When you’re searching for housing in the current real estate market, whether to purchase or rent, you’ll need to act quickly.
As more businesses expand and firms such as Apple and Google drive up wages for high-tech talent, the market trends – good for sellers, tough for buyers – are not likely to shift any time soon, according to reports out this week.
What’s happening? A combination of tight supply, both from existing homes entering the for sale market and from a gap in new construction and new lot starts, and high demand for housing in the Triangle as more households form across the region or choose to move to the area for economic opportunity or to enjoy retirement are doing more than increasing prices for housing. That combination of low inventory and high demand is also leading to a shorter time that housing is listed on the open market, according to a national analysis of local market data conducted by Zillow and released this week.
Nationally, Zillow calculated that home sale inventory, or the number of homes that came on the open market, rose by 3.9% in May compared to April, the first month since July 2020 when supply of homes increased, and only the fifth monthly gain in the last two years. But the Triangle gained just 0.3% year-over-year, and the number of homes for sale in the Triangle thus far in 2021 remains below the same time period in 2020 by 0.8% according to data from the Triangle Multiple Listing Service.
And, a Redfin study released this week found that the Triangle ranks first, in a four-way tie, for the lowest value of months supply of inventory, as of May 2021, with 0.4 months of supply available. Historically, real estate agents consider a market at equilibrium, with regard to supply and demand, one where there is six months of supply of inventory. The same study found that the Triangle ranked third for the decrease in year-over-year change in the average number of days on market for a house listed on the open market through the multiple listing service.
It’s clear: home buyers are still facing low supply in the Triangle housing markets, where demand for housing is still strong.
The result: prices increasing, time on market decreasing
Median sales price across the Triangle region have grown by nearly 20% year-over-year, with the median sales price in the Triangle for May 2021 of $345,000 and the average sales price of $401,292, compared to May 2020, when the median price was $288,000 and the average price was $330,258. In April, the median price of a home in the Triangle was $329,900, so the median price increased from April to May 2021 by 4.5%.
In addition, whereas in May 2020, homes were staying on the market an average of 26 days prior to a sales contract being accepted and signed, the average number of days on market in May 2021 was 12, less than two weeks.
In Wake County, the median sales price increased 18.9% year-over-year and is now $389,900, and the average time on market is now nine days, and in Durham County, the median sales price has increased 19.3% year-over-year and is now $340,000, with average time on market of 12 days.
Zillow originally estimated a national year-over-year price increase of 11.4% for 2021, but their latest data analysis adjusts that estimate upwards, and the firm now expects homes to have appreciated in estimated value by 17.9% between December 2020 and December 2021, and by 14.9% between May 2021 and May 2022. If the average holds across the Triangle, the median home sold on the open market in May 2022 would be expected to sell for $396,405, an increase of more than $50,000 in estimated value in a one-year period.
A recent report from the National Association of REALTORS® found that 88% of home sellers, for homes sold in April 2021, received, sold their home in less than a month, and 82% of sellers in the prior six months accepted an offer that was at or above their home’s listing price.
And, also according to the National Association of REALTORS®, this spring was the most competitive housing market in 50 years, as one of every four existing homes sold nationally was paid for in full with an all cash offer and all cash close.
Among non-first time home buyers, the national percentage of all-cash sales increased to 33.5%, up from 26.3% two years prior.
The data shows that there has not been a noticeable shift for how real estate investors are acquiring property, suggesting that the increase in all-cash sales is coming primarily from primary residences or vacation homes used as a second residence.
“This also implies that these buyers have already accumulated equity from their previous home,” said Nadia Evangelou, a senior economist with the National Association of REALTORS®, which is also tracking how people are choosing to move.
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A Zillow analysis found that for those choosing to move to Raleigh from out of the region, they’re able to buy more house, for less money, on average, relative to the averages within the zip code they’re departing.
“Most of the out-of-state movers who relocated to North Carolina came from South Carolina, Florida, Virginia and New York,” said Evangelou, noting that, on average, home prices are higher in Florida, Virginia, and New York compared to North Carolina, particularly in the comparison of the major metropolitan areas. But out-of-state movers are only one pressure on the Triangle housing market: according to the data, for Wake and Durham Counties, one of every two movers came from a nearby county.
Housing availability and affordability expected to worsen
In a report released by the National Association of Realtors (NAR) this week, which was authored by the Rosen Consulting Group, the state of the housing market in America is said to be “more dire than previously expected.”
The acute shortage of available housing is detrimental to the health of the public, and to the economy, the report finds, “and will require a major national commitment to build more housing of all types.”
“There is a strong desire for homeownership across this country, but the lack of supply is preventing too many Americans from achieving that dream,” said Lawrence Yun, chief economist for the National Association of Realtors in a statement. “It’s clear from the findings of this report and from the conditions we’ve observed in the market over the past few years that we’ll need to do something dramatic to close this gap.”
