Hatteras Island Real Estate:
What is happening in the market for unimproved lots?
By TOM HRANICKA
Looking back at the buyer’s market that began on Hatteras Island
during the summer of 2005, it would be hard to find a sector that has
been harder hit than unimproved lots. After peaking in 2002, the number
of lot sales on the island has declined for the last seven years.
During 2009, only 30 lots were sold on the entire island – the
lowest number recorded since I began keeping records in the mid-1990s.
despite the decrease in the number of lot sales, the average selling
price of unimproved properties kept rising until 2006, after which a
steep drop set in. Last year, the average selling price of unimproved
lots decreased 49.4 percent from the level recorded in 2008.
average selling price for lots in 2009 was $122,633, down over 69
percent since its peak three years ago.
very important factor affecting the market for unimproved lots is the
availability of financing. These days, there are only a few
financial institutions that are still offering lot loans.
seems to be a shift in the lenders’ view of lot loans back to a
time when these loans were considered to have a high degree of
risk. There is no “secondary” market in which lot
loans can be resold as there is for residential loans.
the banks that are making lot loans must keep these loans in-house.
When available, a typical lot loan in today’s environment might
require a 25 percent down payment, an interest rate of 6.5 percent plus
a 1 percent origination fee (i.e., 1 percent of the loan amount), and
probably a commitment from the borrower that they will begin
construction within 12 months. The loan might be amortized over 15
years with a balloon payment of the outstanding balance after two
years. There could also be a geographic limitation involving the
borrower’s state of residence.
In view of the gap that currently exists between the supply of lots and
the corresponding level of buyer demand, together with the presence of
foreclosures and short sales in the market, and challenges with
financing purchases, it is reasonable to anticipate that selling prices
will continue to decline for a while longer.
Buyers today are looking for location, condition, and price in the
properties that they are considering. In a market like the one that we
are experiencing, price is a seller’s most effective marketing
tool. Since the location of properties is fixed, and their physical
condition (size, buildable area, etc) is usually reasonably good, the
only variable left to work with is price.
In the current market, listing price recommendations from real estate
brokers are based on a belief that the seller’s financial
interests will be best served by pricing their lot as competitively as
possible and attempting to sell it as quickly as market conditions will
allow, rather than pricing it higher and then chasing the market
downward. If present market conditions persist, owners can anticipate
that their properties for the near term will decrease in value rather
than appreciate the longer they go without selling until the cycle
changes. Most observers believe that in a falling market, the
sooner you sell, the more you make, and the less you lose.
My personal belief is that there are tremendous opportunities for
buyers in the Hatteras Island real estate market today. One
example would be oceanfront properties. Excluding properties with
extenuating conditions like the potential for high erosion, there are
nine oceanfront lots available for purchase. Three of these
in the $500,000 to $600,000 price range. By historical standards, these
are genuine bargains. Similar patterns exist for properties in other
types of waterfront and non-waterfront locations.
I think that it is also important to note the interrelationships that
exist among various segments of the economy. For example, as
fortunes of the unimproved lot market have deteriorated, the number of
single-family building permits has dramatically declined. In 2004,
there were 181 single-family detached building permits issued on
Hatteras Island. Last year, that number had fallen to
The impact of this decline on the island’s construction industry
has been heartbreaking.
bottom line conclusions of these trends and observations for property
owners are that properties that are the most competitively priced will
be the first to sell. For buyers, the message is that we are probably
at or near the bottom of the current cycle and that now is the time to
seriously consider making your dream of owning a place at the beach a
reality. The market for residential properties showed signs
recovery in 2009. Hopefully, unimproved lot sales will
demonstrate a similar resilience this year.
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]
Tom & Louise Hranicka. All rights reserved.