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.

December OBX Update

Outer Banks a Year in Review

The insanity of the Outer Banks market continues.  The almost full-year snapshot reveals some interesting things for sure!

Below, you’ll find each town broken down for SINGLE FAMILY HOME sales from January 1st to November 30th.

Area 2023 Sales Median Price 2022 Sales Median Price %Diff
Corolla 197 $930,000 310 $895,000 36%
Duck 60 $1,087,500 99 $1,050,000 39%
SShores 74 $743,000 105 $780,000 29.50%
Kitty Hawk 53 $690,000 91 $659,000 41%
KDH 167 $549,000 270 $530,000 38%
Nags Head 120 $712,000 174 $799,000 31%

The strangest thing I’ve ever seen is a decreased demand by this much and ZERO effect on pricing.  The only thing that is keeping it afloat is the continued lower inventory.  If next spring we get the typical 30% spike in inventory and demand stays low or lower, you can expect falling prices almost immediately.

Area Active 30% Increase New Active #Months Inventory
Corolla 88 26 114 6 months
Duck 21 6 27 5 months
SShores 17 5 22 4 months
Kitty Hawk 18 5 23 5 months
KDH 60 18 78 5 months
Nags Head 40 12 52 5 months

As you can see, it won’t take many listings in each market to push the inventory to 5 or 6 months.  And this is based on current demand numbers.  If demand weakens more, it could push the absorption rate higher, creating even weaker conditions.  Only time will tell, but we’ll be watching!

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.

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.

Welcome Summer!

Welcome Summer! Now that Memorial Day is behind us, it’s officially our summer season. It started with some interesting weather! I read that June is predicted to be cooler than normal. Once again reinforcing my pick for September as the best month on the OBX.

Market Report – I have to say in 26 years of being in this business, the market we have right now is the most odd I’ve ever seen. We have a lack of buyers AND a lack of inventory. With two major banks pulling out of the resort markets, there’s a bit of uncertainty to come. Read June’s FULL Report Here!

Mid-Currituck Bridge – No real construction news, but a win in the fight. The SELC has decided NOT to appeal the recent court’s decision. This will certainly save some time. While the plan seems to intend on moving forward, the environmental studies will all have to be re-done since they are more than 3 years old. Full article here.

Tax Deferred Exchange – Did you know it’s possible to sell an investment property and defer capital gains tax, WITHOUT having to do a 1031 Tax Exchange and buying another property? I have a handy PDF document I can send with more information if you’re interested. Just email me back to request it.

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.

 

Happy March! 

The Month of MarchWhat a mild winter we have had here at the beach so far.  We are not complaining, that’s for sure.

I’ve got a couple of pretty interesting topics this month…let’s dive in.

Market Report

Anyone who knows me knows I’m generally an optimist by nature.  I have to say some of the economic factors going on are raising my level of concern for our local market this year.  While the OBX is a primarily second home market, we are late to see the effects of the primary market shifts.  Believe me, changes are on the way, click here for more.

Mid Currituck Bridge

Ah yes…the long-awaited bridge.  If you’ve been waiting around for this thing since the 90’s like me, you will probably see this as a nice reminder this project is not completely dead, and also hard to get hopeful again.  Read more here.

Taste of the Beach

Yes, it’s March and time for my absolute favorite OBX Event of the year!  If you’ve never been, you are missing out on some of the best dining experiences we have to offer.  If you can make it to town the weekend of March 24 – 26th, you won’t be sorry!  Let me know what some of your favorites are!  Click here for the event website.

Agent of the Year

I was honored and excited to receive this award again for 2022.  I’m grateful to my wonderful client base and friends for the amazing support I’ve had in my career.  This is year 27 for me in the business.  I have been very blessed. Read more here.

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.

Happy New Year from the OBX

Hello and Happy New Year!

Happy New Year from the OBXWhat an interesting few years in the real estate world, and the world in general!  I got to spend a good bit of time with my niece and nephew over the last 18 months and do a little bit of traveling.  After 26 years in the business, I was so grateful and fortunate to have the opportunity to still assist some new and past clients while enjoying that precious time with family!
Market Update – I’m excited for what’s to come in 2023, and I’m sure you’re curious about what the market climate is right now.  Here’s a link to my 2023 Real Estate Market Predictions.  Hint, under contract and sold properties are already down 50% from this time last year.  What do you think will happen next?
Suggestions – As I gear up to write these informative messages to you, I’d like to know if there’s any specific topic you want to know more about.  Message me with your ideas!
Construction Projects – If you are interested in doing any work to your home this spring, I have a carpenter who actually has the next few weeks open.  His skill level is vast and can handle most small to moderate-sized jobs.  Flooring, decking, windows, some siding jobs, bathrooms, drywall, etc.  Contact me for more information.
2023 Goals – It is my goal to help 33 families buy or sell on the Outer Banks this year.  If you or anyone you know is interested, I would love to help!