Hatteras Island Real Estate Blog

When studying real estate market indicators it is easy to research and report the statistics.  It is much harder to try to understand and interpret the data that we are seeing.  The 1^st Quarter of this year is a classic example of this challenge. Here are the raw numbers comparing the first three months of 2009 with the corresponding period in 2008.

HATTERAS ISLAND MARKET INDICATORS 1^ST Qtr 2009 VS 1^ST Qtr 2008

At first glance, this looks pretty bad doesn’t it?  All major market indicators are down. In fact, there are number of positive stories contained within this data.  On the residential side, supply and demand appear to have stabilized. However, the gap between supply and demand, combined with an infusion of foreclosed properties into the equation, has caused selling prices to decline. This, in turn, has caused the dollar value (volume) of sales to decrease.  What is not shown in these figures is that the number of residential properties under contract has risen steadily for the past five months to the highest level since the August 2007, as savvy buyers have been quick to recognize great deals when they see them.

Another story that the unfiltered data does not reveal is that the luxury home market ($700,000 and up) has been severely impacted by factors in the lending environment. The highest residential sale price reported on Hatteras Island during the 1^st Quarter was $645,000!

Concerning the market for unimproved lots on the island, there is no way to get around it – this market was virtually non-existent between January and March. Just three home sites were sold during  the 1^st Quarter, and prices dropped precipitously. These results were a function of both the seasonal nature of lot sales as well as financing constraints.

When you take all of the facts and trends into account, my sense is that we are currently witnessing one of the truly great opportunities to buy real estate on Hatteras Island. And, this is good news for sellers because when buyers realize the benefits of purchasing now, inventories of properties will decline, and prices will once again begin to rise.

If you or someone you know has an interest in taking advantage of the current favorable conditions, please contact us at hranicka@hatterasisland.com.

Good News!  We received an e-mail last night indicating that a stay has been granted on the Beach Plan surcharge increases and deductibles that were approved on November 21, 2008!

On March 20th, Wake County Superior Court Judge William R. Pittman granted a  Motion to Stay the November 21,2008 increases in homeowners’ insurance deductibles and surcharges under the Beach and FAIR Plans.

In the Judge’s order, he noted on that there is no finding by the Commissioner of Insurance in the record provided to the court that the existing rates are inadequate or not in the public interest. The Judge further stated -  ”It does not appear from the available record that the Commissioner of Insurance acted according to law.”

It is our understanding that this order does not affect the rate increases that become effective May 1, 2009.

This is a complex issue, and we are not sure what the next step will be. Please contact us at hranicka@hatterasisland.com if you would like a copy of the judge’s order.

Significant changes in homeowner insurance rates, deductible amounts, and surcharges have been approved by the North Carolina Insurance Commissioner. If implemented as approved, the revisions will substantially increase the cost of homeowner’s insurance coverage provided by policies written through the Beach Plan. These modifications are being challenged at both the legislative level and in a lawsuit spearheaded by Dare County.

As background, homeowner’s insurance is available from three primary sources:

1. The Voluntary Market – this is the source that everyone typically refers to when they insure their principal residence.  It is insurance offered by private insurance companies to individuals and businesses.
2. The Beach Plan - the Beach Plan is the primary source of property insurance coverage on Hatteras Island and in 18 North Carolina coastal counties. Officially known as the North Carolina Insurance Underwriter’s Association, the Beach plan is a pool of private insurance companies that write insurance policies throughout the state. It is an association of insurance companies; it is not an insurance company itself. The Beach Plan was originally created in 1969 to provide wind insurance for properties located on the coastal barrier islands of North Carolina. Coverage was expanded in 1998, and again in 2003, to provide wind insurance, and later homeowner’s insurance, when private insurers stopped writing most individual policies in the state’s 18 coastal counties. The Beach Plan is the only coverage option available to most homeowners on the island.
3. The Excess & Surplus Market – at the risk of oversimplification, the excess market is where individuals and businesses go when they can’t get insurance coverage from any other source.  A well known example of an excess market company would be Lloyd’s of London. 

There are three principal insurance increases that are being called into question:

1. The Beach Plan policy deductible for wind damage (the amount that the homeowner must pay out-of-pocket before insurance coverage kicks in) has been increased from a flat rate deductible to 2% of the home’s value as stated in the policy with a minimum deductible of $1,000 on a per occurrence basis. If enacted, this would mean that a homeowner would have to pay 2% of the home’s value each time a claim was made before the insurance coverage would pay anything.  Think about a situation where the island experienced a damaging nor’easter and a hurricane in the same year. A homeowner who sustained damage in both storms would have to pay two separate deductibles. This change is effective on February 1, 2009. For policy renewals, the effective date is April 1, 2009.
2. The Beach Plan is allowed to charge higher rates than private insurance companies for the coverage that it provides. This additional cost is called a surcharge.  Surcharges for full peril coverage (the majority of policies) will increase from a factor of 1.15 to 1.25 of the comparable voluntary market insurance rate.  The surcharge for policies that provide only wind coverage will increase from 1.05 to 1.15. This change is effective on February1, 2009.
3. A rate increase of 6.5% was approved for homeowner’s insurance policies bought in the voluntary market in Dare County. This change is effective on May 1, 2009. 

