November 28, 2016

Hatteras Island Real Estate:  Perplexing market data

By TOM HRANICKA

Markets are a lot like the weather. Everyone talks about the trends, but no one seems to be able to do anything about them. The current real estate market seems to be a good example of this saying.

Through September, real estate market statistics for Hatteras Island continued to reflect confusing results. The numbers remind me of what the ocean looked like a few weeks ago – waves coming from both the north and the south, colliding in a disorganized plume of spray. Consider the following table:

HATTERAS ISLAND REAL ESTATE MARKET INDICATORS
JANUARY – SEPTEMBER 2016 VS. JANUARY – SEPTEMBER 2015



As you can see, it is not easy to reach solid conclusions from the data.  Traditional economic theory tells us that when supply declines and demand increases, prices are supposed to go up. If that is the case, then what is going on in the residential market where selling prices are declining or flat depending on the measure you choose? On the other hand, in the market for undeveloped lots we are seeing both fewer properties for sale and lower numbers of sales, but prices are rising. In addition, when viewed in the perspective of time, selling prices in both market segments have been essentially flat since 2009.

Here is a look at average residential selling prices since 2005.


One bright spot in the statistical reports is that building permits have finally started to recover, increasing 75 percent over the level recorded through September 2015.

I have been scratching my head trying to figure out what is underlying these bewildering patterns. A few years ago, I would have focused on delays in approving the construction of the new bridge over Oregon Inlet and other issues affecting access to the island via Highway 12. However, that no longer seems to be a reasonable culprit since everyone can see visible progress on both the Bonner Bridge replacement project and the new bridge over the Pea Island Inlet. In addition, there appears to be progress on the proposed “jug handle” bridge around the S-curves in Rodanthe.

After considerable thought and more than a few sleepless hours, I am leaning toward focusing on much broader national trends that may be influencing our local real estate market.

The following table shows the annual growth rate in the United States economy for the past 10 years adjusted for inflation and statistics for household income.



As you can see, the national economic growth rate has been less than 3.0 percent - lethargic at best. In addition, the median household income adjusted for inflation has remained basically unchanged since 2007, fluctuating in a narrow range from $53,051 to $58,503. In fact, during the past five years, median family income has hovered toward the lower end of this range.


This leads to a possible conclusion that potential buyers do not feel that they are making much progress in their personal financial situation, and, if true, they may be reluctant to make a fairly large commitment to a discretionary purchase like a vacation home or lot.

My other line of thought is that demographic trends may be impacting the Hatteras Island real estate market. The Baby Boomers who purchased island homes in the 1980s and 1990s are getting older. They are starting to sell their properties, and they are downsizing in their personal lives as they retire in greater numbers. In comparison to the Baby Boomers, the Generation X population (age 35 – 50) is smaller, so there may be fewer potential buyers to absorb the housing inventory that is being offered for sale. In addition, the huge Millennial generation (the oldest of whom are now around age 34) are not yet financially secure enough to be purchasing resort properties in great numbers.

This hypothesis has some holes in it, the largest one being that this year we are seeing decreases in the number of residential properties for sale on the island accompanied by rising sales.

Finally, some observers have felt that real estate market results should be viewed in the context of current events. There is a belief that potential buyers have been waiting to see the outcome of the recent presidential elections before making a decision to purchase.

One thing is for sure - time will resolve the inconsistencies, and some sense of clarity will return to the market. I sure hope so!

What are your thoughts on the facts, trends, and observations presented in this article?


(Tom Hranicka is a broker with Outer Beaches Realty. Questions, comments, or suggestions for future articles may be sent to Hranicka at P.O. Box 280, Avon, NC  27915 or emailed to hranicka@hatterasisland.com. Copyright 2015 Tom & Louise Hranicka.  All rights reserved.

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