“Recently, the COVID-19 pandemic greatly exacerbated this issue. In January 2021, the months’ supply of inventory plunged to 1.9 months, or 1.0 million homes available—the lowest level since tracking began in 1999—and one third of the historical average,” the report findings read, noting that this is an “untenable scenario” that will drive prices higher, reduce affordability, and make homeownership less accessible for low- and moderate-income households.
At least one financial institution is adding products to its offerings in an attempt to extend access to homeownership, as First National Bank, a subsidiary of the publicly traded F.N.B. Corporation, announced this week that it will provide closing cost assistance “in urban markets where it identified significant need,” according to a statement. Those markets include Raleigh and Charlotte, and purchasers could receive up to $2,500 in credit for the closing costs associated with purchasing a home. The program is a part of a $250 million pledge the bank made to promote economic investments in underserved communities, the company said in its statement.
A Harvard University report, The State of the Nation’s Housing 2021, also published this week, finds that Americans are experiencing two different extremes when it comes to the ability to access housing.
“Households that weathered the crisis without financial distress are snapping up the limited supply of homes for sale, pushing up prices and further excluding less affluent buyers from homeownership,” a press statement announcing the report from the Harvard Joint Center for Housing Studies (JCHS) reads. “At the same time, millions who lost income are behind on housing payments and on the brink of eviction or foreclosure.”
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Further, a disproportionately large share of these at-risk households are those with low incomes and people of color, the report finds. Affordability remains a challenge, particularly for renters, the report finds, with more than 80 percent of renters earning less than $25,000 were considered cost-burdened, meaning the household spent more than 30% of its income on its housing needs, with the majority spending more than half of their income to shelter.
‘Housing cost burdens have also moved up the income ladder,” said Alexander Hermann, a senior research analyst at Harvard JCHS. “Seventy percent of renter households earning between $25,000 and $34,999 and nearly 50 percent of renters earning between $35,000 and $49,999 were cost burdened in 2019.”
And 53 percent of renter households reported losing income since the onset of the coronavirus pandemic, the researchers found. Meanwhile, the median wealth for homeowners was found to be $254,900, more than 40 times the $6,270 median wealth of renters.
Pandemic accelerated pre-existing trends
Household growth, the primary driver of demand, was already strong and accelerating, and since 2016, household formation rates among millennials have been rising. Household formation accelerated during the pandemic, particularly as households sought housing where working from home would be viable, but in neighborhoods that were still within a half an hour of urban locations, found National Public Radio’s Planet Money reporting team in a recent podcast episode focused on the role of millennials in housing markets nationwide.
Since the onset of the pandemic, a survey conducted by the National Association of REALTORS® found that 62% of respondents, all licensed real estate professionals and REALTORS®, reported that buyer clients are looking for a larger home, or a similarly sized home with features or a layout that would enable functional work space.
The survey also found that 31% of North Carolina REALTORS® are working with more clients interested in suburban towns compared to January 2020, prior to the onset of the global coronavirus pandemic.
Even in a highly competitive national market, homeownership grew during the pandemic, and now stands at 65.6% after the first quarter of 2021, a gain of 0.3% from the prior year, with the total number of homeowners increasing by about 1.3 million, consistent with average annual gains between 2016 and 2019, the Harvard report found.
But while some were buying homes, or choosing to refinance their mortgages to take advantage of lower interest rates spurring an average interest savings of $2,800 annually per household that refinanced, the financial impacts of the coronavirus pandemic affected households unequally, the report found.
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At the start of 2021, one quarter of households earning less than $25,000 were behind on their housing payments, compared to six percent of households earning $75,000 or more, the findings of the report reads. Within low-income households, racial disparities were pronounced: more than a third of Black renters and a quarter of Hispanic and Asian renters were behind on rent in early 2021, compared to 17 percent of white renters.
Due to income losses during the pandemic, 14 percent of all renter households were behind on their housing payments in early 2021, and in ten states, more than one-fifth of renters were in arrears, the study found, and racial disparities exist in this data set as well. 29 percent of Black, 21 percent of Hispanic, and 18 percent of Asian renters in arrears, compared with 11 percent of white renters.
With so many renters in financial distress, there are concerns about an impending wave of evictions. So far, substantial federal relief, along with federal and state eviction moratoriums, have prevented large-scale displacement. However, if the federal moratorium ends in July, staving off a substantial increase in evictions and homelessness will depend on whether the latest round of assistance reaches at-risk households in time, the report states. “For many households that had to tap savings or go into debt to cover lost income last year, the impacts of the pandemic will linger well into the future.”
