How NOT to set the listing price of your home.

151 Salt House Road, CorollaA lot of agents will do presentations on how they came up with a price for your home. It is a task that does require some skill. The challenge of course is getting the seller to agree to the pricing suggestions.

Many sellers come into the meeting with a general idea of what they want for the home, which is helpful. However, here are a few ideas on what NOT to do when you decide to sell your Outer Banks home in today’s market.

  • Tax Assessment Don’t confuse your county tax assessment with market value. Your tax assessment is for the purpose of assessing a tax amount to you for the purpose of revenue to the county. It doesn’t in any way suggest that’s what a buyer is willing to pay or a seller is willing to sell for. Most importantly the assessment on your home right now is 4 years old! On the Outer Banks they only re-assess every 8 years. Because it’s 4 years old, it also doesn’t take into consideration any improvements that have been done since the last assessment.
  • Old Appraisal Appraisals are only good for the day they are written. What? Yes, that’s correct. Considering that anything and everything could change tomorrow, an appraisal can only be valid for one day. If you have a year-old appraisal and want to base your price on some reflection of that, you might find yourself the highest bidder of your home. I mean I was a size 8 years ago, but that’s not exactly going in my dating profile for today!
  • Old Sales in the area – All agents have heard it… “Well, my neighbor sold last year for $30,000 more.” Markets never stay the same. It’s an ever-changing environment, which is why consulting with a good agent who studies home prices every day is the best way to get closest to current market value.
  • Recent Improvements – We’ve also all heard… “Well I have a new roof, HVAC and carpet. I want to ask $extra to cover those costs.” The fact that you’ve done these “maintenance” items is great. It shows you’ve taken care of the home. The problem is all houses need a roof, HVAC and carpet. In this market, that can make your home more saleable, not necessarily more valuable. Buyers expect the basic components to be in good condition already. What you can ask more for are upgrades. Changing vinyl to tile or carpet to hard wood, or laminate to granite are all upgrades.
  • Basing the price on your needs – We would all love to get the seller the most money possible. That’s part of our job. However, we can only sell the home for the true market value. Just because you NEED to get $50,000 at closing doesn’t mean it’s going to happen. You have to consider all the current factors in your marketplace and if those point to a lower price, you needing that money will not cause a buyer to pay it if the value isn’t there. You may need to adjust your plans based on what’s realistically going to come out of the sale of your home. These are hard conversations, but a good agent will not be afraid to spell out the truth.
  • Stuck on a previous market value –The last few years have been monumental. It was a fast- rising market and prices skyrocketed. Now we are in a more “normal” market. Prices aren’t rising or falling at a tangible rate just yet. Mostly because inventory is still too low. However, don’t get complacent. Markets ALWAYS cycle. What goes up, must come down. I predict this fall pricing will look differently than it does right now. So, pay attention to CURRENT trends and not what happened the last year or two.
  • Focus only on Price – So often I hear, “I don’t have to sell, I’ll just wait if I have to sell at that price.” Selling a home is based on a LOT of decisions, not just the price for it. No one wakes up and turns to their spouse and says “Honey, the house is worth $X, we have to sell it.” Selling is based upon life changes, new needs, maintenance costs, jobs, marriages and so many more things that are related to the way we live our lives. It’s sometimes concerning when I see a seller refuse to sell based solely on the price. That means they are putting that dollar value above the benefits selling the home can bring to the family. Don’t let the emotional response to the price create a “wish I would have” moment.

Now that we’ve covered what NOT to do, if you need help pricing your Outer Banks home for a prime spot in our market today, certainly let me know how I can assist you!

OBX History Repeats Itself

Image of the Ocean on the Outer Banks, NCHistory repeats itself.  A saying I’m sure you’ve heard and said dozens of times.  I might not yet be a half of a century old, but I’m old enough, and have been in this business long enough (27 years) to recognize a similar pattern.  Let’s revisit the timeline of the Outer Banks real estate market from the year 2000.

