The US housing market has been on a steady rise in prices, shrinking inventories, and increased demand since the spring of 2020. Hatteras Island actually lagged other “over the beach” areas in price increases for most of 2020, but was quickly offset in 2021 .
Now that we’ve done so well, as they say, what’s in store for the rest of the year? I have three real estate market forecasts that I hope will help you navigate over the next several months.
- Demand will remain high. Offshore banks saw record visit numbers and set several occupancy records. Even in the latest edition of the Dare County Tourism Board, you can see that January set a new record for occupancy groups. Memorial Day rental season has expanded into Labor Day with the increase in telecommuting – visitors love watching the ocean during those boring conference calls! If homes were renting for extra weeks each year, (bookings in December, January, and shoulder seasons), they would bring in more money annually, and rental yields in most homes would be significantly higher compared to the pre-COVID era. Moreover, weekly prices have gone up to keep up with the demand as well, and this attracts investors and second home buyers who want to continue renting properties.
- Inventory will crawl back up. It’s hard to see this now because many homes are being rapidly contracted out, but so far in 2022, there were 114 properties on Hatteras Island, and only 66 of them are under contract at the moment, (as of March 22nd). This trend continues, and we will approach historical stock levels. One of the things contributing to this trend is higher interest rates. The Fed has already raised the federal funds rate once this year, and is threatening six more rate hikes. Just the threat of the first hike (the first since late 2018), which went into effect on March 17, was enough to raise mortgage rates. People were booking second home purchase loans at 2.6% a year ago, but now the typical second mortgage rate is 4.75%. I can’t imagine buyers were as excited about these prices as they were last year. If buyers choose to sit on the sidelines due to an increase in the mortgage rate, the homes will stay on the market longer, and total inventory will rise.
- Prices will continue to rise. I know what some people are thinking – how? It all comes back to record demand for vacation rentals, and record revenue for rental homes. Some areas of the country may see some slowdown in price growth, but investors are not looking at rental properties as just a home. They are investment tools. I talk to clients about the 10% rule, (when 10% of the home purchase price is the annual rental return), as a good way to determine which properties the cash flow might be positive. And if the house is renting for more money due to the price increase, and renting for weeks more due to demand for weeks outside the traditional rental season, it will result in more rental income for the owner. Even with the price hikes, I still see good investment options in Hatteras Island pop up in the Multiple Listing Service (MLS). Median home sale prices in March 2021 are up 34% compared to 2020, and so far in March 2022, median home prices are up 9.5% compared to 2021. Zillow expects significant price growth nationwide for the rest of the foreseeable future.
Now, why would this combination of factors on Hatteras Island be different from, say, Raleigh, North Carolina? Because in Raleigh they can expand geographically and build more homes to meet the demand. People may move to the suburbs or just a short drive from the city center as new subdivisions and homes are being built. There is no other place to “build” it on Hatteras Island.
The real estate cycle is still a very real thing. Prices will not always go up. But for the rest of 2022, it looks like it’s going to be more of the same here on Otter Banks.
*Based on information from the Association of Offshore Banks for REALTORS® MLS for the period from 3/1/2020 to 3/22/2022.
Stephen Smith is an Outer Banks realtor at Coldwell Banker Seaside Realty. Recognized in 2021 as one of the top 10% of Coldwell Banker dealerships worldwide. He has lived in the Outer Banks for nearly 20 years, and met his beautiful wife on Hatteras Island. They currently reside in Nags Head with their daughter, but Hatteras Island is still home in many ways. For questions about Hatteras or the larger OBX property market, you can contact Stephen directly at [email protected] or 252-216-9230. His website is https://www.stephensmithobx.com Or you can receive his weekly newsletter by registering at https://mailchi.mp/43cd4a4bf1a6/obxnewsletter.