The justification for these increases was to fund a shortfall in the Beach Plan’s ability to pay claims in the event of a catastrophic weather event.  The Beach Plan reportedly has $3 billion to cover claims, and it is estimated to need $6 billion - $7 billion.  

The legislative and legal efforts to halt the increases are based on the negative financial impact that the increases will have on the citizens and the economies of coastal counties, procedural errors and omissions that were made during the approval process, and inequities in the cost of insurance between coastal counties and areas west of I-95.

A hearing related to these challenges was held in Raleigh on January 29^th.  The hearing officer denied the petitioner’s request for a formal hearing on the increases. Efforts continue to obtain relief from the increases.

If you would like to express your views and opinions concerning the cost of insurance increases, please contact your insurance agent and the following individuals:

• Representative Tim Spear – 919.733.3029 or tim.spear@ncleg.net
• Representative Bill Owens – 919.733.0010 or bill.owens@ncleg.net
• Senator Marc Basnight – 919.733.6854 or marc.basnight@ncleg.net
• Insurance Commissioner, Wayne Goodwin – 919.733.3058
• Governor Bev Purdue – 919.733.2120 (Fax)

For more information on these issues and the actions that are being taken to reduce the adverse impact of the changes, you are encouraged to visit http://www.nc-20.com

2009 has gotten off to a good start for the Hatteras Island real estate market.  President’s Day weekend was especially active - agents called to show our properties; prospective buyers called to ask about the prices of specific properties; sellers called in to reduce their asking prices, and, several properties went under contract or have offers working on them!  In addition, these encouraging things are happening:

• Between December and February the inventory of residential properties on the island decreased from 451 to 418, and the supply of lots dropped from 269 to 235.
• The Hatteras Island Pending Home Sales Index, an indicator of future sales, has risen 78 percent since December.
• Interest rates for conventional mortgages are at or near an historical low point.
• The number of foreclosed residential properties for sale on the island has decreased 36 percent since December.

While it would be far too premature to suggest that these statistics represent the market turnaround that we have all been awaiting, they do seem to reflect a sense that buyers are starting to recognize the value in today’s prices.

If you or someone that you know has an interest in taking advantage of today’s favorable market conditions, please contact us by phone at 866.942.4959 or by e-mail at hranicka@hatterasisland.com for a free consultation.  It would be our pleasure to put our experience in the Hatteras Island real estate market to work for you.

If we were to summarize the current state of the Hatteras Island real estate market, we would say that some components have stabilized while others are still trending downward.  The number of residential properties that are listed for sale has remained relatively constant over the past year, ranging from 450 to 500 homes per month.  Similarly, the number of homes sold per month has remained consistently around 10.  The comparable figures for unimproved lots are an average of 315 home sites for sale and 4 sold each month. At the current sales pace, these figures equate to a 45 month supply of homes and a 78 month supply of lots.

Comparing the 3^rd Quarter of 2007 with the 3^rd Quarter of 2008, the median selling price of residential properties showed a decline of 16.5 percent.  The data for unimproved lots using the same comparison reflected a 24 percent decline.

Looking at all of the charts and statistics as pieces of a complex puzzle, our opinion is that the overall picture shows a market that is bouncing along the bottom of a multi-year trend, waiting for some positive economic stimulus to kick-start the next upward cycle.

As a property owner, it is important to recognize that properties sell in all market conditions. The secret to success in any given market is to shift strategies in response to the specific circumstances that exist.  We invite you to request a free copy of our recent report - “Straight Talk for Sellers.”  We believe you will find that the observations and recommendations contained in this report will assist you in understanding the present marketing environment, and will increase the probability of selling your cottage or lot. You may request the report by calling us at 252.305.1556 or by contacting us by e-mail at hranicka@hatterasisland.com.

While the present level of properties on Hatteras Island entering the foreclosure process is relatively low compared to other places around the country, the number of owners facing financial hardship can be expected to increase over the next three years when a substantial wave of Adjustable Rate Mortgages (ARMs) and exotic loans are forecast to reset.  In fact, many loans are defaulting before their reset dates.  As time passes, the problem of distressed properties is becoming more widespread, cutting across all categories of loans and expanding outside the borders of the United States.

One troubling aspect of this situation is that as many as 70 percent of homeowners are estimated to be going into foreclosure without taking any visible action to prevent or delay this outcome.  Many believe that recently enacted federal legislation will rescue them.  The unfortunate fact is that this is probably not going to happen, especially where second homes and investment properties are involved.