Year/Sold        Units Sold         Average Price Sold 

2000               n/a*                  $275,000       *I don’t have access to the # of sales that far back

2005               2104                 $555,973

2008                1045                 $427,718

2011                1333                 $370,569

2014                1611                 $370,351

2017                1995                 $385,774

2019                1966                 $400,592

2020                2614                 $520,009

2021                2889                 $668,994

2022                2096                 $770,901

2023                1446                $746,351

Looking at the raw data above for single-family home sales, here’s what we see:

  • Between 2000 and 2005, there was a building boom and a huge spike in demand due to the subprime loan accessibility.
  • 2005 was the peak of that bull cycle – 2006 slowed, 2007 started looking quite ominous.
  • 2008, there was a 50% drop in buyer demand or the number of homes sold.
  • 2011 – 2014 was the lowest point, with a 32% overall drop in pricing.
  • In the 8 years from 2011 to 2019, pricing stayed flat, only going up 5% overall.
  • By 2019, buyer demand came within 7% of the peak number of sales in 2005.
  • Right on schedule, 20 years from when the boom started in 2000, a new cycle started.
  • Buyer demand shot up, and pricing came back to just under the 2005 peak.
  • Notice now that in 2023, the first step to a declining market, just like in 2008, is a drop in buyer demand. An exact replica of a 50% drop in home sales from the peak in 2021.
  • This time, the 2022 peak pricing was 39% higher than the peak pricing in 2005.
  • If the market drops at 35%, pricing still hovers over $500,000.

Now, I know that is a lot to unpack. All of this data is telling me that the drop in home sales is a clear indication that we have reached the peak and are on the way back down and soon. The last peak was in 2005, and the crash is attributed to 2008. That 32% decline in pricing didn’t happen overnight. It was spread out over a few years.

So, what does all of this tell us?

  • First, based on the last cycle, even after the crash, the average price still never went below $300,000.
  • If the same holds true, pricing will return to $500,000 after this cycle, but you’ll never buy beach homes for $370,000 again.
  • I expect to start seeing a decline in pricing by the end of this year. It will be subtle at first but will pick up over the next year and the year after.
  • Unlike the mortgage crisis last time, this cycle will be caused by UNAFFORDABILITY.
  • Most importantly, the homes in this cycle are older, and many are not updated (many are over 20 years old). The condition will outweigh any other feature once the inventory spikes due to cost and inconvenience of remodeling out of state. See my previous blog about insurance requirements.

Let’s talk about unaffordability for a minute. This is not just an interest rate issue. In fact, even if interest rates come down to 5% again, it will only create a small impact on the overall cost of owning a beach home.

Consider this:

  • Rising insurance costs. You can read the article in my newsletter about the recent rate increase request. While they have not historically gotten what they ask for, they’ve always gotten something. It’s already too expensive.
  • Mortgage debt to income is stretched to 50% on conventional loans and 48% on Jumbo loans to qualify. That just means qualify. How sustainable is a 50% DTI long term?
  • Car insurance is seeing the fastest rise it’s ever experienced, with an average 22% increase year over year.
  • Utilities are rising.
  • Construction/remodeling costs are the highest on record at over $300/sq ft.
  • Rental occupancy is down 10%. While the rates are still elevated from the COVID years, that will quickly change if occupancy stays down.
  • Real estate taxes are rising. Not so much here on the Outer Banks, but on your primary home in other states.

So, does this mean I’m saying it’s not a good time to buy? Not at all! It’s just not a good time for EVERYONE to buy. How so?

  • If you are a LONG TERM investor, you will be fine. Even those who bought in 2005 at the peak made money in 2021 or 2022.
  • Don’t buy anything that the rental income doesn’t at least cover the mortgage. Lowers your risk.
  • If your DTI is at 40% or lower, your risk is very low and manageable.
  • Real estate is a tangible asset. While the markets do fluctuate, they also never in history have gone to zero or even to the last cycle’s low.

However, if you are a current homeowner and your retirement plan includes the proceeds of this home, you may need to really consider how long you can/want to keep it. If you aren’t in to see this next cycle through, you have a prime time this spring to take advantage before what I believe is the end of this bull market.

