North Dakota Real Estate Market Trends & Analysis


The North Dakota real estate market was hit hard by the Coronavirus, not unlike every other state across the country. "Shelter-in-place" orders issued by the government have served as an obstacle for the better part of 2020, but the local housing sector is ready to move forward. If for nothing else, real estate in North Dakota appears to have been slightly more insulated from VOVID-19 than many markets across the country. Employment numbers, in particular, were resilient, not spiking nearly as high as the national average. As a result, housing activity should return to normal in North Dakota sooner than other states.

The North Dakota real estate investing community has been presented with a unique market landscape. While the setback created in the wake of the pandemic hurt for a couple of months, the disruption may have created a window of opportunity. In particular, years of historic appreciation have been tempered, mortgage rates are lower than they have ever been, and pent-up demand should spark a lot of activity. The pandemic didn't ruin the summer market; it simply pushed it back to the fall. All things considered, North Dakota should be able to finish the year out strong.

The Top North Dakota Real Estate Markets


While the best real estate market in North Dakota is up for debate, here’s a list of the cities investors may want to pay special considerations to:

North Dakota Real Estate Fees & Regulations

Real Estate

Closing Conducted by: Lenders, Attorneys
Conveyance: Warranty Deed

Foreclosure Procedure

Primary Foreclosure Method: Judicial
Process Period: 3 - 5 months
Notice of Sale: Sheriff
Redemption Period: 60 Days

Taxes

Income Tax: 1.10%-2.90%
Corporate Tax: 1.70%-5.20%
Sales Tax: 5.00%
Estate Tax: No
Inheritance Tax: No
Median Property Tax: 1.42%
Property Taxes by County: http://www.tax-rates.org/north_dakota/property-tax#Counties

Average Transactional Costs

Closing Cost: $2,599.00
Transfer Fee: No Fees
Origination Fee: $1,936.00

North Dakota Housing Market Overview

  • Median Home Value: $235,998

  • 1-Year Appreciation Rate: +1.4%

  • Median Home Value (1-Year Forecast): +3.8%

  • Median Rent Price: $1,295

  • Price-To-Rent Ratio: 15.18

  • Unemployment Rate: 5.0% (latest estimate by the Bureau Of Labor Statistics)

  • Population: 762,062 (latest estimate by the U.S. Census Bureau)

  • Median Household Income: $63,473 (latest estimate by the U.S. Census Bureau)

  • Percentage Of Vacant Homes: 11.58%

  • Foreclosure Rate: 1 in every 51,523

North Dakota Median Home Prices


The median home value in North Dakota is $235,998. In the last year, prices have increased 1.4%. For the better part of a decade, however, prices have realized much greater appreciation rates. At this time exactly nine years ago (September 2011), the median home value in North Dakota was about $168,000. Consequently, it was at that time that North Dakota started to recover from The Great Recession.

Thanks, in large part, to growing optimism, a strengthening economy, and (ironically enough) historically high appreciation rates, the median home value in North Dakota has increased 40.4% in just under a decade's time. For some context, the median home value in the United States increased 57.4% over the same period of time. Today, the median home value in the United States is $256,663, or approximately 8.7% more than North Dakota's median home value.

The disparity in prices isn't an indictment on the North Dakota real estate market, but rather a testament to the national housing market over the last decade. A number of tailwinds helped the national housing sector thrive as we distanced ourselves from the last recession. Consequently, real estate in North Dakota was propped up, enabling many cities to become the beneficiaries of years of appreciation.

Here's a list of cities that appreciated the most since 2000 in North Dakota, according to Neighborhood Scout:

  • Stanley

  • Grenora

  • Powers Lake

  • Killdeer

  • Arnegard

  • Williston

  • Watford City

  • Alexander

  • Tioga

  • Crosby


It is important to note that the Coronavirus threatened to end North Dakota's tenth consecutive year of appreciation. Halfway through 2020, forecasts started calling for dropping home prices, and it looked as if homes losing their value was inevitable. The lack of housing activity onset by the pandemic was supposed to drop values, albeit modestly. Instead, however, prices have started to increase again. Government stimulus in the form of historically low interest rates and pent-up demand have made encouraged many buyers to get into the market before prices increase too much.

Prices are expected to increase 3.8% over the next 12 months, which means the pandemic created a window of opportunity. While rising, today's appreciation rate is lower than it was going into the pandemic. Today's buyers are, therefore, expected to be the beneficiaries of low interest rates and years of continued appreciation.

North Dakota Foreclosure Trends & Statistics


As we grow closer to the fourth quarter of 2020, North Dakota's foreclosure rate continues to prove resilient. With one one in every 51,523 homes deemed distressed, North Dakota's foreclosure rate is a very healthy 0.1%, according to RealtyTrac. To put things into perspective, there are about 257,503 homes across the country which are either in default, up for auction or bank owned. One in every 13,691 homes in the United States is distressed, which amounts to a 0.7% foreclosure rate.

The counties with the highest distributions of foreclosures in North Dakota are:

  • Cass: 1 in every 15,579 homes is currently distressed

  • Grand Forks: 1 in every 16,015 homes is currently distressed


Pre-foreclosures make up the largest percentage of the state's distressed inventory. At 57.1%, pre-foreclosures are the most abundant type of distressed properties in North Dakota. The remaining 42.9% of the state's distressed inventory is bank owned. As a result, the North Dakota real estate investing community will want to pay special considerations to homeowners who are behind on payments. Turning to the largest source of foreclosures should increase their odds of finding a deal below market value.

