HATTERAS ISLAND 3RD QUARTER REAL ESTATE MARKET REVIEW
Analyzing real estate market statistics is often like looking at the ocean after a storm. There are a lot of cross-currents, and rarely do all of the indicators point in the same direction. This seems to be the situation in the market today.
We think that a strong case can be made that the real estate market on Hatteras Island is stabilizing. A very cautiously optimistic evaluation might conclude that the market for unimproved lots reached a cyclical low point during the 1st Quarter of the year, and the residential market looks like it is close to turning the corner.
At the same time, the strength of these observations and the reality of whether or not they will be validated as longer term trends are accompanied by a lot of potential uncertainties:
- The statement that the market appears to be stabilizing means that while market statistics still reflect a decrease relative to the same periods last year, the rate of decline seems to be slowing.
- The supply of residential properties and unimproved lots continues to exceed buyer demand by a wide margin, subjecting prices to ongoing downward pressure.
- There are huge unknowns in the broader economic environment that could affect future results here on the island including – the threat of recession, increasing losses and dislocations in the mortgage market, an energy crisis precipitated by rising oil prices or supply disruptions in the Middle East, and slowing foreign economies.
With these comments and caveats as background, let’s take a look at the 3rd Quarter market results.
Supply vs. Demand
Since the buyer’s market began on the island in the summer of 2005, the supply of properties for sale has risen dramatically, and demand for properties has simultaneously declined. At the end of September there were 519 residential properties for sale on the island. During the previous twelve months, 142 homes were sold. This equates to a 3.7 year inventory of unsold homes and condominiums.
The gap between supply and demand for unimproved properties is even larger. With 318 lots listed for sale and only 52 sold during the previous year, the statistics translate into a 6.1 year supply of unsold lots.
While the supply/demand relativities can be daunting, some basis for optimism can be found in the analysis of properties sold and properties under contract.
Property Sales
Comparing the 3rd Quarter of this year with the same period in 2006, residential sales were down about 12 percent. However, when the pattern of sales is studied by quarter since 2005, the 2nd Quarter of 2007 may emerge as the potential low point in the current market cycle.
A similar review of unimproved lot sales reveals that the number of unimproved properties sold in the 3rd Quarter of this year was more than 8 percent lower than the same three month period in 2006. Examining the sales curve over a two-year period suggests that lot sales appear to have bottomed-out in the 1st Quarter of 2007. As a side comment supporting this conclusion, it is hard to envision a worse time than the 1st Quarter of this year when only six lots were sold on the entire island by all companies, and none were sold during the month of February!
Properties Under Contract
The Hatteras Island Pending Home Sales Index has been in a general downward trend over the past few years. This index, which reflects the level of ‘under contract’ activity on the island, is currently at about 32 percent of the average level during the base year of 2001, the first of the boom years. We thought that we were seeing a fairly solid upward trend beginning in May, but the November figures dampened our optimism.
Price Trends
With supply exceeding demand for the past 27 months, the median selling price of residential properties has declined about 31 percent since the buyer’s market began. The median selling price of homes was $407,500 during the 3rd Quarter. The corresponding decline for unimproved lots has been 21 percent with the 3rd Quarter median selling price being $215,000.
During the 3rd Quarter, buyers purchased both homes and lots over a broader spectrum of prices than in the previous three months. Residential property sales under $500,000 and lot sales under $300,000 were the most prevalent.
When all is said and done, we are looking forward to improving conditions in the real estate market during 2008, although that improvement can be expected to occur at a gradual and measured pace. Despite the uncertainties associated with the various measures of the market’s performance, one thing is clear – conditions in the real estate market on Hatteras Island are very favorable for buyers at this time.
Copyright©2007 Tom & Louise Hranicka. All rights reserved.