The U.S. real estate market has seen a sustained streak of rising prices, shrinking inventory, and increasing demand since the spring of 2020. Hatteras Island has actually lagged other areas “on the beach” in terms of price increases for most of 2020, but has caught up quickly. in 2021.
Now that we’ve run well, as they say, what does the rest of the year have in store for us? I have three forecasts for the real estate market, and I hope this will help you navigate the coming months.
- Demand will remain high. The Outer Banks saw a record number of visits and set several occupancy records. Even in the latest release from the Dare County Office of Tourism, you can see that January set a new record for occupancy collections. The typical Memorial Day to Labor Day rental season has been extended with the increase in remote working – visitors love having an ocean view during those boring conference calls! If homes rent for more weeks per year (bookings in December, January, and shoulder seasons), they will bring in more money per year, and rental income for most homes is up significantly from the era. pre-COVID. On top of that, weekly rates have also increased to keep pace with demand, which is attracting investors and second home buyers who want to continue renting a property.
- Inventory will go up. It’s hard to see that right now because so many homes are under contract quickly, but so far in 2022 there have been 114 listings on Hatteras Island, and only 66 of them are under contract right now. moment (as of March 22.) As this trend continues, we will approach historical inventory levels. One thing contributing to this trend is rising interest rates. The Federal Reserve has already raised its federal funds rate once this year and is threatening six more rate hikes. The mere threat of a first hike (the first since the end of 2018), which took effect on March 17, was enough to push mortgage rates up. A year ago, people locked in second home loans at 2.6%, but today the typical second home mortgage rate is 4.75%. I can’t imagine buyers being as excited about these rates as they were last year. If buyers choose to stay away due to rising mortgage rates, homes will stay on the market longer and total inventory will increase.
- Prices will continue to rise. I know what some people think – how? It all goes back to record demand for vacation rentals and record revenues for rental homes. Some parts of the country may see a slight slowdown in price growth, but investors don’t view rental properties as just a home. They are investment vehicles. I talk to clients about the 10% rule (where 10% of a home’s purchase price represents annual rental income), as a good way to identify properties that could generate positive cash flow. And if a home rents for more money due to increased rates, and rents more weeks due to demand for weeks outside of the traditional rental season, that will produce more revenue. rentals for the owner. Even with rising prices, I still see good investment options on Hatteras Island showing up in the Multiple Listing Service (MLS). Median home sales prices in March 2021 are up 34% from 2020, and so far for March 2022, median home prices are up another 9.5% from 2021. Zillow projects a significant price growth nationwide for the remainder of the foreseeable future.
Now, why would this combination of factors on Hatteras Island be any different than, 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 a short drive from downtown as new housing estates and homes are built. There is nowhere for Hatteras Island to “grow” any further.
The real estate cycle is still very real. Prices will not always increase. But for the rest of 2022, it looks like it will be more of the same here on the Outer Banks.
*Based on Outer Banks Association of REALTORS® MLS information for the period 03/01/2020 through 03/22/2022.
Stephen Smith is an Outer Banks Realtor with Coldwell Banker Seaside Realty. He was recognized in 2021 as one of the top 10% Coldwell Banker agents in the world. He has lived on the Outer Banks for nearly 20 years and met his lovely wife on Hatteras Island. They currently reside in Nags Head with their daughter, but Hatteras Island is still home in many ways. For any questions on the Hatteras real estate market or larger OBX, you can contact Stephen directly at stephen@cbseaside.com or 252-216-9230. His website is https://www.stephensmithobx.com or you can receive his weekly newsletter by subscribing to https://mailchi.mp/43cd4a4bf1a6/obxnewsletter.
