It’s no secret that the real estate market is a “seller’s market” right now all over the country. Low interest rates are making it more affordable than ever to become a homeowner. It’s even busier here in North Carolina with our “middle of the road” weather and versatile topography.
W
hen we zoom in on that map a little more, it turns out that Raleigh is one of the hottest markets in the country. Only a few hours to the Black Mountains to the west, and a few hours to the Atlantic to the east. Hit the zoom button again, and let’s turn the focus to southwest Wake County. It is arguably the hottest market in the country. But why? We all live here, so we already know it’s a great place to be, but who’s telling everyone else?
Well, go on Bing and search something simple like “best places to live in 2021.” You’ll see that realestate.usnews.com and bankrate.com are the featured listings. Where is Raleigh? Ranked second and first, respectively. The fact is that no matter what list you look at, Raleigh is always in the top 20, and often in the top 10. That’s the first factor of our storm.
A second contributing factor to the storm is commercial growth. There are a lot of high-end, large-scale facilities moving to the area and people are transferring here for work. Companies moving in are bringing high-paying jobs which can be considered a contributing factor to driving up real estate prices, as some of these residents can afford to pay over “market value” for a property that they really want. Of course, market value is dictated by what properties are selling for, but the current values could be considered a bit inflated.
A third contributing factor is I-540. Compared to ten years ago when getting from Holly Springs to points north and west involved clogged roads and a hurry-up-and-wait commute, it’s a piece of cake to get to RTP and the airport, for example. Before long, there will be new I-540 access points to the east making it a quick trip to Fuquay-Varina, Garner, Clayton, and Knightdale.
There are certainly more, but one final factor to mention is that unlike some of the other towns in the area, there’s room in Holly Springs for expansion. New developments are being built at an astounding rate, giving buyers a choice between having a home built, or buying an existing home.
What’s This About a Bubble?
Start a conversation about real estate today and you’ll hear how houses are selling in minutes, before being listed. How sellers are getting their asking price, plus thousands more. How buyers have to be ready to act fast, but still prepared to miss out on that dream house. As the country deals with fallout from the 2020 pandemic and shutdown, one can’t help but wonder what’s in store for the housing market.
Devin Giovacchini, broker/owner of Devin G Home Team Realty, has lived in Holly Springs for 24 years and he’s been a real estate professional for the last 11. Giovacchini said, “I’ve seen our area expand at a rapid rate at the end of the 1990s, middle 2000s, and then more recently in 2020 and 2021. In my opinion, and that of many others in Holly Springs and the greater Triangle, we are not in a bubble. We will most likely plateau at some point in the next five years, but not burst. Having grown up on the West Coast, I’ve seen major growth in housing prices and then inevitably the contraction after a few short years.”
Keck Realty Group broker-in-charge Rich Keck isn’t alarmed either. “According to our local MLS, Holly Springs has seen about 27 fewer closed homes in June of this year over last year. However, median home prices have surged upwards to $439,000. So, you can see the supply and demand working true to its nature.”
So what are the options?
The State of New Construction
If you’re someone who likes the idea of seeing a patch of dirt give rise to a pristine house with sparkling features and never-before-trod floors, then new construction sounds great, doesn’t it? Buyer beware—the smell of sawdust comes at a cost. In fact, ask anyone in the construction or handyman business about the current price of lumber and you’ll get an earful. Giovacchini explained, “We were hoping for new construction to help alleviate the housing shortage here, but currently that doesn’t seem to be in the short-term plan. With the costs of materials and shortages of materials, much of the new home building is being metered out in small doses. This will not help when we are still 60% of last year’s inventory.”
Erica Anderson, broker-in-charge and owner of Team Anderson Realty, explained in detail just what is happening with new construction.
“The average new construction home has increased by about $40,000 just in lumber prices within the past year or so. Builders are struggling with meeting the demand and working with delays in materials and supplies due to COVID-19 supply chain complications. Some builders locally are only able to open up four or so lots per month to buyers, and the wait list exceeds current and future community inventory. Some builders are increasing costs by $3,000+ for every two homes that go under contract, so it’s not always in the next ‘phase’ that prices increase.
