October 9, 2012

Hatteras Island Real Estate:
Luxury home market is starting to recover


As each month passes, new signs are surfacing that the next cycle of the Hatteras Island real estate market is underway. One of the sectors that was hardest hit during the buyer’s market was the luxury home market.

If we define the luxury home market as properties with selling prices of $750,000 and higher, then this market segment almost disappeared during the five-year period between 2005 and 2010. The number of luxury home sales plummeted by an astounding 96 percent!

One of the major factors contributing to this decline was the virtual absence of financing for “jumbo” loans, i.e., those in excess of the conventional loan limit of $417,000. As I understand it, the lenders had no secondary market where they could sell these high value loans, so they had to hold the mortgages in their in-house portfolios, which is something that they did not want to do. The result was that the lenders made prospective buyers jump over very stringent hurdles, such as large down payments, high interest rates, and extremely strict underwriting requirements -- if they even offered luxury home loans at all. Without readily available financing, sales dwindled. 

A significant number of foreclosures and short sales was also responsible for bringing down selling prices at the upper end of the market.

The situation is slowly improving, and we are encouraged that the number of high-end sales is starting to increase, albeit slowly.  Financing for luxury homes is beginning to loosen up a little bit.

For a primary residence or a true second home – a home not rented to others or with an owner who does not own another second home within 50 miles -- the down payment would be in the 30 to 35 percent range. Interest rates are quite attractive at 3.75 percent to 4.25 percent. Investment properties and those in a rental program would require 50 percent down with an interest rate probably in the 5.0 percent range. As you might expect, not many of the latter type of loans are being made. 

I am quite confident that we are in the bottom range of the long-term real estate market cycle here on Hatteras Island. Trends in the luxury home market are just one more indicator that now is the time to buy. The current combination of historically low interest rates and low prices is not going to last forever.  Savvy buyers are already taking advantage of the purchasing opportunities that exist in today’s market.

It is a pretty safe bet that the island’s real estate market will soon be following the positive sales and price patterns that are being seen in locations across the country.

(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 2012 Tom & Louise Hranicka.  All rights reserved.

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