March 28, 2013

Hatteras Island Real Estate:  Trends worth watching

By TOM HRANICKA 



Everyone always seems to ask the question, “How is the real estate market doing?”  My sense is that a more interesting question might be, “Where is the real estate market headed?”  While no one ever knows for sure, some insights into the most probable answers might be found by examining the trends and patterns that are emerging.  Here is a look at some of the most relevant trends that we are currently seeing in the Hatteras Island real estate market.

Trend #1 - Sales Are Increasing.  Since 2008, the number of residential sales has steadily increased each year. Undeveloped lot sales began a similar upward movement a year later.

Trend #2 – Prices Are Rising. I recently read somewhere that when sales rise for several years, prices almost always increase.  In 2012, the average selling price of residential properties on the island rose 3.6 percent. While this is not a record-setting pace, it is certainly a sustainable rate of growth. When viewed in the perspective of historical market cycles on the island, there is reason for optimism that the upward pattern will continue. Lot prices have not yet turned the corner, but I am reasonably confident that this year will see improvement.

Trend #3 – Supply Continues to Exceed Demand.  Watching the interplay of the supply and demand curves following the market downturn in 2005, it really looked like the two indicators would reach an equilibrium point in 2011 signaling the start of a new seller’s market. Hurricane Irene , followed a year later by Superstorm Sandy and two subsequent northeasters, caused the supply and demand curves to change direction and begin moving parallel to each other – a relationship that is still being seen.

Trend #4 – Luxury Home Sales Are Improving.  An upward trend in the $750,000 and above market segment began in 2011. During the buyer’s market, high-end sales almost disappeared and only recently started on the path to recovery. While the number of sales in this category is still very low, steady growth is being seen.

Trend #5 – The Influence of Distressed Properties Is Declining.  Last year, short sales and foreclosures accounted for 49 percent of residential sales. Today, there are just five foreclosures and 16 short sales among the 246 residential properties that are currently for sale. A similar pattern is being seen in the unimproved lot market.

Trend #6 – Interest Rates Are Rising.  While interest rates remain low by historical standards, they began to increase toward the end of 2012. Interest rates on 30-year fixed rate conventional loans hovered around 3.5 percent for quite a while and then moved up to the 3.75 percent range, where they remain at the present time.

Trend #7 – The Affordability of Real Estate Is Very Attractive.  In 2002, the average sale price of residential properties on the island was $342,708, and the interest rate was 6.5 percent. This translated into a monthly principal and interest payment of $1,732.92.  Last year, the average residential sale price was $338,412, and the interest rate was 3.6 percent, resulting in a principal and interest payment of $1,230.86 – about $500 less per month for essentially the same priced property!

Trend #8 – Lending Is Expected to Remain Tight.  The same word can sometimes have different meanings, depending on the context in which it is used. As it applies to conventional mortgage loans (loan amounts of $417,000 or less), lending is not “tight” in the sense that money is not available. Qualified buyers are obtaining the loans for which they are applying. It is the loan underwriting process that is tight since extremely lengthy and detailed documentation of a borrower’s financial situation is required.  For higher value loans, the problem is lack of availability based to a large extent on the absence of the lender’s ability to sell these loans in some type of secondary market.  In addition, the amount that buyers of more expensive properties can borrow is often only 65 percent of the purchase price vs. 80 percent on conventional loans.

I am sure that other trends could be identified.  However, I believe that these are the dominant patterns that will shape the Hatteras Island real estate market for at least the next year. All things considered, these trends point to a positive outlook for the foreseeable future. 

For anyone contemplating the purchase of a home or lot, I would advise them to give careful consideration to the interaction of the pricing, interest rate, and affordability trends.  This is an exceptional time to be a buyer on Hatteras Island!

(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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