Factor in the waning rental occupancy, rising costs, and the boomers knowing it’s time to cash out, it appears we will see an influx of inventory this spring. That will be the one catalyst to start a more rapid decline in pricing.

Please know that it’s never my intention to be a downer; I’m just a realist. You can’t avoid what you don’t see coming. It’s coming. I was taught that you can’t make the best decisions without looking at all the information. Please reach out if I can help you strategize your move in 2024.

November OBX Update

Image for November blog post

Let’s take a basic approach this month.

Here’s what we have:

Inventory is generally the highest in our spring market.  This year, we are seeing a 26% increase in inventory in fall versus spring.  That’s pretty unusual.

  • Spring Average Inventory – 280 homes
  • Fall Average Inventory – 380 homes

Similarly, sales are also at their highest in the spring market.  Here, we see a normal 14% drop so far for fall.

  • Spring 3-month average sold – 170
  • Fall 3-month average sold – 145

It’s still not taking long to get properties sold.

  • Median days on market is still pretty low at around 3 weeks.

Pricing hasn’t changed very much, despite seeing more price reductions.  We aren’t seeing a tangible change just yet.

  • Median price in spring vs fall is hovering right around $540,000
  • 59% of closed properties sold UNDER asking price
  • 22% sold AT asking price
  • 19% sold MORE than asking price

While mortgage applications are down, it’s not impacting us yet.

  • 30% of all sales in September were cash

Bottom line is for now, things are still moving along.  However, there are these subtle differences.  Markets don’t change all at once.  It happens little, by little, by little, then all at once!

I’ll be watching.

For Last 90 days of 2023

What to expect?  Well, short of some financial event or credit crisis, probably more of the same.  The big challenge with resort markets, aka discretionary markets, is the lag time.  It generally takes about 18 months for economic factors in the real world to make their way to us.

Because we don’t have a large section of properties that “have to sell” to keep our market moving, as soon as buyers slow down, inventory piles up.  At least that’s how it normally is.  Truthfully, we are not that far from inventory pushing that market shift from “normal” to “soft.”

That being said, right now here are the main highlights of our current market for Single Family Homes.

Corolla, Duck, Southern Shores           
KDH, Kitty Hawk, Nags Head
Active – 110 Active – 110
Under Contract – 52 Under Contract – 44
Sold – 274 (30 buyers/month) Sold – 289 (32 buyers/month)
Absorption Rate – 3.6 months Absorption Rate – 3.4 months

I double-checkedhose numbers, and it is such a coincidence to have the same active for both north and south markets!  They are shockingly similar in all categories.

With 30 buyers a month, 180 active would make it a 6-month absorption rate.  That’s only 70 more listings to push us into a soft/declining market.  I don’t think it’s unrealistic to suggest we could be there by spring.

Real estate is long term investment.  You can time it right, or you can hold and enjoy.  If you have questions on what is the best strategy for you, call for an appointment.

The “Raw Truth” about the OBX market right now.

It’s no secret the real estate market is in very bad shape right now.  And in an effort to be as up-front as possible about the pros and cons, I wanted to create this quick list of the main things to consider before buying or selling.

One of the biggest questions I get as an agent is around timing.  When is the right time to buy or to sell?  Truthfully, there is not a one-size-fits-all answer to this.  The best time is when you want to.  Rarely do we have clients who HAVE to buy or sell out of some distress.  That’s just not the norm.  So, does it make sense for YOU to buy or sell right now?  Let’s look at the raw truth.

