North Carolina Real Estate Market Trends & Analysis
The North Carolina real estate market is keeping relative pace with the national housing sector. The unique combination of the Coronavirus and the resulting indicators left behind in their wake have created an environment similar in most states. Namely, historically low (but rising) interest rates, supply and demand restrictions, improved savings, and lower unemployment levels have all fostered an environment in which local home prices have been able to appreciate at an exponential pace for far too long. The North Carolina housing market, in particular, has already seen record appreciation rates this year. Nonetheless, macroeconomic conditions are starting to have a lasting impact on the local housing sector, and previous trends may be reversing. Higher interest rates are slowing mortgage applications, and fears of a recession may temper spending on housing. As a result, sellers are starting to lose their edge and the market may revert back to the mean.
The Top North Carolina Real Estate Markets
While the best real estate market in North Carolina is up for debate, here’s a list of the cities investors may want to pay special considerations to:
Median Sales Price: $355,000 (+12.9% year over year)
Homes For Sale: 44,286 (+1.3% year over year)
New Listings: 15,484 (-2.5% year over year)
Median Days On Market: 24 (-12 days year over year)
Median Rent Price: $1,310 (+11.3% year over year)
Price-To-Rent Ratio: 20.65
Unemployment Rate: 3.4% (latest estimate by the Bureau Of Labor Statistics)
Population: 331,893,745 (latest estimate by the U.S. Census Bureau)
Median Household Income: $64,994 (latest estimate by the U.S. Census Bureau)
Foreclosure Rate: One in every 3,673 homes
North Carolina Median Home Prices
The median home price in the North Carolina real estate market is the direct result of new indicators created in the wake of the Coronavirus. Prior to the pandemic, the median home value in North Carolina was somewhere in the neighborhood of $210,000. Since then, however, a lot has happened to change home prices. In particular, the Fed dropped interest rates to entice buyers in the face of COVID-19. At the same time, homeowners pulled their listings off the market for fear of catching the virus, effectively reducing already low inventory levels overnight. Last but certainly not least, government stimuli and decreased spending put more money in the pockets of prospective buyers. All of these indicators, and many more just like them, created a seller's market unlike North Carolina had ever seen before.
In no time at all, the Coronavirus had created more buyers in a market without enough inventory to satiate demand. In the last year alone, the median home value in the North Carolina real estate market increased by 23.8%. With more people ready and willing to buy than ever before and not enough homes to keep up with demand, homeowners could increase their asking prices accordingly; if they didn't, the competition was going to do it for them. As a result, the median home value is now about $324,649.
Competition continues to be the primary catalyst for appreciation in the North Carolina real estate market. That said, competition is starting to slow, and mortgage applications are not what they once were. With interest rates rising to combat inflation, the whole country has seen a decrease in mortgage applications; that, combined with fears of a recession, have reduced activity to a point where sellers are losing their edge. The waining seller's market suggests prices will continue to rise, but at a slower pace than the North Carolina housing market has gotten used to. If trends continue on their current path, it's actually possible the local housing market starts to see prices come down to more affordable levels.
North Carolina Median Rent Prices
North Carolina’s home prices share a distinct correlation with every single housing indicator, and rent prices are certainly no exception. You can very easily attribute North Carolina’s higher rental prices to the state’s latest increase in home prices. If for nothing else, higher home values are preventing a large population of prospective buyers from actually committing to a purchase, if not pricing them out of the market altogether.
There is a large contingent of people that want to buy but can’t, which lends itself to another issue: the same supply and demand crisis facing would-be buyers is impacting renters. Since more people are priced out of the buying market, we see more renters than average competing over fewer available properties. As a result, landlords have found themselves in a position of power in North Carolina and increased their asking rates.
According to Apartment List, the median rent price in North Carolina is $1,310. Over the last 12 months, rental rates have increased approximately 11.3% (about half the rate of their home price counterparts). On average, today's renters can expect the following rates:
1 Bedroom: $1,150
2 Bedroom: $1,230
Comparatively, the national average rent price is $1,388, or about $78 more than the North Carolina rental market.
As I already alluded to, more people are forced to rent because they can’t afford to buy, but there are also very few units to rent on the market. Therefore, landlords are in a position of power and can request higher rates. North Carolina real estate investors should take note. As it turns out, now is a great time to consider buy-and-hold exit strategies. While it makes it more difficult to acquire properties, it’s more than likely that you’ll be able to rent out an asset to recoup some of the money lost on the acquisition.
North Carolina Foreclosure Trends & Statistics
According to ATTOM Data Solutions’ latest Foreclosure Market Report, “there were a total of 34,501 U.S. properties with foreclosure filings — default notices, scheduled auctions or bank repossessions — up 14 percent from a month ago and up 118 percent from a year ago.”
In August, lenders across the country started the foreclosure process on 23,952 U.S. properties, up 12% from last month and 187% from this time last year.
