February Market Report

With all the insurance and septic news, I’m going to be brief on this month’s market report and just give you the numbers straight up. With only one month in, there isn’t a lot to analyze anyway.

Not much has changed since December, except in Kill Devil Hills showing the only noticeable difference. Which is not unusual for this time of year. We will compare again in April and see if anything changes.

Area Active Now Active Dec

Area  Active Now  Active Dec
Corolla 81 88
Duck 16 17
Sshores 16 17
Kitty Hawk 15 18
KDH 49 60
Nags Head 43 40

Not a lot going on just yet, but don’t worry things will heat up in a few weeks! I’ll be watching.

If you’d like more information on buying or selling, please reach out.

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.

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.

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.

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!

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.

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