  1. Outer Banks homes have the ability to generate quite a nice rental income. If you want to insure your long-term capability to own the home, only look at homes with income that is enough to cover the mortgage.  If it’s not going to cover at least that part, it may not be the right house for you.
  2. OBX home purchases are primarily a lifestyle choice. It’s not the norm to make bank on rental income, so only buy a home you know you will get a lot of personal use from.  If it’s not really ideal for your family, you won’t use it.  That time spent is priceless.  Be sure it fits your future family, too.
  3. With banks failing as what seems to be a regular occurrence now, real estate is an actual tangible asset. While the prices do fluctuate, it will never go to zero.  The inflationary dollar is in real trouble.  Why not park some cash in real estate, especially with passive income and personal use on the table?
  4. However, real estate appreciation or value is NOT capable of instant liquidity. Unless you consider 30 days instant.  Pulling liquidity out of real estate takes some financial investment and, most importantly, time.  If you need liquid cash fast, this is not the right investment.
  5. MAINTENANCE IS MANDATORY. Let me say that again.    Do not become one of those lax owners who collects the money and does nothing to the house for 20 years.  It will only cost more later.  The environment here is harsh.  Annual maintenance to keep the home in top condition is expensive.  Be prepared for that, or just buy raw land instead.
  6. While we benefit from low taxes here, insurance is most definitely on the rise! It may soon be unaffordable for many.  And, there is talk of no longer offering coverage for natural disasters.  I can’t imagine they get away with that, but be aware it’s being talked about. To be properly insured could be pushing $15,000 for many homes these days.  It’s nothing to take lightly.  Make sure you aren’t currently under-insured.  Construction costs for a new build START at $300/sq.ft. now!  (I hope you were sitting when you read that)
  7. Interest rates aren’t forever; you can refinance! Granted, you will need equity in the home to do that, so be aware it does come with some risk if that is your plan.  You will need to refinance before the market price eats up your 20% down payment, or it will require more cash to make it happen.
  8. As a Long-term investment plan, real estate is actually very low risk – high reward. Even if someone bought in the last boom of 2005, just 16 years later, even they would have made a handsome profit.  Not to mention 15 or 20 years of someone else paying your mortgage…all that equity for you to capitalize on at the end.

If you would like to discuss your specific circumstances and find out the best timing to either buy or sell, just contact me and we will go through everything you need to know!

August Market Update 2023

August on the Outer Banks

We are closely watching the main stats on supply (up 33% since January) and demand (down 44% since January).  Part of that is watching more specific pockets of activity to glean a closer insight into future trends.  One of those trends I’ve noticed in my near 30 year career is that of high-end home sales.

Take a look at the numbers for Duck and Corolla.

Homes sold $2M and over:

2019 –              6

2020 –              26

2021 –              64

2022 –              51

2023 –              17 YTD  (Likely on track for 27 total)

    • Even if we end up at 27 sold, that will be a decline of 47% year over year.
    • Number of price reductions to get homes sold is going up; 60% of properties sold are under list price, compared to 51% last year.
    • Median days on market for the high-end sales has gone from 21 days to 93 days year over year.
    • There are currently 30 homes for sale in Duck and Corolla $2M and over. With basically 2.4 buyers a month this is over a year worth of inventory.

With interest rates rising, insurance costs rising, rents stabilizing to pre-pandemic times, it’s really clear that a shift in pricing has to take place.  The timing of this is what’s left to be seen.  This strange anomaly of still very low inventory (although is starting to slowly climb) is keeping us stuck in limbo.

If you’re thinking about selling, let’s talk about what your home’s value may look like in this market.

Insurance Companies are Tightening Guidelines

Insurance companies are tightening their underwriting guidelines and limiting coastal exposure, in addition to jacking prices way up.

Here are the changes to note:

  • Markel – One of the more affordable companies will NOT insure any home built in the 1980’s or that is known to have or have had polybutylene plumbing. Even if it’s all been removed and replaced – NO.
  • Frontline – Another very affordable option will not insure anything built prior to 2005. Or give a homeowners policy on a roof more than 15 years old.  Most company’s limit is 20 years.  (You can still get a dwelling policy – but the coverage is nowhere as good, and the price is higher)
  • Farmers Insurance – They have pulled out of Florida completely. Who knows what other coastal community might be next?
  • NCIUA – This is becoming one of the better options but has a cap of $750,000. So additional riders are needed, which can get costly.
  • Under-insured – Most homes today are underinsured. At a meeting with our President and General Contractor recently, he quoted the base square footage price for building a new home today at a minimum of $300 per sqft!

