The 911 On The Triangle Housing Market

Dated: 01/10/2018

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For a city known for its oak trees, Raleigh's reputation has a solid growth foundation. Add in an explosive real-estate market, the Triangle seems to have stout footing in the event of an economic downturn ... or does it?

Where are we today, economically, employment in North Carolina’s Triangle region, which encompasses both the Raleigh-Cary and Durham-Chapel Hill, added close to 30,100 new jobs in the 12 months ended August 2017, or a growth rate of 3.3 percent, according to the U.S. Bureau of Labor Statistics and the North Carolina Department of Employment Security. In 2016, the Triangle added 27,100 jobs. The milestone marks the 44th month of consecutive job growth in the region.

 

The Triangle’s unemployment rate dropped to 3.9 percent in Raleigh and 4 percent in Durham.  Statewide, North Carolina’s unemployment rate stood at 4.5 percent in August, equal to the U.S. average.  The pace of job growth in North Carolina has exceeded the pace of job growth nationally in six of the last seven years, according to N.C. State University economist Michael Walden. Walden is projecting 2018 will be another growth year for the Triangle region and for North Carolina’s economy with the state’s unemployment rate expected to drop another 0.1 percentage point in 2018.

 

Lower wages and unemployment traditionally signals stronger wage growth among those who are already employed. Employee wage growth in the region, however, like much of the rest of the U.S., has been anemic as the region has experienced a surge in jobs for both high-end positions and in low-end positions but fewer in the middle-level income range. North Carolina’s average wage rate has increased 3.3 percent since 2009 after adjustments for inflation, which is lower than the national gain of 3.6 percent. 

 

Job Growth by Sectors have reported the highest demand for new job growth include companies involved in professional and business services, or those that perform professional, scientific, and technical activities for others. The number of workers employed in construction fields in the Triangle had increased 6.6 percent as of August compared to a year ago, but construction employment – a field critical to the growth of the new home construction market -- is still down 11.8 percent from pre-recession levels in 2007.

Overall, the numbers appear to be staggering - at least 653 new subdivisions have been approved in the past seven years, amounting to at least 40,888 new homes built or approved for construction. In Raleigh, the county's largest municipality, The Development Services Department approved 279 subdivisions (4,438 homes).


But those numbers do not match the construction in the robust suburbs, including Apex (62 subdivisions, 7,851 homes) and Wake Forest (39 subdivisions, 6,766 homes).

So what is the reason for the increased demand for the supply of new homes?
Aaron Terrazas, a senior economist at Zillow state that "We've never had mortgage rates this low when the employment rate is so good.  Zillow, based in Seattle, is a leading online real-estate marketplace that publishes monthly research on national market trends.
He also noted that "Raleigh has a very strong job market, and actually the construction is at a slower pace than before the mortgage crisis, in 2008.


Terrazas states there is also a surge in population to the Triangle and it is among the largest in the country, comparable to that of Dallas-Fort Worth.  However, remember that during the Great Recession of 2008 many home builders dissolved out of business.  And this is just one of two key’s driving the building growth.

Building permits were significantly reduced as means of clearing excessive inventory by the area municipalities. Once the glut was reduced permitting picked up pace: 

Year

2012

2013

2014

2015

2016

As of Sept 17,’

Permits

7,278

9,624

9,024

10,383

11,862

10,522

In addition, the reduction of builders from 2008 to 2012 who never returned to their trade created a large void.  Per Triangle MLS home owners historically moved every 4.2 years prior to 08’ in this new economy of 2017 that rate is now at 7.6 years average. A direct result of home owners still being upside down in their mortgage. 

Unlike the Western part of the state “Raleigh is not limited geographically," he said, "by which there's no water or mountains that would inhibit natural growth and thus create infrastructure barriers."
Are home prices out-of-control in this seller’s market, fueling speculation of out of control prices?


Reported from Zillow’s data, the median home price in Raleigh is $314,900, up 16.9% since last year. In other Wake County communities, the percentage of growth is smaller, but the median home prices in those areas are much more expensive: Apex, $399,000; Cary, $419,900; Wake Forest, $371,900.


The reasons for inflated prices for new construction is the high cost of land. Raw land inventory has been diminished for the most desirable and easiest to develop. While there is still ample land available simply it’s the plots that have development issues which only increase cost.  
"There's a lot of costs that builders now face that they didn't 10 years ago - regulatory costs, land costs, labor costs are higher, financing costs are higher," Terrazas said. "That's forcing them to refocus on the market." In addition, those builders who weather the storm are also more focused than ever on the bottom lines. 
Many Triangle Realtors are bewailed at the higher prices of new construction, but they noted that buyers were still gobbling up the inventory, and quickly, especially new comers from the Northeast and West Coast setting up residency in Raleigh.
"Cash is king," Realtor Bo Glenn with HTR Capital Group in Raleigh. "We're working around the clock to find our buyers the best homes at the best prices, and it's extremely competitive."
Glenn was showing a home to a Tennessee couple relocating for New High-Tech position at Cree, Inc in Durham in the Triangle. David and Betsy hoped to land a home in the $300,000 to the $400,000 range; the home’s they toured in Cary and Morrisville were starting at $525,000.
"We'll be looking online and find something, for our clients said Glenn and it would be gone the within the same day or within two days. If the house is desirable and located well in a destination community, I explain to my clients to expect to be in multiple offer position. "We've made offers on two houses to date that were over the asking price and we have yet to be successful," added Glen.
According to Metrostudy a national property analytics firm other city across the country have experienced similar spikes in demand, and growth, to include Nashville up 13.6%, Seattle up 13.1% and Dallas up 10.5%. These cities have strong markets and other cities, such as San Francisco, show how the market can also correct itself.
In conclusion, I do not worry about a financial meltdown like the Recession of 2008, since mortgage rules have tightened, and banks are more restrictive in processing loan packages. Instead, watch the interest rates if money gets more expensive the buyers will be less likely to be approved for their loans. ‘The real risk is not that people are losing money on their homes - they're just not making money.’
Intrest rates have resin in 2016 and 2017 and with will happen again exactly when that will happen and how it effects the Triangle is tough to predict. The Federal Reserve holds the key on interest rates. Contractors are building and inventory levels for new home starts are growing. In addition, remodeling of existing homes is increasing. The home buyer of today needs to be well prepared by having a preapproved loan, a creative and savvy Relator and loads of patience, being smart about your biggest investment will be worth the wait.

More about HTR Capital Group:HTR is an independent company with local roots and national branches through its membership Referral Exchange, a network of over 20K licensed agents in all 50 states. HTR has strong working relationships with area builders, developers, businesses and city/county/state government officials. HTR believes Customers First is a Win-Win situation! No real estate transaction is too large or too small for the HTR team! To learn more, visitwww.HTRRaleigh.com or contact Gregory Buscher, HTR Relator at 919-795-9720 or by email [email protected]

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Gregory Buscher

Anyone who knows me will tell you I have never met a stranger. I enjoy getting to know people and helping them however I can. That’s what prompted me to change career paths and become a Licensed R....

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