Hatteras Island Real Estate: Signs of Recovery
By TOM HRANICKA
June is truly a wonderful time on Hatteras Island. Summer
visitors are starting to return for their vacations. The
oleanders are in full bloom, and the ocean is a magnificent
kaleidoscope of blue. Perhaps the excitement and anticipation
a new season is causing me to be overly optimistic, but I honestly
believe that the worst of the recent market cycle is behind us, and the
island’s real estate market is on the road to recovery.
A real estate commentator once observed that nobody rings a bell when
the market has reached a bottom. In other words, the only way
that we know the low point in a market cycle has been reached is in
hindsight. I think this is true, in part, because there is no
single indicator that tells us the exact point at which a turnaround
has begun. The situation is somewhat similar to starting up
engine after it has been sitting idle for a long time. At
the engine spits and sputters. Then, once all of the
start firing, it begins to run at full power.
Here are the indicators that I am seeing that suggest to me that a
market recovery is in progress:
• While the inventory of residential
exceeds buyer demand by a wide margin, the supply and demand curves are
slowly trending toward each other. At the current pace of
it would take about two years to sell all of the residential properties
currently being offered for sale. By comparison, during the
summer of 2008, there was a 4.1 year supply of homes and condominiums.
• The monthly number of sales is
During 2008, about 10 residential properties were sold each month on
the island. That number rose to 15 sales per month last year,
it has held essentially unchanged at that level for the first five
months of 2010. February 2009 was the month with the lowest
number of reported sales.
• The decline in the average selling
residential properties that we have seen since 2005 seems to be
ending. In fact, we have started to see a slight rise in
prices between January and May of this year. It appears that
will have been the year that selling prices bottomed out.
• Looking at longer term price trends,
above the island’s historical growth curve for eight years, the average
residential selling price in 2009, and thus far in 2010, are very close
to the “normal” rate of appreciation.
• Finally, the Hatteras Island Pending
Index, a leading indicator of future sales activity that is based on
the number of properties under contract to be sold, has been above its
long-term downward trend for the past 11 months. The lowest
of this statistical measure occurred in December 2008.
Before we get too excited, let’s not forget about those cylinders of
the market engine that are still not operating the way they
should. The major market segments that continue to exhibit
significant weakness are the more expensive properties, unimproved
lots, and foreclosures and short sales.
• The emerging market recovery has not
price ranges equally. Sales of residential properties have
concentrated in homes with selling prices below $500,000.
about 15 percent of all residential sales since January have had
selling prices above $500,000, and the highest reported residential
sale this year was $815,000. One of the main challenges faced
the sellers of higher valued homes is that financing is tight and
underwriting standards are rigorous for loans in excess of
$417,000. Lenders have to fund these loans out of their own
assets, and there is a limited, if any, market to resell “jumbo” loans
• Unimproved lots have really been hit
the buyer’s market that the island has experienced since
During 2009, just 30 lots were sold on the entire island, and 15 lots
have been sold this year between January and May. Like
residential properties, the availability of financing for unimproved
lots is quite limited. It is my understanding that only three
lenders on the Outer Banks are currently making lot loans, and the
underwriting for these loans is quite stringent. A foreclosed lot on
the soundside in Avon recently sold for $18,500! My
instincts tell me that this could represent the bottom of the market
cycle for lots.
• The sales of foreclosed properties and
(the sale price of the property is less than the amount of the
mortgage) represent almost 50 percent of residential sales.
these properties are nearly always sold at a substantial discount,
their presence in the market places a downward pressure on selling
While the number of foreclosure sales has remained fairly constant, the
number of short sales has dramatically increased over the past
year. My sense is that this increase reflects a growing
by sellers of the advantages of a short sale as a pre-foreclosure
alternative and a higher level of comfort with the short sale process
among real estate agents. I also believe that the number of
sales is understated, since some sellers choose to bring cash to the
closing table vs. having their credit adversely impacted by a short
sale on their record.
An interesting discussion is going on in the real estate and financial
media concerning foreclosures. The majority of reports have
projected a massive increase in foreclosures during the next 18 months
as interest-only and option ARM loan interest rate reset periods come
due. However, an emerging school of thought suggests that
will control the volume of foreclosed properties that are released into
the market in order to avoid depressing the overall value of their
Prospective buyers seem to recognize the uneven nature of the real
estate market recovery on Hatteras Island. Buyers frequently
comment, “I am not really sure if the market has reached bottom, but it
is close enough that I don’t want to miss the next wave.”
In summary, I think we are seeing some pretty convincing evidence that
real estate market conditions on the island are improving. I
think that the recovery, as it progresses, can be expected to be a
gradual vs. a rapid turnaround.
The practical implications of these statistics and trends are
twofold. If you are a seller, those properties that are
reflect current market conditions rather than past values will be the
most likely to be sold. If you are thinking about purchasing
home or a lot on Hatteras Island, it is a great time to be a buyer
while we are still in the early stages of the market recovery.
All things considered, these trends are good news for everyone, and
they seem to track with other positive reports about the rental market
and the local economy.
(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]
Copyrightę2010 Tom & Louise Hranicka. All rights