With Nationwide pulling out of coastal markets, Farmer’s doing the same in FL, and many others really tightening their guidelines, we could really use a few years of very minimal hurricane activity!

If you need more information on the best insurance options for your OBX home, do please call Steve Bonday at 252-331-8233 or email at [email protected].

July Market Update

Happy 4th of July on the Outer BanksMid-year is upon us and not much has changed since the last report.  I did notice an interesting trend regarding CASH in our marketplace.  Here’s the deal.  There have been 136 home sales in Duck and Corolla since January.

Of those 136 home sales:

  • 32 Cash
  • 13 Jumbo Loans
  • 91 Conventional Loans

A conventional loan amount is $726,200.  With the typical 20% down, that means a purchase price of around $875,000.

  • Only 53 of the 136 homes sold were under $900,000
  • 83 homes sold over $900,000 up to $6,300,000
  • 13 were jumbo loans
  • 22 were cash
  • The average price is $1,251,000
  • The median sales price is $992,500

A jumbo loan amount is anything over the $726,200.  There were only 13 of those reported.  There were 48 Conventional loans in the $900,000 and up price range.  This means that 48 buyers out of 83 brought enough cash to the table to get their mortgage at or under $726,200.

To paint a clear picture – 32 cash buyers, 48 mostly cash buyers.  That’s 80 buyers (60%) who brought a ton of cash to the closing table to buy a home on the Outer Banks.  Including the highest sale of the year so far – $6,300,000 ALL CASH!!!!  This just seems amazing to me. (Here’s a link Click Here to View Listings to that home if you want to see what $6.3M gets you)

This is a clear indication that buyers have no problem parking cash in a beach home right now.  I mean, why not?  Let’s look at the 3 main reasons this could be a good idea.

  1. Rental income – If you choose to rent, the income will at the very least cover your mortgage. That means, future equity you reap, all paid by SOMEONE ELSE.
  2. Bank Failures – With banks failing across the country, and the Dodd-Frank Bill legalizing, if not mandating, “bail-ins” a lot of people don’t feel safe keeping their cash susceptible. Rather, they are investing in a tangible asset, and one they can enjoy themselves and have others pay for!
  3. Inflationary Fiat Dollar – Let’s get real, the price of real estate will NEVER go to zero. As inflation spikes even more and more out of control, the dollar is tumbling closer and closer to zero.  It seems buyers are hedging their bets on the tangible asset of real estate versus the tumbling value of the dollar.

We haven’t even begun to see the effects of the commercial real estate crisis looming.  This is widely affecting regional banks who are holding the notes on these buildings that are sitting empty in record numbers across major cities.

Don’t get me wrong, my message is not of doom and gloom.  What’s going to happen is going to happen.  My point is, what is your best move?

If you are considering selling, there are cash buyers waiting for your home.  We do have investment vehicles where you can put your money and AVOID capital gains tax in the meantime.  Contact me for more information.

If you are thinking about buying, get off the fence and don’t let the interest rates deter you.  You won’t have much competition buying right now and there are some great opportunities out there!

June Market Report

First let’s talk about banking.  Two major players (Citizens and Key Bank) recently pulled out of all mortgages in resort markets.  If you remember in March I wrote about the FANNIE MAE requirements for second homes that is making it extremely undesirable to get a conventional loan for a second home (higher rates, larger down payments, etc).  This means banks doing conventional loans have to add those loans to their balance sheet as they can’t be sold to FANNIE MAE without the extra high costs, which no one wants to do.  This caused these two banks to pull out of the resort markets across the US.  Will more banks follow?  I suspect at some point they will have to.

What happens if buyers can’t get a mortgage for a second home?  Or they become so scarcely available they price themselves out of possibility?  Do we become a cash only market?  Time will tell!

Meanwhile, rising rates have pushed buyer demand extremely low, and yet inventory is just as low if not lower.  This strange anomaly is the only thing stopping prices from plummeting down.