It needs to be noted, however, that while North Dakota's foreclosure rate is incredibly low, the Coronavirus will most likely increase foreclosure filings sooner rather than later. In fact, the financial burden created in the wake of the pandemic is already starting to cause in influx of distressed owners. While foreclosure filings are down year-over-year, they have increased recently. As recently as August, "the number of properties that received a foreclosure filing in ND was 133% higher than the previous month and 81% lower than the same time last year," according to RealtyTrac.

Tax Lien Investing

  • Tax Lien or Deed: Tax Deed state

  • Redemption Period: 5 years before the county seizes property and puts up TD sale (no redemption period after sale date)

North Dakota Real Estate Investing


Investors in the North Dakota housing market have enjoyed a lucrative run for nine consecutive years. In the time proceeding The Great Recession, home prices have risen without detracting from demand. In fact, the more prices increased, the more people seemed to want to buy. As a result, rehabbers have seen activity and profits increase year-over-year, and 2020 is no exception. It is worth noting, however, that profit margins have grown smaller in the last few years. Historic appreciation rates have made it more difficult to secure deals at a reasonable price. That's not to say flipping real estate in North Dakota isn't profitable (it still is), but rather that the Coronavirus appears to have shifted the optimal exit strategy.

As prices continue to march higher, more and more investors are starting to consider long-term investments. Rental properties, in particular, appear to be the optimal exit strategy for North Dakota real estate investors. Not only have home values increased to the point where they are too expensive, but the Coronavirus has created a new marketplace with three fundamental indicators that seem to favor landlords over rehabbers:

  • Historically low interest rates introduced to stimulate the economy during the pandemic have made it cheaper than ever to borrow money.
  • With a 15.18 price-to-rent ratio, it is more affordable to buy a home in North Dakota than to rent one. However, insufficient inventory levels will relegate more people to the renter pool, making vacancies less of a worry for landlords.
  • With more people being forced to rent, landlords may increase rental asking prices and justify today's higher prices with more cash flow.

Lower borrowing costs will help absorb today’s high prices, but it’s the cash flow potential of real estate assets which makes the prospect of owning a rental property even more attractive. With a median rent price of $1,295, it is possible to simultaneously rent out an investment property while having someone else pay down the mortgage. That way, investors could potentially build equity in a physical asset and collect cash flow each month with the right long-term investment.

As of August, the average rate on a 30-year fixed-rate loan was 2.94%, according to Freddie Mac. August also represented one of the lowest average mortgage rates ever, and the Fed announced its intentions to keep rates low for the foreseeable future. As a result, 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 bottomline.

If that wasn’t enough, the lack of available inventory will force many residents’ hands into renting, even those intent on buying. North Dakota had already been facing an inventory crisis for the better part of five years, but the introduction of the Coronavirus has shaken seller confidence and removed a great deal of listings from the market. The lack of homes for sale will inevitably force more people to rent for the foreseeable future, which creates more demand and allows rental property owners to increase rental rates.

Investors are lucky to have a number of viable exit strategies at their disposal, but none appear more attractive than building a proper rental property portfolio in the wake of the pandemic. Too many important market indicators are pointing towards becoming a buy-and-hold investor to ignore.

North Dakota Housing Market Predictions


Predicting North Dakota real estate trends coincides with an inherent degree of error. Regardless of how stable any market seems, there are simply too many variables to account for to predict any housing market with the utmost certainty. Nonetheless, it is good practice to make decisions based off of well-informed, educated guesses pertaining to a respective housing market. Keeping a finger on the pulse of the market can help North Dakota real estate investors interpret the most likely direction things are heading. Let’s take a look at the North Dakota real estate predictions that are most likely to come to fruition in the next year or so:

  • Foreclosure activity will increase: North Dakota has been the beneficiary of fewer foreclosure filings over the last several years. However, the presence of the Coronavirus is expected to cause an influx in distressed owners. Year-over-year filings are down, but the state saw an increase in August which looks like it will continue for the foreseeable future.

  • Available inventory will continue driving prices up: The North Dakota real estate market has felt the constraints of tight inventory for several years. Thanks, in large part, to a lack of available housing, prices have increased for the better part of a decade. That said, there doesn’t appear to be a solution anywhere on the horizon. The pandemic has actually hurt already low inventory levels. and should continue to do so until more listings can be brought to market.

  • Demand for suburban housing will increase: As we get further and further into the pandemic, work-from-home trends appear more sustainable than ever. No longer do employees need to live within close proximity of their workplace. That, in addition to wanting to leave metropolitan areas where the virus continues to spike, should drive more people to consider calling the suburbs their new home. The trend is already happening in every state, and North Dakota isn't the exception. More people will look to leave cities in an attempt to cut costs and wait out the virus with larger living spaces that can't be found in a city apartment.

Summary


The North Dakota real estate market has endured many of the same hardships onset by the Coronavirus as the rest of the country. Most notably, the pandemic interrupted what was shaping up to be a very active year in the North Dakota housing market. Instead of a busy summer selling season, the industry contracted for fear of uncertainty. However, North Dakota is starting to see a light at the end of the tunnel. With a particularly resilient job sector, real estate in North Dakota appears primed the lead the country in a recovery. Local activity has already pocked up thanks to low interest rates, and all signs suggest the housing sector is close to firing on all cylinders.

Sources:



https://www.zillow.com/nd/home-values/
https://www.bls.gov/eag/eag.nd.htm
https://www.neighborhoodscout.com/nd/real-estate
https://www.census.gov/quickfacts/ND
https://www.realtytrac.com/statsandtrends/foreclosuretrends/nd/
https://www.realtytrac.com/statsandtrends/nd/
https://www.zillow.com/home-values/
https://www.realtytrac.com/statsandtrends/
https://www.realtytrac.com/statsandtrends/foreclosuretrends/
http://www.freddiemac.com/pmms/pmms30.html

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