compared to a 17 percent decrease during the same period in 2007 and flat results in 2006. While these numbers are encouraging, I am a little hesitant to get too excited about this increase.  Last year, we were sandbagged into thinking the bottom of the market may have been reached in April when the index showed an upward trend for the following four months.  Then, a decline to a new low point set in during the subsequent five months.

Geographic Distribution of Sales

Recognizing that a limited number of sales were reported during the first three months of the year, buyers showed a clear preference for residential properties located on the oceanside. Half of the reported transactions were concentrated at the south end of the island in the villages of Frisco and Hatteras.  In contrast, soundside properties were the focal point for unimproved lot sales, with Avon recording the largest number of transactions.

Future Outlook

In my last article I noted that the only way that any of us are probably going to know that the bottom of the market has been reached is when prices start to rise.  At the same time, reasons for guarded optimism about the future are starting to appear:

•    The number of property viewings on the internet has noticeably increased this year.  A recent national survey showed that about 84 percent of prospective buyers use the internet in their search for property, and many begin their initial search online.

•    The number of property showings and properties placed under contract have risen steadily since the beginning of the year.

•    There appears to be a significant pool of cash available to fuel pent-up demand for vacation properties.  According to a national news report, $3.5 trillion are currently sitting on the sidelines in money market funds.

•    According to the National Association of Realtors, despite negative media reports about the state of the national real estate market, second home purchases represented one-third of all residential sales across the country last year.

•    With increasing frequency, news articles are starting to appear that suggest the time may be right for buyers to venture back into the real estate market.

Hatteras Island is truly a unique place.  It’s natural beauty with vast areas of unspoiled beaches, dunes and wetlands, will always hold a very special attraction for those seeking a peaceful respite from the frantic pace of the outside world.  There is no doubt that financial factors and other forces that are less easily quantified will produce recurring cycles in the real estate market and in the economy of the island. 

However, when all is said and done, there really is no place like Hatteras Island.  We can travel the world in search of exotic locations and places to find solitude, but the feeling that each of us gets when we cross the Oregon Inlet Bridge somehow triggers that quiet voice inside our minds that always says, “Welcome home!”  This is the force that has drawn people to the island for more than 400 years, and it is the force that will sustain the island and those who love it for as far as any of us can see into the future. It is also the force that will ultimately sustain the real estate market.

(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.


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