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 served as an obstacle for the better part of the last two years, 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 COVID-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 remains steady in the North Dakota housing market, despite macroeconomic headwinds.
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:
Unemployment Rate: 2.3% (latest estimate by the Bureau Of Labor Statistics)
Population: 774,948 (latest estimate by the U.S. Census Bureau)
Median Household Income: $65,315 (latest estimate by the U.S. Census Bureau)
Foreclosure Rate: 1 in every 37,064
North Dakota Median Home Prices
The median home value in North Dakota is $278,322. In the last year, prices have increased 9.6%. For the better part of a decade, however, prices have realized much greater appreciation rates. At this time exactly 10 years ago (September 2012), the median home value in North Dakota was about $178,000. 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 56.3% in 10 years. For some context, the median home value in the United States increased 114.4% over the same period of time. Today, the median home value in the United States is $356,026, or approximately 27.9% more than North Dakota's median home value.
The disparity in prices is primarily the result of a five year period where real estate in North Dakota remained relatively stagnant. From 2015 to 2020, the median home value in the North Dakota housing market increased about $14,000. The median home value in the United States, however, increased by $55,000. It wasn't until the introduction of the Coronavirus that real estate in North Dakota started to appreciate at the same pace as its national counterpart. Since the beginning of the pandemic, real estate in North Dakota has appreciated an average of 17.9%.
To be clear, prices in the North Dakota housing market are expected to continue rising. However, higher interest rates and prohibitively expensive homes have combined to lower mortgage applications. Fewer people are looking to buy in today's market, but competition remains intact. There is still a lot of demand in a marketplace with too few listings, and the competition will allow sellers to keep prices high. That said, the Fed's action to slow the housing market are working. While prices will rise for the foreseeable future, it's only a matter of time until home prices come down.
North Dakota 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.”
A total of 23,952 U.S. properties entered into the foreclosure process for the first time as recently as August; that number was up 12% from last month and 187% from a year ago. As we get deeper into 2022, it's growing more apparent that foreclosures are on the rise.
“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.”
There's no doubt about it; foreclosures are on the rise across the country. However, the North Dakota housing market is not the primary reason behind the recent jump in foreclosures. In fact, North Dakota had the second lowest foreclosure rate out of all the states as recently as August. Only one in every 37,064 housing units in North Dakota is distressed. In fact, North Dakota has so few distressed homes that only four counties saw foreclosures: Cass, Morton, Ward, and Grand Forks.
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
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:
Relatively low (and rising) interest rates introduced to stimulate the economy during the pandemic have made it cheaper to borrow money.
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 $843, 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 September, the average rate on a 30-year fixed-rate loan is 6.29%, according to Freddie Mac. To be clear, rates have nearly doubled year to date. Still, at just north of six percent, rates are still relatively low compared to years past. While higher than they were a yer ago, today's rates will help landlords keep more of the cash they collect from rent each month.
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 higher rates are preventing homeowners from selling. 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 predictable any market seems, there are simply too many variables to account for. 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 removal of moratoriums and an impending recession may result in an influx of distressed homes. Year-over-year filings are already starting to show increases and macroeconomic headwinds may lead to more.
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. Mortgage applications are starting to slow, which will help, but a more permanent solution is needed for the state to improve its available listings.
Interest Rates Will Keep Rising: The Federal Reserve has had to increase interest rates to combat inflation over the course of 2022. While up 3.411 points year-over-year, mortgage rates will most likely go higher. The Fed needs to slow the housing market more than it already has, and it will do so by rising rates. As a result, it's hard to tell how high rates will go, but increases are all but inevitable.
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 getting back on track.
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