After a sharp downturn in the real estate market, the local industry has been on the upswing the last several years, as the number and value of homes continue to increase for the Cape Fear region. But with growth inevitably comes challenges, including a limited amount of acreage on which to meet the rising demand for new housing. Five local industry professionals discussed the improving residential real estate market and what is needed to support its continued growth.
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How is real estate activity now when compared to the same time last year?
From an overall activity standpoint, we are seeing the number of permits being issued increase exponentially in the region. We are also seeing, for the first time in a long time, an increase in the value of new construction figures (residential, multifamily and commercial) in New Hanover County.
In 2014, construction projects in the county added up to a little over $600 million, and in 2015 it only increased to $615 million. However, by year-end 2016, this figure rose to $708 million. To place this in perspective, in 2007, the total value of new construction was $718 million. These values indicate to me that we have a very strong pre-recession market with a lot of capital investment being made.
When we look at just single family new construction in Pender County, we saw an identical year when comparing 2015 to 2106, with roughly 420 permits issued at a construction value of about $66 billion. While we did not see any major increases, we also did not see any major downward shifts.
In Brunswick County, we still see the Leland area and St. James really dominating the market. There have been some shifts, though, as we are seeing more activity in the Oak Island area and some investment starting to take place along the N.C. 211 corridor.
The real estate market is very active and busy at this time. We are seeing year-to-date contracts up almost 25 percent for the first two months of this year versus last year. In addition, home prices are rising and with interest rates still very attractive, we believe 2017 will be a record year in terms of the number of sales in southeastern North Carolina. Homes priced under $400,000 are selling quickly when priced properly, as well, as we are seeing more millennials now purchasing their first homes.
It’s long been recognized and proven that homeownership, over a long period of time, has been a great investment. Nationally, the homeownership rate went back up last year to around 63 percent. We think that will continue to rise and will end up in the 65 to 67 percent range over the next five years.
In terms of residential communities being discussed and developed, activity in the market has increased steadily. There are numerous multifamily projects under construction or recently completed, and the apartments seems to be rented as soon as they’re built.
Coming off an outstanding 2016 year for home sales - one of the best years we have seen in over a decade - our area residential home sales stats for January 2017 continue to confirm how active, healthy and robust our real estate market is today.
January 2017 had an incredible record setting 601 total units sold. This is the highest number we have ever seen in our January history, up over 40.75 percent when compared to January 2016. We ended with a total of approximately $140 million in residential home sales volume, a massive 42 percent increase over January 2016. The January 2017 median sales price had an increase of 1.70 percent, compared to January 2016.
In New Hanover County, we see higher, more vigorous sales stats. The January 2017 median sales price was up 8.65 percent to $213,000, compared to $196,000 in January 2016, and the median list price was up 11.32 percent in January 2017 to $329,504, compared to $296,000 the same time last year. Median days on the market in January 2017 was down 18.64 percent to 48 days compared to 59 days in January 2016.
What is also interesting to note is the continued decline in the absorption rate of homes in New Hanover County. It dropped 28.4 percent in January 2017 to 3.64 months, compared to 5.08 months in January 2016. Anytime the absorption rate drops below five months, it is widely accepted in the real estate industry that we are in a seller’s market. We have also noticed similar trends for both Pender and Brunswick counties.
From January 2016 to January 2017, available listing inventory is down 17 percent in New Hanover County. We are in a seller’s market right now. The number of homes sold during the same period is up 19 percent and sold volume is up 28 percent. The average sale price is up eight percent.
What geographical areas are showing the most growth?
Again, looking at January of 2016 versus 2017, Brunswick County saw a 35 percent increase in home sales, New Hanover, a 19 percent increase, and Pender, a 12 percent decrease. Brunswick County has, without a doubt, seen the most increase. This is likely due to the availability of land, as well as the many new neighborhoods, such as Brunswick Forest and Compass Pointe and continued construction there.
In New Hanover, Brunswick and Pender, we are seeing very strong home sales stats. In addition to the stats I have already mentioned for New Hanover County, the Brunswick County median sales price was up 12.97 percent to $214,650 in January 2017, compared to $190,000 last January, and median list price was up 13.38 percent to $289,000. Median days on the market in January 2017 was down 18.27 percent to 85 days, compared to 104 days in January 2016.
In January 2017, the Pender County median sales price was up 4.07 percent to $230,000, compared to $221,000 last January, and median list price was up 9.64 percent to $284,950. Median days on the market in January 2017 was up 26.98 percent to 80 days, compared to 63 days in January 2016.
Like New Hanover County, Pender and Brunswick also have experienced a continued decline in the absorption rate of homes. In Pender County, it dropped 36.84 percent in January 2017 to 5.2 months compared to 8.23 months in January 2016, and in Brunswick County, it dropped 22.51 percent to 6.94 months in January 2017 compared to 8.93 months last January.