Many builders are moving into spec home sales, which means they choose the elevation, floor plans and finishes, and the buyers need to ‘yes or no’ what is presented to them. Some buyers are no longer able to choose finishes or any aspect of a property. In order for builders to sell more homes, they need to streamline a process which has become slower than usual. As costs rise, there are a select few builders who are adding a clause [to contracts] which will allow them to increase the purchase price by a certain amount, should costs rise. The most intimidating change is that some builders are allowing a ‘bidding war’ on their own properties, which is creating a very [unfriendly] landscape for buyers and agents alike.
New construction used to be a real estate agent’s ‘go-to’ for buyers who are not risk tolerant, and now some builders are taking full advantage of the housing shortage. [Fortunately], not all builders are doing this and they are the ones that many buyers are the most comfortable working with.”
As a result, Anderson is seeing new construction buyers shy away from these scenarios in favor of resale, sending resale prices soaring. “Not all buyers want to wait 8+ months to build a new construction home after waiting months for a lot to be released. [Builders] really need to open up more inventory and as lumber prices go down and more builder options become available, the resale market might level off slightly.”
Giovacchini agrees. “Resales of existing homes are the only option at the moment, but not without challenges. There isn’t a home that goes on the market currently that does not get multiple offers and sells for anywhere from 7%-20% over list price.”
Consequences of the Pandemic
We know that resales can be hard to come by, and new construction costs more and could take longer because of delays caused by the ripple effect of last year’s shutdown, but what else is impacting the housing market? Believe or not, our new work habits are influencing whether people choose to move or decide to stay put.
“With a more relaxed work-from-the-home model being used by many employers now,” Giovacchini said, “many people can live where they want and not worry about having to be in a specific city to work. Many will come here.”
Anderson has noticed a similar trend. “People are realizing that their homes do not always work for a ‘work from home’ scenario, which might be long-term or even permanent now. They also are more flexible in terms of where they live, so the commute to work may be a non-issue. Some sellers are moving to their ideal retirement areas before retirement. This is common for those relocating from the West Coast and up north; many have wanted to make the move here but did not have that ability [due to] work. Holly Springs is a major hit for people moving in from out of state who want a more relaxed resort-style feel with amenities at their fingertips.”
For people with jobs, being able to work from anywhere is a luxury. But what about all those who lost their jobs in the shutdown last year? Sadly, many lost their businesses, and without income, their homes. Media outlets have alluded to a “foreclosure wave,” but what might this mean for today’s market in Holly Springs?
Anderson shared the following insight based on numbers from the Mortgage Bankers’ Association (MBA).
“[The MBA] now estimates 2.2 million homeowners are in forbearance, less than feared when people started losing their
jobs last year. Their Q1 delinquency report shows that the mortgage delinquency rate peaked at 8.22% in the second quarter of 2020 and within three quarters has now dropped to 6.38%.
Today’s [MBA] forbearance numbers show a decline for the 10th straight week, falling to 4.36% of servicers’ portfolio. Ginnie Mae loans fell to 5.82% ― a massive milestone as this is half the total portfolio share the MBA originally recorded (11.6%) last May. Fannie and Freddie are down to 2.32%.
It’s not all rose-colored glasses. More than 47% of borrowers in default extensions are now past the 12-month mark. Those homeowners are likely in serious trouble. But a hot housing market means that they may be able to sell instead of losing the house to foreclosure.”
What Is it About Holly Springs?
At the outset of this story, we named just a few of the enticements drawing people to Holly Springs and southwest Wake County. Our real estate experts weighed in on what they have noticed with their clients in regard to these factors and others.
Anderson points out that Holly Springs has been ranked the “#1 Safest City in North Carolina” for four years in a row by Safewise.com. “With a growth rate of 44.9% since 2010, this once rural setting has become home to many new subdivisions, family-owned restaurants and hand-crafted boutiques. The new 540 extension is under construction and will link Apex, Cary, Clayton, Garner, Fuquay-Varina, Holly Springs and Raleigh and is expected to alleviate congestion on many area roadways. Easing the commute times will make Holly Springs an attractive place to settle down.”
Central North Carolina and southwest Wake County also made news with the recent announcements of Apple and FUJIFILM Diosynth Biotechnologies moving to the area. For Anderson, and no doubt everyone in real estate, “Apple is big news for North Carolina. They unveiled plans to build a campus and engineering hub in the Research Triangle, committing more than $1 billion in investments and creating at least 3,000 new jobs for the area. A median salary around $180,000 is expected. Jobs with this average salary means more buyers are ready, willing and able to pay top dollar for homes. Plus, FUJIFILM is going to build a $2 billion cell culture manufacturing facility here which is projected to create 725 jobs by the end of 2028. This is also a major factor in explosive predicted growth for Holly Springs and neighboring communities.”
