On Friday, September 25th, residents of Hatteras Island attended a public meeting at which North Carolina Governor Beverly Perdue, State Senator Marc Basnight, State Representative Tim Spear, a panel of scholars, and an executive from Duke Energy presented research supporting the construction of a wind turbine farm in the Pamlico Sound  west of Avon, Buxton, and Frisco. The details of extensive academic research were summarized, and cost/ benefit estimates were reviewed. The complete PowerPoint presentation can be viewed at www.climate.unc.edu/coastal-wind.

One goal of the meeting appeared to be to generate public support for a pilot project that involves the construction of one to three wind turbines at a designated site in the Pamlico Sound. As we understand the project, the most obvious and immediate impact of the wind turbine farm on Hatteras Island will be the adverse effect that it will have on the unobstructed views of the Pamlico Sound that we now enjoy.  This, in turn, has potentially negative implications for the island’s rental/tourist industry as well as the real estate values of certain types of properties. There could also be repercussions for other island interests such as the fishing industry.

The main presenter at the meeting and his accompanying graphics clearly indicated that the wind turbines will be visible from the shoreline.  The wind farm is planned to be located 7 to 9 miles west of Avon, Buxton, and Frisco.  Each wind turbine is expected to be rise about 500 feet above the water.  Five hundred feet is essentially the height of the Washington Monument (555 ft.); two and a half times as high as the Cape Hatteras Lighthouse; and , nearly one-half the height of the Empire State Building. Furthermore, as envisioned, the final project could contain as many as 138 wind turbines, covering a 25 square mile area of the Pamlico Sound.

The wind turbine project proposed for the Pamlico Sound may be just the tip of the iceberg.  Offshore in the Atlantic Ocean, 311 federal lease blocks covering up to 2,800 square miles have been identified as suitable for wind farm development.  Each block that is ultimately developed has been projected to hold as many as 49 wind turbines.

The associated fallout from introducing wind turbines into the unspoiled views of the sound that residents and visitors currently enjoy could reduce the rental desirability of soundfront and soundview properties as well as affecting the salability and values of homes and lots in these locations.

Not mentioned at the meeting was the fact that in early August, the North Carolina state Senate voted overwhelmingly (42-1) to ban wind turbine farms from the state’s western mountains. Does this imply that the spectacular beauty of Hatteras Island’s unobstructed sunset views across the Pamlico Sound is less worthy of preservation than views in the mountains?

There are many good reasons to consider wind power as an alternative energy source.  However, many unanswered questions and some very serious concerns about the proposed project in Pamlico Sound have yet to be addressed.

If you would like to express your views and opinions concerning the proposed wind turbine project, please contact the following individuals:

• Dare County Commissioners – dcboc@darenc.com
• Hatteras Island County Commissioner Allen Burrus – AllenB@darenc.com
• Representative Tim Spear – 919.733.3029 or Tim.Spear@ncleg.net
• Senator Marc Basnight – 919.733.6854 or Marc.Basnight@ncleg.net
• Governor Beverly Purdue –  919.733.2120 (Fax)

• Average selling prices are moving closer to the historical growth curve that we saw prior to the boom years.
• The supply/demand curves are starting to trend slowly toward each other after being relatively flat and far apart for the past few years. If present trends continue, it looks like the market will be back in balance again in about two to three years.  This projection tracks closely with the estimates that are being given by industry leaders.  
• The number of monthly residential sales is starting to show a marginal increase. For the last several years about 10 residential properties have been sold each month on the island. So far this year, the monthly average number of sales has risen to 13.
• The Hatteras Island Pending Home Sales Index, a leading indicator of future sales, has remained above its long term downward trend for the past seven months.

We are not out of the woods by a long shot, and the recovery is anticipated to be gradual vs. a rapid turn around. There are still areas of significant weakness in the market.

• On a cumulative basis, between January and August, the number of foreclosure filings on the island equaled the number of sales of homes and lots.  Foreclosures nationwide are expected to increase through the fall of 2011 as exotic loans that were issued during the days of loose underwriting enter their interest rate reset periods. The magnitude of interest rate resets for No Documentation and Option ARM loans has the potential to create a second wave of foreclosures that could throw any market recovery off track.
• Very challenging financing conditions still persist for some segments of the market.  While loans are readily available to qualified buyers for loan amounts of $417,000 or less, financing is still tight, and underwriting requirements are still rigorous for higher priced residential properties and for unimproved lots. This year, only 6 homes have been sold with selling prices of $700,000 and above, and just 18 unimproved lots have been sold on the entire island.
• The presence of foreclosed properties and short sales, as well as the continuing gap between the supply of properties and the corresponding buyer demand, can be expected to keep pressure on the selling prices of both houses and lots.

For sellers of properties on Hatteras Island, the most important watchword in today’s market is “price.”  If you price your home or lot competitively, you stand a much better chance of selling it than if you hold on to unrealistic or outdated perceptions of value. For buyers, now is the time for action.  We are either at or very near the bottom of the current market cycle. There is a wide selection of properties from which to choose. Prices have significantly declined from the levels that existed during the height of the boom years, and interest rates continue to remain near historically low levels.

As you may recall, earlier this year there was quite a controversy concerning changes in homeowner insurance rates, deductible amounts, and surcharges that the North Carolina Insurance Commissioner approved for policies written in the coastal counties. Thanks in large measure to the combined efforts of the Dare County Attorney and the Government Affairs Director for the Outer Banks Association of Realtors, the changes which unfairly penalized coastal county home owners were modified by the state legislature and approved by the Governor in late August.

The Beach Plan, which is a pool of private insurance companies that write policies throughout the state, is the primary source of property insurance coverage on Hatteras Island and in 18 North Carolina coastal counties.  The main concerns about changes in the Beach Plan and the revisions that were adopted are as follows:

·        The Beach Plan policy deductible for wind damage (the amount that the homeowner must pay out-of-pocket before insurance coverage kicks in) would have increased from a flat rate deductible to 2 percent of the home’s value as stated in the policy with a minimum deductible of $1,000 on a per occurrence basis. In the revised version, the deductible was cut to 1 percent of the home’s value with a minimum deductible of $1,000 on a per occurrence basis.

·        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) were scheduled to increase from 115 percent to 125 percent of the comparable private market insurance rate.  The surcharge for policies that provide only wind coverage would have increased from 105 percent to 115 percent. The surcharges in the final bill were left unchanged at 115 percent for full coverage policies and 105 percent for wind only coverage.

·        To assure that the Beach Plan has enough funds available in the event of a catastrophe, a provision was added that excluded insurance for homes valued at more than $750,000 unless coverage for the amount in excess of $750,000 is purchased from a private carrier prior to the issuance of a Beach Plan policy.

·        In a separate action, a rate increase of 6.5% approved by the North Carolina Rate Bureau for non-Beach Plan homeowner’s insurance policies bought in Dare County remained unchanged after unsuccessful litigation was filed to stop the increase.

Apart from the specific changes noted above, we think that one of the most important aspects of the legislation was that it represented recognition on the part of the North Carolina legislature that decisions about insurance should acknowledge that the different geographic regions of the state are interdependent when disasters strike rather than each region being viewed in isolation from the others.

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.

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

• 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.

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.

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.