With these statistics, it is clear to see that growth and development is strong in all geographic areas of our region.
The same general areas that were growing last year are still growing this year. The key is going to be infrastructure and the availability of water and sewer.
In Pender County, essentially anything east of U.S. 17 is where most of the growth is occurring. Hampstead, Sloop Point Road, and Surf City are all seeing positive signs of growth. We are starting to see more and more interest in the Rocky Point area, as well.
Brunswick County areas, such as Southport, St. James, Leland and many of the beach communities, are experiencing positive growth, as well.
Moving in to New Hanover County, I would say, for the most part, the entire county has seen some type of positive growth. Areas like Monkey Junction, Odgen, Porters Neck and River Road are seeing the most activity. The “x” factor this year will be Riverlights, as they now have product on the ground and have much of their planned amenity features in place.
Other areas, or pockets, I would call them, are Castle Hayne and Greenville Loop and Masonboro Sound roads. All three areas have new developments coming out of the ground, and existing ones are adding on with additional phases.
In New Hanover County, we are seeing more growth in Monkey Junction, Castle Hayne, Ogden, River Road and the northern part of the county.
With a small amount of land available to choose from, we are also seeing more buyers going to Brunswick and Pender counties. Both offer a variety of great locations, quality-constructed homes by our regional and local builders and proximity to the beaches.
Pender continues to offer great communities with water and sewer availability, as well as many commercial projects to offer to buyers. River Bluffs in Castle Hayne has seen tremendous growth and as that community is developed, you can see the beauty of the land and quality homes being built on the river, which is a great attraction to buyers.
This year, the growth areas seem to be in midtown and the south end of the county. In addition, there is an increased focus on multifamily housing in downtown.
What types of home plans are currently the most popular for the Cape Fear region?
Single family homes continue to be the most popular. Consumers are looking for outdoor living spaces and open floor plans, and are paying great attention to quality and putting many upgrades in today’s homes.
Smart Homes are definitely gaining more attention, and Coldwell Banker Real Estate Corporation was the first real estate brand to recognize this trend by making a Smart Home Kit available to consumers.
Townhomes are in high demand in our area, and with a supply of only two and a half months, we are in need of more to choose from for consumers.
There are generational trends and different characteristics of homebuyers - like their age, income, number of children and whether they are retired, a first-time buyer or a vacation home buyer – that create a wide variety of popular home plans… too many to list.
One niche market that does stand out is the empty-nesters. These Baby Boomers usually desire less spacious homes with open floor plans and main-floor living. These homes are higher quality with lower maintenance, on smaller, easy-to-maintain lots. They look for retirement amenities, such as golf courses, water access, tennis facilities, nature trails, etc.
In the Wilmington region, single-family homes with open layouts still reign king, and I would not imagine this will change much in the years ahead. Today’s buyer is savvy and very critical in terms of a home’s layout and the use of space. They want to get the most out of the home price and are looking to utilize every nook and cranny with minimal waste.
The other thing is the indoor/outdoor convergence. With the area’s mild climate, we are seeing more homes bring the outdoor space indoors for use year-round. These trends will continue, and for the most part, are here to stay.
McKim & Creed typically deals with traditional neighborhood developments (TNDs), which feature smaller yards to reduce maintenance and more amenities, such as hiking, biking and walking trails. Walkability and green space are very important in these types of communities, which seem to be growing in popularity.
How have roadway connectivity projects like bypasses changed the real estate market in recent years?
Roadway connections can be a positive attribute to the real estate market. These projects can provide the catalyst to open up new potential areas of development and create road connections that help funnel traffic.
For example, the I-140 bypass really has opened up the entire corridor of the northern section of New Hanover County and in return, has drawn attention to the Castle Hayne area. Subdivisions like River Bluffs and Hanover Lakes are reaping the benefits of the new corridor.
Buyers are able to calculate travel times. You will find that most people like to live close to where they work or where they play. Transportation projects that provide better connectivity give people these options. Choice is key.
Additionally, our staff keeps our Realtors® apprised of proposed projects so that buyers and sellers are informed to make good decisions for themselves.
The I-140 Bypass is a great example of how these highways are a positive influence to real estate communities. There are many benefits to having bypasses and as more people use these highways, it will help reduce traffic on the current roads.
Once this is completed on the Brunswick County side in Leland, we will see even more benefits of this highway. In Pender County, the proposed highway in the Hampstead area can certainly provide benefits of driving into Wilmington and Brunswick County.
Does the number of buildable lots remain a challenge for our area?
Yes. With the steady increase in new development as well as existing development that continues to grow, we have a definite need for more buildable land.
In New Hanover County, affordable lots are definitely short on supply and heavy on demand. Finding land that can be developed at a reasonable price so builders can purchase and provide an affordable home to buyers is the biggest challenge.
