In a real estate market environment like the one we are currently experiencing, it is important to be aware of the similarities and the differences between what is happening in our local market and the statistics that are being reported by the media. Both locally and in many real estate markets nationally, similar patterns have emerged over the past three years.  Inventories of properties for sale have increased substantially. Sales have significantly declined, and prices have decreased. On the other hand, my sense is that the number of properties entering foreclosure is substantially lower on Hatteras Island than in many other parts of the country.  In this context, I thought that it would be interesting to isolate one market indicator and review some of the residential price trends that we are observing on the island.

Before looking specifically at price patterns, a few general observations may be helpful as background for the discussion.  From an historical perspective, the number of residential sales last year was at about the same level that the island experienced in the 1997-1998 time frame. 

          

That pace of sales activity (about 10 sales per month on average) has continued through May of this year, suggesting some stabilization in buyer demand. A similar pattern of consistency is evident in the number of properties that are being offered for sale.  It is interesting to note that we do not have the traditional supply/demand curves that you would expect to see in economics text books.  Rather, we have two almost parallel lines that graphically portray the stalemate that presently exists between buyers and sellers.  Sellers as a group are not lowering their prices sufficiently to attract buyers in any significant numbers into the market, and buyers, after listening to negative news reports about real estate market conditions and the economy, are choosing to sit on the sidelines.
          
Focusing on price behavior in the Hatteras Island market, the limited change that we have seen in supply and demand data has carried over to selling prices.  The trend line for the average selling price of residential properties on the island has remained essentially flat for the past year.



Broad, market-wide averages, however, can mask some underlying variations.  When average residential selling prices are examined for discrete price ranges, some different trends emerge.  For example, in the under $500,000 price range, where most of the residential sales have been concentrated, a declining pattern of prices is evident.

     
                                    
On the other hand, homes selling in the $500,000 to $750,000 range have experienced appreciation during the past 12 months.  It is probably appropriate at this point, to note that as the price of properties increases, the number of sales declines.  This can be seen in the data gaps in the following chart which represent months during which there were no sales reported in the price bracket.    
                                                

When we consider the $750,000 to $1 million market segment, a pattern of declining prices reappears.  In this price range, there has only been about one sale every other month.


A similar trend is evident in the market for homes that sold for over $1 million.  Again, about one sale every other month was the norm.



The subdued level of sales activity in the higher price ranges is in part a reflection of more stringent loan underwriting standards for this market segment.  As I understand the situation, loans with loan amounts of $417,000 or lower are easily sold in the secondary markets offered by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). However, loans above $417,000 are generally kept “in-house” by the lenders.  This is the sector of the financing market where the impact of the excesses of the boom years are really being felt in terms of both the availability of funds and the tightening of underwriting standards.

In summary, we are seeing some signs of stabilization in the Hatteras Island real estate market.  On a macro level, supply and demand as well as the island’s average residential selling price appear to have leveled off.  On a micro level, selling prices are continuing to exhibit a downward tendency in all major price categories except in the $500,000 to $750,000 price range.  Trends in the higher price ranges should be evaluated with the recognition that the number of sales in these price ranges is relatively small.  Overall, buyers are definitely showing a preference for properties priced below $500,000.

Hatteras Island entered the buyer’s market in the summer of 2005 about six months ahead of the rest of the country. We are hopeful that the signs of firmness that are being seen in some of the statistics are an indicator that our local real estate market is in the base phase of a “U-shaped” recovery and may begin to improve ahead of the national market. You have heard me say it before, and I think the message bears repeating - “It’s a great time to be a buyer on Hatteras Island!”
 


(Tom Hranicka is an associate broker with Outer Beaches Realty. Questions, comments, or suggestions for future articles may be sent to Tom Hranicka at P.O. Box 237, Avon, NC  27915, or e-mail to hranicka@hatterasisland.com )

Copyright©2007 Tom & Louise Hranicka.  All rights reserved.