April 27, 2015
Hatteras Island Real Estate: Oceanfront Property
By TOM HRANICKA
sunrises so beautiful they can bring tears to your eyes. Seeing the
full moon fill the horizon and then leave a trail of sparkling diamonds
in the sea as it travels west. Looking with child-like wonder at
the sky on a clear winter night, finding it impossible to believe that
there could really be so many stars. These and a hundred other
sensations and sounds are both the dream and the reality of oceanfront
living on Hatteras Island.
For millions of Americans, owning a
home on the ocean is a lifelong fantasy. The dream often starts
when we are children and grows over time as fond memories of happy
family vacations merge with summers spent working at the beach and good
times shared with close friends. As youth matures into adulthood,
the cycle repeats itself, and those who once were children, bring
families of their own to enjoy the sun and the sand and the sea.
For some, the lure of the ocean becomes so compelling that they decide
to purchase oceanfront property. Others make the decision for
Hatteras Island is blessed by the fact that
approximately 65 percent of the island is in its natural, undeveloped
state, dedicated to the Cape Hatteras National Seashore and the Pea
Island National Wildlife Refuge.
According to Dare
County records, there are about 819 oceanfront parcels on the island.
In total, 81 percent of these oceanfront properties are currently
developed. Avon is the village with the largest number of
oceanfront properties. Buxton has the fewest. The oceanfront is
close to being built out in some villages. For example, in Avon,
Buxton, Salvo, and Waves, there are only 11 or fewer vacant oceanfront
home sites still available.
An overwhelming majority of
oceanfront homes are in a rental program. The remainder are used as
seasonal or year-round residences.
Let’s take a closer
look at oceanfront properties and the various dimensions that define
this fascinating segment of the real estate market on Hatteras Island.
homes come in all shapes and sizes from single-story beach boxes, to
condominiums, to elegant seaside retreats. The asking prices
reflect the diversity in the oceanfront market. Single-family
home prices range from $299,900 to $1.5 million, while condominiums are
priced between $132,000 and $300,000. Currently, there are 56
oceanfront cottages and four direct oceanfront condominium units for
sale on the island.
As near as I can tell, the first sale of a
residential property with a selling price of $1 million or more was
recorded in 1999. The highest selling price for an oceanfront home was
$2.1 million in 2007. In the early 1990s, about 10 oceanfront
homes were sold on the island each year. Last year, 29 oceanfront
cottages on the island were purchased with selling prices ranging from
$189,600 for a home in a high-erosion area to $1.55 million.
real estate market runs in cycles, and oceanfront properties are not
immune to these ups and downs. Because oceanfront locations are the
prime properties on the island, they are often considered a bellwether
for the real estate market. From this perspective, the current
real estate market is no exception to the rule. Residential
oceanfront cottages have exhibited some of the same patterns as the
market in general since the buyer’s market began on the island in 2005.
For example, average selling prices are off about 45 percent – the same
percentage as residential sales in general.
This is a good
news/bad news story. Sellers certainly do not like to see property
values decline, but for anyone considering the purchase of an
oceanfront home, there probably could not be a much better buying
opportunity. When you think about it, a buyer in the current market can
often purchase a very nice oceanfront home and lot for close to the
price of an undeveloped oceanfront lot 10 years ago.
the rental market perspective, the variety of available oceanfront
homes is reflected in the number of weeks rented, weekly rental rates,
and gross rental income. The smallest oceanfront cottages rent
around 22 weeks each year, and can be leased for just under $700 per
week in the off-season. Average size homes rent from 22 to 28
weeks per year. The newest and largest oceanfront houses are
rented up to 33 weeks each year and can command rental rates exceeding
$13,000 per week. Gross rental incomes for oceanfront homes range
from about $15,000 per year to $180,000! Rental income can make
the cost of owning an oceanfront home more affordable.
it is for investment or as an intermediate step in owning an oceanfront
home, some buyers choose to purchase unimproved lots. Excluding
properties located in areas that have experienced high erosion,
oceanfront lots, which are rapidly diminishing in availability, range
in price from $250,000 to $695,000. Differences in prices can be
attributed to such factors as location, lot size, ocean frontage, the
usage of adjacent properties, and the subdivision within which the
property is located. Presently, there are 14 oceanfront lots for
sale, five of which are in an area of high potential
The number of oceanfront lots that have
been sold in recent years is significantly lower than at their peak in
2006 when nine oceanfront lots were purchased. Since 2008, fewer than
six undeveloped properties have been sold each year. The average
selling price of oceanfront lots over the past decade has declined
substantially. If the sales of oceanfront lots in high erosion
areas are filtered out of the calculation, the decrease in the average
selling price is about 68 percent.
buyers are considering oceanfront properties for purchase, they will
frequently ask about the cost of flood insurance. At the present time,
the cost of flood insurance is quite reasonable for most oceanfront
homes. The operative words here are “at the present time.”
the past three years, there have been several pieces of federal
legislation designed to put the National Flood Insurance program on
solid financial footing. In March 2014, the Homeowner Flood Insurance
Affordability Act was passed by both the House of Representatives and
the Senate, and it was signed into law by the President.
direct relevance to the Hatteras Island real estate market, this
legislation reinstated grandfathering on all properties that were built
to a Flood Insurance Rate Map standard since 1978. This includes all
primary resident policyholders, second home policyholders, and
non-resident policyholders. A policyholder and any subsequent
owner of property built in a flood zone will be allowed to continue to
pay premiums based on the flood zone and base flood elevation in place
at time of construction.
As I understand it, the details of
how the Federal Emergency Management Agency will implement the
provisions of this legislation are still being worked out.
footnote to the Homeowner Flood Insurance Affordability Act, there is
another issue closer to home which could impact flood insurance rates.
This factor is the upcoming changes in the Dare County and Hyde County
Flood Insurance Rate Maps. It has been anticipated that the preliminary
version of the new maps may be available for review as early as this
summer with the final maps taking effect in 2016 for both counties.
Initial and very tentative impressions of the new maps are that they
may offer significant rate relief for a significant number of Dare
County property owners.
Considering the unparalleled
uniqueness of Hatteras Island, demographic trends, the relative
scarcity and desirability of oceanfront property, and current price
levels, a persuasive argument can be made that if you have plans to buy
on the oceanfront, now is an opportune time to turn your dreams into
reality. This is especially important if you are thinking about
buying an oceanfront lot and building. Quite simply, the supply
of oceanfront property is essentially fixed, and demand over the long
run can be expected to exceed the available supply.
reach the point of deciding whether or not to buy that oceanfront
property you have been dreaming about, it is always easy to find
practical reasons for putting off the decision for another year --
distance from home, possible erosion, the threat of storms, competing
priorities. And, whatever decision you make, you will probably be
able to justify it. But in the process, also think about what you
will be missing - sunrises over the sea, full moons filling the sky
above the ocean, the smell of salt air, the soothing sound of the waves
lulling you to sleep. This is a decision that comes as much from
the heart as from the logical parts of our mind.
They never taught us to make these kinds of decisions in school, did they?
Hranicka is a broker with Outer Beaches Realty. Questions and comments
may be sent to him at P.O. Box 280, Avon, NC 27915 or by e-mail to [email protected]. Copyright © 2015 Tom & Louise Hranicka. All rights reserved.)