For the past few years, the real estate market in Wilmington and the surrounding areas has been hotter than the shimmering lines of heat coming off Highway 40 on a dog day afternoon. But are we on the way to a cooler real estate market?
The economic data analyzed by Lawrence Yun, chief economist and SVP of research at the National Association of REALTORS®, certainly paints an interesting picture. Yun described his beliefs about the future recently in a virtual presentation during a breakfast/informational session held by the Cape Fear REALTORS® and the Cape Fear Home Builders Association.
The session was held at the Hotel Ballast in Wilmington and was initiated by an analysis of recent trends in the housing market. Not surprisingly given the anecdotal data I’ve received from my colleagues and clients, the median sale price in the Wilmington metro region rose by 14 percent in 2021, to $325,000.
At 6.12 million units nationwide, existing home sales were at the highest level since 2006. This is partially due to the strength of the economic recovery, as Wilmington now has more jobs available than before the pandemic. Though leisure and hospitality are still lagging, Wilmington is outperforming the state for labor force participation. Along with many other factors, this could be an explanation for why Wilmington was the second fastest growing metropolitan region in the state last year.
Of course, rising prices have a negative impact on affordability. Yun also pointed out a number of additional factors he expects to cool off the market moving forward. Along with the war in Ukraine and interest rate increases, he believes that the slowdown in governmental bond purchases, also known as quantitative easing, could be a headwind for the housing market this year.
The war in Ukraine is expected to exacerbate inflation pressures, and oil prices are projected to continue to climb. This is particularly impactful for local REALTORS®, as a large percentage of the requirements for the job involve driving. Along with supply chain issues, inflationary pressures will continue to drive construction costs higher and potentially push build times out an additional four to 10 weeks.
Although initial rises in interest rates can spark increased demand from home buyers, as a result of the fear of missing out, Yun predicts that demand will eventually slow because buyers will get priced out of the market and/or not be able to qualify for a mortgage. He expects the average rate on a 30 year fixed rate loan to hit 4.5 percent by year-end.
Headwinds do not equate to gloom and doom, however. Yun wrote in a corollary piece to his presentation that home sales will come down by a factor of two to four percent, as long as rates on a 30 year loan do not go past four percent. It may be obvious, but a two to four percent reduction is not very significant since the pace of sales has been extremely strong the past few years.
Another factor that points to the ongoing strength of the housing market is the continuing trend toward people working from home. Also, though many worry this market is similar to the bubble of the late 2000s, Yun points out that now, there are minimal subprime loans, no overbuilding or oversupply, and current inventory constraints are the result of years of significant underproduction from builders.
For more guidance on the housing market, visit CapeFear.REALTOR or call 910-762-7400.
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