August 24, 2010



At the end of July, I had the pleasure of participating in a conference that was attended by several hundred of the most successful real estate professionals in the country. Two of the keynote presentations were given by nationally recognized leaders within the industry. The observations that they made and the perspectives that they offered were surprisingly similar. Their main thoughts and projections are summarized below for your consideration.

There will be challenges in the real estate market until unemployment declines, consumer confidence rises, and the inventory of distressed properties is worked off.

Distressed properties (foreclosures and short sales) will impact the real estate market for as long as 3 to 5 years. It may be longer in some places like California. The “shadow inventory” of approximately 5 million distressed properties will be released by the lenders at a measured pace rather than all at once.

Nobody really knows what is going to happen with the real estate market. The recovery, when it occurs, will be gradual. It would not be unreasonable to believe that while all real estate markets are local in nature, the broader real estate conditions that the country is experiencing will be with us for the next 3 to 4 years.

The market for lower priced properties will recover more quickly than the luxury home market. Mortgage availability is good for lower priced properties.

The real estate recovery will be a “saw tooth” recovery, characterized by inventory and price cycles.  As the supply of homes declines, prices will increase, causing more properties to become available for sale which will then cause prices to decline again.

Now is an exceptional time to buy real estate.  There has been a significant decline in prices since the buyer’s market began, and interest rates are at their lowest point in the past 50 years. In the future, people will be saying, “I wish I had bought that property in 2010 when prices and interest rates were low.”

Investment/rental properties will be in high demand. Investors can purchase properties at today’s low prices and have them produce positive cash flows. (Note: This observation applies more to the purchase of investment properties in urban/suburban markets than in resort markets. We are not yet seeing many investors in the current Hatteras Island market.)

I think that you can see from these comments that individuals who are at the center of the national real estate community have a very conservative view of market expectations for the next few years. They are not shy about pointing out that the market for primary residences (although not our second home market) has been supported during the past few years by artificial credits. They are also quick to see the opportunities that exist in today’s environment of low prices and low interest rates for those with the financial resources to take advantage of these conditions.

Here on Hatteras Island, we continue to see a real estate market characterized by increasing sales at lower prices.  Through the first six months of this year, the growth in sales offset the decline in prices, resulting in a higher dollar value of sales compared to the same period in 2009.

The following table displays key residential market indicators, comparing January – July 2010 with January – July 2009.

Properties For Sale	-10.7%		# Foreclosure Filings	+9.8%
# Sales	+31.7%		# Foreclosure Sales	-12.5%
Average Sale Price	-8.1%		# Short Sales	+266.7%
Total Value of Sales	+20.8%

The remarks and advice of the industry experts at the conference echoed a theme that you have been hearing in my articles for at least the past year – this is a great time to be a buyer on Hatteras Island. Let me give you just one example.  During the past year, there have been nine four-bedroom oceanfront homes sold on the island.  The selling prices of all of these homes were  $100,000 or more below the average selling price of an unimproved oceanfront lot alone five years ago!

Buyers today are saying, “I am not sure that the market has reached the absolute bottom yet, but it is close enough that I don’t want to miss out on the next upward cycle.”  My sense is that this is a very accurate summary of a wide range of quantitative and qualitative market factors.
              

(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©2010 Tom & Louise Hranicka.  All rights reserved.

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