February 11, 2013

Hatteras Island Real Estate:
2013 State of the Market Report


All things considered, 2012 was a pretty good year for the Hatteras Island real estate market, especially in light of the impact that Super-storm Sandy and the two nor’easters that followed had on access to the island.

Here is a look at the major residential market indicators comparing last year with 2011.

# FOR SALE+6.4%
# SALES+7.5%

As you can see, both the number of sales and the average selling price showed modest gains, and new homes are once again being constructed throughout the island. The dominant residential trend is more sales at slightly higher prices.

If you have been tracking the performance of the national real estate market, then you have read reports about the supplies of properties for sale decreasing substantially. This situation is not characteristic of what we are seeing on Hatteras Island. The supply and demand curves for residential properties were coming together nicely with the inventory decreasing and sales increasing until the end of 2011. Throughout 2012, the two curves have been parallel to each other with both rising together at approximately the same rate.

Residential properties under contract to be sold are considered to be a leading indicator of future sales.  The significance of the drop in this measure of the health of the market is, quite honestly, not completely clear to me at this time.  On the one hand, there is a pattern of seasonal decline that we often see at the end of the year. Then, properties under contract tend to increase throughout the spring months. My sense is that the issues associated with Highway 12 that we experienced from late October through most of December are somewhat responsible for the larger than usual decrease in this number, and I am hopeful that it is just a temporary anomaly.

The statistics presented above are for all residential properties including single family homes, condominiums, and mobile homes. If we dig deeper into the figures and look only at price indicators for single family homes by their location, some interesting variations emerge.

All Residential+3.8%
Single Family Only+4.7%
Single Family Oceanside+8.4%
Single Family Soundside-4.3%
Single Family Oceanfront+18.8%
Single Family Semi-Oceanfront-22.7%
Single Family Soundfront-4.2%
Single Family Canalfront-6.4%

The number of sales in all of the categories, except for soundside properties, was higher in 2012 than in 2011. I think the figures show that buyers were taking advantage of the exceptionally attractive prices for high demand oceanfront properties and that price behavior was dependent on location.  Keep in mind that price is just one dimension of the purchasing decision. Location, condition, and price are the central buying criteria that we are seeing in today’s residential market.

Of particular significance are the changes that are taking place in the distressed property segment of the real estate market. In previous articles, I have commented that a reduction in the number of bank-owned properties and short sales was an important pre-condition for prices to rise.  It is my belief that the corner has finally been turned relative to this indicator. Distressed properties represented 55.7 percent of all residential sales in 2011 and 49.1 percent of residential sales in 2012.  In contrast, today there are just 11 foreclosures and 13 short sales that are for sale among 248 active listings – less than 10 percent. This is potentially good news for prices this year.

One other observation that is important to note is the distinction between the price of a property and its cost. The average selling price of a home on Hatteras Island in 2012 was $338,412.  This is roughly the same as the price level that existed in 2002. The significant difference is that the average interest rate on a 30-year fixed rate mortgage in 2012 was about 3.6 percent compared to 6.5 percent in 2002. What this means from a financial standpoint is that the monthly cost of a mortgage on a $300,000 house last year was around $532 less per month than it was ten years ago. Looked at another way, at today’s low interest rates, you can buy more house for the same monthly outlay.

The historically low interest rates that we are currently enjoying cannot last forever. The benefit of concurrent low prices and low interest rates is an opportunity that prospective buyers should recognize and act upon to make their dreams of purchasing a home on Hatteras Island a reality before the price/interest rate dynamics change.

Thus far, we have been examining the residential market on the island.  Unfortunately, the market for undeveloped lots is not recovering as well as the market for homes.

The following table depicts the year-end statistics for unimproved properties.

# FOR SALE+9.4%
# SALES+57.6%

The story that these numbers tell is that buyers are scrambling to purchase undeveloped lots at prices decimated by distressed properties and at price levels last seen in 1999. In contrast to the residential market, the summary comment for the undeveloped lot market is -- more sales at lower prices.

In terms of location, 36 percent of lot sales on the island in 2012 were on the soundside in Avon. The remaining sales were spread among the other villages.

The impact of bank-owned properties in terms of the number of sales and the decline in the average selling price of lots is quite evident. Like the residential market, the decline in foreclosure filings is a welcome sign that the long slide in lot prices may finally be coming to an end.

There are many ways that the statistics can be analyzed, and each variation provides us with a deeper insight into market behavior. In this report, I have attempted to present the indicators that I consider to be the most relevant for identifying the major market trends.

Overall, I think that the Hatteras Island real estate market is in the early stages of recovery. I expect that we will see a steady improvement in sales and price appreciation as the next market cycle takes shape. Only time will tell the exact pattern of the recovery, but I have tremendous faith in the belief that Hatteras Island is singularly unique in so many ways and that as more and more people recognize its distinctive qualities, the future for the island and its real estate market will be very bright indeed.

(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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