The good news is that there are often options available to prevent or delay foreclosure for homeowners who find themselves in a financially stressful position. Misinformation and lack of knowledge cause homeowners to make the wrong decisions which, in turn, can make their situations worse.  Distressed homeowners need an advocate who will act in their best interest and help them explore every possible solution to the financial crisis that they are facing.

We want you to know that, in addition to our traditional real estate practice, we also focus on helping property owners who face foreclosure or whose mortgage balances exceed the current market value of their properties (short sales).  Tom was recently awarded the professional designation of Certified Distressed Property Expert (CDPE).  We have the tools, the specific knowledge, and the tactics to effectively assist homeowners who find themselves in financial distress.  We understand the processes of short sales and foreclosures, and we will work as a liaison between the borrower and the lender toward resolution of a difficult set of circumstances.  Equally important, we are empathetic to the fact that distressed homeowners are experiencing one of the most painful financial challenges that they have ever encountered.

If you or someone you know is experiencing a financial struggle related to home ownership, please feel comfortable contacting us for a confidential, no-cost consultation. We are available to answer your questions and to offer essential guidance at a critical time. We may be reached by phone at 252.305.1556 or by e-mail at hranicka@hatterasisland.com.  We understand the depth of personal concerns, and we will make every effort to provide the information needed to make intelligent, informed decisions. 

We believe that foreclosure activity on Hatteras Island is certainly important, but it is by no means of crisis proportions. Approximately 22 properties that are either listed for sale, are under contract, or were sold this year are foreclosed properties (three tenths of one percent of the total number of real estate parcels on Hatteras Island). While the number of properties entering foreclosure has been fairly constant since the first of the year, we are anticipating that the number of foreclosure filings will increase as adjustable rate and “exotic” mortgages reset over the next few years.  Declining prices may also contribute to the increase as more owners potentially find their properties worth less than what they paid for them.  However, we do not expect that foreclosure activity on Hatteras Island will become a predominant factor in the real estate market.  We are confident that the majority of owners in distress will be able to work out some mutually agreeable solution with their lenders.  We also believe that actions by both the lending institutions and by the federal government will, over time, have a muting effect on foreclosures.  Lenders do not want to own properties, and the government does not want to see millions of individuals and families lose their homes.

If any of our readers find themselves in a problematic situation with their mortgages, please seek guidance and counsel at the earliest possible point from trusted advisors like your lender, attorney, accountant, and Realtor.  In most cases, there are a variety of options that are available to help you avoid foreclosure.  One specialist who follows foreclosures very carefully recently expressed the opinion that 7 out of 10 property owners who face foreclosure have never sought assistance of any kind.  Whether this estimate is accurate or not, the need for knowledgeable assistance cannot be overstated.

As you read the newspapers and listen to the television, keep in mind that foreclosures are a meaningful issue at the local, national, and even at the global level, but in the end, all real estate is local, and those are the statistics that you want to acquire and understand in order to make well-reasoned decisions.  We will do our best to keep you informed about the environment concerning distressed properties on Hatteras Island.

• A little over 13 percent of all mortgages are classified as sub-prime by the Mortgage Bankers Association. About 11 percent of the sub-prime loans are more than 90 days past due or are in the process of foreclosure. This means that roughly 89 percent of the sub-prime category of loans are being paid on time or are less than 90 days delinquent.

• Looking at the broader mortgage market, the Mortgage Bankers Association recently reported that the delinquency rate for all outstanding loans during the 3^rd Quarter of this year was 5.59 percent. Loans in the process of foreclosure added another 1.69 percent for a total of 7.28 percent. In other words, 92.7 percent of all mortgage loans were not delinquent or in the process of foreclosure.

• As a point of reference, at the end of September, only 29 out of an estimated 8,600 privately owned real estate parcels on Hatteras Island were in foreclosure – about three-tenths of one percent.

• Foreclosure problems are most pronounced in seven states – California, Florida, Nevada, Arizona, Michigan, Ohio and Indiana.  The foreclosure troubles appear to be greatest in states that had the highest levels of speculative activity during the boom years and those in the Midwest with significant unemployment related issues.

• The relativities associated with the mortgage market issues also need to be appreciated. According to the Mortgage Bankers Association, “While subprime ARM delinquencies and foreclosures are climbing in all states, in most states the actual number of loans involved is fairly modest. For example, the number of subprime ARM foreclosure starts in California during the third quarter equaled the starts in 35 other states combined.”

• According to the U.S. Census Bureau’s 2005 housing survey, there were 74,931,000 occupied residential units in the country. One-third of these properties (24,776,000) were owned free and clear with no mortgage debt.

• With regard to the second home market, a survey conducted earlier this year by the National Association of Realtors estimated that 25 to 30 percent of vacation and investment properties did not have any mortgage debt.