Echoing Anderson’s comments, Giovacchini sees the Triangle and Holly Springs as having, “a quality of life and a cost-of-living balance that many other places do not have.” He added, “Up until a few short years ago, our area grew [by] 65 people a day. Take that and add the jobs pledged and yet to arrive over the next four years—Apple, FUJIFILM Diosynth, Google, and Amazon, to name a few. These aren’t slouchy jobs either, these are high-paying wages that allow people to pay for homes and lifestyles. Additionally, a 2019 employment multiplier table by the Economic Policy Institute shows that for every 100 IT jobs coming into an area, 573 indirect jobs are created. That means, for just the 3,000 jobs Apple has pledged we will have 17,190 people coming here to live and buy homes.”
What’s a Buyer or Seller to Do?
Know how to swim (to continue with our storm analogy). In other words, wherever you are in the decision-making process, it’s important to be prepared if you’re contemplating selling, buying, or both. According to Anderson’s data, “A typical, stable real estate market has a roughly 4- to 6-month supply of inventory, but we currently have about two weeks of inventory in our area, if that. If we can keep a listing on the market more than three days, something is usually wrong [in terms of] price, condition, marketing, etc.”
It’s not unusual these days for a homeowner to be approached by an acquaintance, a neighbor, or even a “Facebook friend” with an offer to buy the homeowner’s house. And while Giovacchini believes that now may be the time to take advantage of the market, it’s wise to “have a good plan.” He explained, “While some may think selling directly is the best and most lucrative way to sell your home with little to no stress, you may leave a considerable amount of money on the table.” In this scenario, Giovacchini advised the homeowner to make some improvements and list the house, and the result was a sale that was 10% higher than the direct offer.
Anderson’s advice to buyers:
Be prepared for upwards of 5-10%+ in Due Diligence money up front (fully at risk) in order to win. Many buyers, if they can and are willing to bridge any appraisal gap, present this information in their offers and most resale properties are closing for 10-20%+ over list price. Cash is NOT always King! You have to be just as competitive in most offers. Only a select few sellers will sell for less for a cash buyer; most want to net the most.
Conventional loans are sought after since they are usually borrowers with less debt-to-credit ratios, more liquidity and higher minimum credit scores. Also, if they were prepared to put 20% down, and the appraisal is low, they can put less down and sellers understand that they likely “could” bridge any necessary appraisal gap.
Anderson’s advice to sellers:
“Realize that selling at the “top” of the market also means buying at the top. Unless a seller has an absolute need to sell (size, life change, relocations), more are choosing to stay put. If a seller needs to sell in order to buy, they do not like the idea of intermittent housing, so we are recommending selling with a desire for a 30- to 60-day seller possession after closing, which allows them to not be a contingent buyer and to have the liquidity to put substantial due diligence down, if needed, to secure the property they want.”
The Clouds Will Eventually Clear
Looking ahead, Anderson believes this market is here to stay for a year, possibly two. “With all these large corporations/companies coming to the area, bringing thousands of jobs, many with higher average salaries than we’ve seen before, I suspect we will have a 15%+ appreciation in home values within the next 12 months, based on how many homes are closing for over ‘market value’ set with prior comps. We had been seeing about 5-6%, but I do not see the demand going down and so my prediction is that appreciation will nearly triple to 15%+ for 12-18, possibly even the next 24+ months.”
No matter what your plans are, secure the sails and grab a life preserver. We might have to ride the waves for a little while yet. But take heart. As Keck reminded us, “This market doesn’t come with instructions. Buying in this market is challenging, but not impossible. There will always be people buying and selling homes because of life situations. Pair that with our area seeing so many amazing accolades on so many ‘best of’ lists and being so desirable for our job market, climate, universities, and quality of life; I don’t anticipate that will stop any time soon. The best thing we can do is educate our clients. Whether you are a buyer, seller, or investor, sit down with a real estate professional and look at all the options available to you.”
The bottom line is this: Be patient. Giovacchini, like his industry colleagues, emphasized, “With competent professional guidance, the challenges of buying or selling a home in today’s market can be navigated.” So, if the housing market in or around Holly Springs feels frustrating, call your real estate professionals. Chances are good they have weathered storms before, and their advice can be a safe harbor while you wait for the waves to subside and the winds to calm.