For example, here are the number of homes sold from Jan to May for the past 3 years:
                 Duck    Corolla         KDH,KH,NH
2023           29            82                      172
2022           68          136                     294
2021            58         241                      355
Conversely, take a look at current inventory levels
               Duck             Corolla            KDH,KH,NH
SFRES    14                     45                              52
The lack of demand indicates the prices should be affected by now.  However, so many homeowners either purchased with cash or have an interest rate of 3% or less.  I read an article the other day that 90% of all mortgages in the US are under 5%.  Who is going to sell and buy something else at today’s higher rate of 7%?  Not many, apparently!

The one thing that could cause inventory to jump this fall is the struggling rental market.  Whether it’s inflation, unemployment, or just being cautious, this year’s rental reports are showing some real struggles.  Across the country Airbnb owners are reporting 25% drop in bookings.  Most owners are making adjustments to the weekly rates to entice bookings.  Let’s just say it, the COVID rental bubble is officially over.  Back to the way it was before.  So, this could cause some of the short term buyers banking on high rental returns to throw in the towel and sell, while they can still get fairly good prices.

Either way, it’s going to be an interesting year for sales.  There are several things to watch, mortgage availability, rental performance, and increasing supply.  We could end up with a “perfect storm” this fall!

If you are thinking of buying or selling, call me to discuss the perfect strategy to fit your needs.

 

Outer Banks Market Update – March 2023

As of right now, the Outer Banks is experiencing what is considered to be a “normal market”.  That means we are not seeing prices change in any significant way up or down.  While prices are still at what is considered to be somewhat inflated, there’s not been real measurable changes so far.  Secondly, we still have a balanced level of inventory.  A normal market is considered to be a demand level of 4 to 6 months of inventory.  We are sitting right in the middle at 5 months of inventory.  This means the demand is steady and supply is still rather low.  In comparison at the peak times in 2021 and 2022, we had just a 2-month inventory.

This begs the question, where are we headed?  There are 3 factors I’m watching to help determine that.  What’s great about Beach Realty is we watch the statistics every single week.  It’s just as good as having a crystal ball. The numbers change in a gradual way that you can actually see the shifts coming if you’re paying attention, which we are!

Factor 1 – Mortgage Applications

Year over year nationwide mortgage applications to buy a home has fallen 41%.  In just a YEAR!  It’s currently at the lowest level in 28 years right now.  That’s even worse than the mortgage crash that happened in 2008.  Coupled with data from NAR, only 29% of recent home purchases are cash.  The most obvious cause is rising interest rates and still inflated home prices.  As a second home market, over 70% of our home sales are a discretionary purchase.  It’s a decision buyers can wait on, especially if they think changes are coming soon.

Factor 2 – FNMA and Second Homes

About a year ago Fannie Mae basically got out of the second home business.  Wanting to pull support from second homes and focus more on first time home buyer programs they negotiated a deal with the Mortgage Bankers Association to drastically increase rates on second homes.  Which at the time didn’t seem too objectionable on conforming loans because the conforming loan limit was $548,250.  With the average second home here being near $700,000, most buyers wouldn’t be affected.  Now the limit is $726,200 for a conforming loan, coupled with the most attractive rates being a now 75% LTV, the rates shot up over 7% with one point.  Making it even more expensive than ever to buy a home on the Outer Banks with a conforming limit mortgage. I don’t know the exact percentage of second home mortgages that are sold to Fannie Mae, but I think an educated guess would be MOST of them.  The only solution is for mortgage brokers to keep the loans on their books and try to offer more attractive rates.  Who knows how long that will last and how many lenders will participate.  I only know of one broker with that program right now.

Factor 3 – Rising Inventory

As buyer demand continues to soften due to rates and prices, inventory will start to creep up this spring and summer.  That could lead us directly into an inventory level over 6 or 7 months by fall.  That pushes us back into a buyer’s market.  If rental receipts drop this year, as expected, this fall we could see prices take a very noticeable hit.  How much is yet to be determined.  However, with as high as prices rose over the last few years, even a 10% drop would likely still put the home higher than pricing was in 2019.  So all is not lost, for this year at least.

If you’re thinking about selling, NOW is your window.  Give me a call to discuss further.