Tuesday, May 20, 2014
Local Real Estate Market Trends Revisited
Then there is the man who drowned crossing a stream with an average depth of six inches. ~W.I.E. Gates
Statistics are a dangerous thing. Take the stats recently published by the local Wilmington Regional Association of Realtors (WRAR) about our local real estate market and I think you'll see my point. According to WRAR, when comparing April 2013 to April 2014, residential home sales declined 5.61%. Pretty cut and dried, it seems. Anyone looking at these figures, as published, would be excused for thinking real estate brokers all over town should be wailing and gnashing their teeth over a stagnant market. We're not! Or, at least shouldn't be. And here's why...
When you pull those figures apart, a different and more realistic picture emerges of the market in the Wilmington area. In fact, what's happening is that the market is 'normalizing.'
Break homes sales down by category and you find it is only distressed sales -- foreclosures and short sales -- that have declined drastically since this time last year. Comparing the three-month period Feb-April 2013 and the same period in 2014, sale of bank-owned homes declined by 22%, and short sales by 38.5%! By contrast, the non-distressed, traditional sales of residential properties in this same period increased by 8.3%. That's a sign of a healthier market.
Similar real estate activity is happening on a national level. This chart shows sales activities by category looking at national averages for first quarter of 2014.
What else does this mean?
As any real estate investor who looks for uber cheap properties to buy, renovate and flip can tell you, the available distressed properties are drying up. Improvements in the economy and better options for refinancing have resulted in fewer foreclosures and short sales flooding the market, as they did not that long ago. In the Wilmington area in April 2013, there were 243 foreclosures on the market; in April 2014 there were only 198. Appraisers are much less likely these days to have to include distressed sales in their appraisal calculations for homes. That's good news for the average homeowners, who are watching the value of their homes edging up again. Some who have been under water on their mortgage loans are finally seeing a chance to break the surface again. Comparing April 2013 and April 2014, the median sales price of a home increased by 11.03% in the tri-county area near Wilmington. Not bad!
Other factors may also contribute to the increase in the price of homes locally. Demographically, Brunswick is the fastest growing county in North Carolina, with New Hanover and Pender top contenders as well. The employment rate has also been slowly but steadily improving, putting homeownership within reach of more families. That means more demand for homes -- good news for sellers and for builders.
The bad news for buyers -- besides expecting to pay a little more now -- is that inventory for homes is tightening up, especially properties under $250,000. Expect to see more multiple offer situations with well-priced, well-kept homes. There are many homeowners in the Wilmington area who may want to sell, but won't be adding their homes to the for-sale inventory any time soon because they still owe more on the loan than the home is worth. (I've heard more than 20% of local mortgages are still upside down, but can't vouch for this figure.) Local builders are busily playing catch-up to provide new homes after many years of little or no building activity.
Mortgage rates are also on their way up; and, although still low by historic standards, increased rates mean less buying power for buyers. (Freddie Mac estimates interest rates will be almost 6 percent by 4th quarter of 2015.) Qualifying for a loan can still be a challenge, but some lenders are easing restrictions as they begin competing with each other for business again.
Thoughts on the market over the coming months:
I think sales will continue to be good, with prices continuing to edge up over the coming months. However, the strong buying frenzy we saw last spring/summer -- with buyers with pent-up property hunger trying to take advantage of extraordinarily low interest rates and prices --probably will not be repeated. Higher interest rates and prices will tamp down sales some. I expect the comparative stats to between last summer and this summer to be less dramatic as a result. We'll just have to keep an eye on it.
WRAR statistics for residential sales as of April 2014
Jan-Apr 2013 to Jan-Apr 2014
Apr 2013 to
Mar 2014 to Apr 2014
|Total Units Sold|
|Avg. Sales Price|
|Median Sales Price|
|Days on Market|
Note that total sales(traditional and distressed) increased significantly when comparing just the month to month period of March and April 2014.