“Two years after the onset of the COVID-19 pandemic, and after massive government intervention and mortgage industry efforts to prevent defaults, foreclosure starts have almost returned to 2019 levels,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “August foreclosure starts were at 86 percent of the number of foreclosure starts in August 2019, but it’s important to remember that even then, foreclosure activity was relatively low compared to historical averages.”
As recently as August, the North Carolina housing market had the eleventh highest foreclosure rate in the country. With a total of 4,708,710 homes, 1,282 went into foreclosure; that means one in every 3,673 homes is in some state of foreclosure. The counties with the highest distributions of foreclosures were:
Tax Lien Investing
Tax Lien or Deed: Tax Deed State (Auctions called: Property Tax Foreclosure Sales)
Redemption Period: 10 day upset period after sale. Anyone can bid 5% of $750.00 more, and with this trigger a re-sale
North Carolina Real Estate Investing
The North Carolina real estate market has changed significantly over the last decade, and even more so over the course of the pandemic. Dating back to the Great Recession, local home prices bottomed out at around $151,000 in 2012. As a result, the North Carolina real estate investing community emphasized rehabs because profit margins were more attractive than they had been in years. For a decade, in fact, real estate valuations and demand in North Carolina favored investors with aspirations of flipping real estate.
However, it is worth noting that the pandemic introduced several new indicators in the last year and a half that have forced investors to look at the market differently. In particular, over the nearly 10 years preceding the Great Recession, the median home value in North Carolina has increased by 113.5%. For most of that time, an improving economy drove up home values. Ever since the pandemic was officially declared a global emergency, low interest rates, more demand, increased household savings, and a distinct lack of inventory have driven prices up even faster than in the previous nine years. In the last year alone, the median home value in North Carolina has increased 23.8%, essentially removing a lot of room for error that today's rehabbers covet so much.
All things considered, North Carolina home values are more expensive than ever, and investors have found attractive profit margins harder to come by. As a result, many investors are turning to long-term exit strategies. Namely, today's most adaptive investors are looking to add to/build a passive income rental property portfolio. There are three reasons, in particular, that investors are starting to favor rental properties in North Carolina:
Relatively low interest rates may simultaneously offset high acquisition costs and increase monthly cash flow from properties placed in operation.
Insufficient inventory levels will force even those who want to buy to continue renting, effectively mitigating the risk of vacancies for landlords.
While flipping remains a viable exit strategy, profit margins are growing slimmer with each passing month.
As of September, the average rate on a 30-year fixed-rate loan was 6.02%, according to Freddie Mac. Lower borrowing costs have brought down acquisition costs for those looking to add to their passive income portfolio. At their current rate, mortgage rates will save today’s buyers thousands of dollars, and real estate investors will be able to pad their bottom line. More importantly, lower mortgage rates mean lower monthly payments, which means landlords can increase their monthly cash flow from properties placed in operation.
In addition to lower borrowing costs, North Carolina's 20.65 price-to-rent ratio suggests it is much more affordable to rent than to own. The value associated with renting in today's market will undoubtedly increase rental demand. Not only does the state's lack of inventory make it difficult to buy a home (even if buyers have the money to do so), but more people will be forced to rent. The resulting demand will enable landlords to increase rental rates and ultimately help to justify today's higher acquisition costs.
With everything that has transpired over the last year and a half, investing in North Carolina real estate is still very appealing. However, instead of traditional rehabs, most investors favor rental properties for all of the reasons listed above.
North Carolina Housing Market Predictions
The North Carolina housing market has enjoyed nearly a decade’s worth of good news. For nearly 10 consecutive years, real estate in North Carolina has been able to ride the wake of national trends, albeit to a tempered extent. Price increases, confidence in the market, and several other indicators are heading in the same direction as the rest of the country, but what does that mean moving forward? What can the North Carolina real estate investing community expect for the foreseeable future?
Winston-Salem should see an influx of buyers: With a median home value of $238,243, the Winston-Salem real estate market is well below the state average. As a result, there’s a good chance more people will look to Winston-Salem as a means of escaping today’s relatively high prices everywhere else. The added attention should turn into more buyers and create more activity, which will bode well for local investors. The unique affordability, combined with appreciation potential, may be able to create the perfect investor environment.
Foreclosures should continue to rise: With one of the highest foreclosure rates in the country already, it is fair to assume the trend will continue before it gets better. Expect foreclosure filings to rise as the economy starts to slow and inflation increases, taking buying power away from homeowners.
Home values will increase: Despite having already risen 23.8% over the last year, home values in the North Carolina real estate market are expected to keep rising. If for nothing else, there are not nearly enough listings to keep up with demand. With interest rates as low as they are and more people able to save money over the last year, demand is higher than ever. Still, the North Carolina housing market doesn't have nearly enough supply. Until new homes are brought to market, prices will continue to rise—albeit at a slower pace than in recent history.
Despite trailing behind national real estate trends, the North Carolina real estate market has made up a lot of ground since the last recession. Nearly every indicator is better off today than even just a few short years ago. However, one still needs to get under control before the state can realize its true potential: inventory. There aren't enough homes to keep up with demand. Until builders can bring new homes to the market, prices will continue to rise and price buyers out of the market.
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