Our market has been a market that sells a lot of homes in the $400,000 and below range, which has historically been about 80 percent of all sales. Keeping home prices affordable is a real challenge for area builders. They are putting up high-quality, well-built, energy-efficient homes for buyers and with the increased prices of materials and land costs, it’s difficult to maintain affordability. They are doing an awesome job of keeping costs low, in my mind, and at the same time, providing a high level of quality and workmanship.
In addition, skilled labor for the area is difficult. The ones working in our area are very good, but we could certainly use more skilled labor, as the demand is so high and so many homes are being sold.
The key is that lots have the appropriate permits in place and water and sewer available. The challenge is that the lot must be finished, especially to count on the inventory side of things. At the same time, they need to be affordable comparable to the surrounding market. If lot prices remain in check then activity will increase, but as soon as they start to rise, it begins to stretch the market conditions and creates an imbalance.
Other challenges are labor and being able to have enough onsite development support to logistically produce enough lots on the ground, so building can keep pace with demand.
Over the last four years, there has been a significant strain on lot availability in New Hanover County, as we did not have any new developments coming online. Since last year, however, quite a few new major developments have been approved, as well as more phases for existing developments. Many of these have already reached the infrastructure stage and we are starting to see construction on the ground.
If we look at permit numbers in Pender County, we really don’t see much of a change from 2015 to 2016, in respect to the number of starts. Based on talking with builders in that area, they have seen some inventory shrinkage, which has caused prices to escalate. Until we see some significant developments coming out of the ground, this trend may continue.
In Brunswick County we are seeing much of the same that we saw last year. Pricing is the main driving factor.
The larger communities continue to have the financing and approvals in place to move into newer phases, which continues to open up new pockets of inventory. Some of the old recession-hit subdivisions along the N.C. 211 corridor are also starting to see interest again.
Moving forward - in all our markets - pricing will remain the key determining factor concerning overall marketability.
In short, yes. We are regularly seeing builders seeking out the “last lots” of a neighborhood, purchasing them and building spec homes on them.
This is mainly a concern in New Hanover County. Within the City of Wilmington itself, it’s nearly impossible to find any land left to build on. I would imagine that over the next few years we will see more developments and construction in the farther areas of New Hanover County, such as Castle Hayne and the areas along River Road.
We’ve already seen this happening with River Bluffs and RiverLights, which have both taken advantage of the riverfront land tracts that were available.
What solutions or alternatives exist for growth within a limited supply of buildable land?
We are very pleased to see the City of Wilmington and New Hanover County working together on a Comprehensive Plan for zoning issues. With density being an issue, I believe we’ll see many more infill projects, as we can utilize some of the older neighborhoods for this and improve them. The character of some of Wilmington’s oldest communities have a quality and appealing look to consumers and we think this will be an area where many new home projects will be focused over the next 10 to 15 years.
New Hanover has the most limited number of lots but in Pender and Brunswick Counties, we see more opportunities. The key is to be able to develop them as affordable lots to builders so they in turn can sell the finished home at a price our area can afford.
Infill development offers opportunities to “repurpose” valuable buildable land and increase density, either through multistory homes or cluster housing. With infill development, you can do more with the limited land resources we have.
Well, really, the predominance of this issue lies within New Hanover County, as we still have a good amount of vacant land in Brunswick and Pender counties. I think both City of Wilmington and New Hanover County officials understood this issue when they went through the design and subsequent approval of their comprehensive plans.
Both documents outline policies and layout certain zoning patterns to help address this issue. The realization of these two plans will come down to the regulations that are put forth to address housing. The big issue in New Hanover County is that we are going to have to see a denser pattern with respect to building. Density will be a major driving factor in much of the new construction that will take place within New Hanover County. The other thing that will start to happen, and it already is starting, is infill development within the urban footprint of the city.
One solution is the new road projects. These roads will connect more locations to shopping, employment, recreation and other key destinations offering more available land for buildable lot inventory.
Is the increase in lifestyle communities in both Brunswick and New Hanover counties an indicator that more home buyers are looking for properties with established amenities?
Absolutely. Almost all new large-scale developments are now being styled as lifestyle communities. Just in the last few years we have seen RiverLights, River Bluffs, Compass Pointe and Brunswick Forest all come into existence with added lifestyle amenities. Features such as golf courses, community gardens, restaurants, fitness centers and other amenities add value to the neighborhood and often are a huge draw to retirees moving south from the Northeast.
With the overall main buyer in that market being retirees from the northeast, I think it’s safe to stay the trend will continue. The key factor moving forward is the overall scale and magnitude, and just what the buyer is looking for.
A large percentage of retirees have a finite budget and, while they want amenities and an active community, they don’t want to pay for what they don’t use. By that I mean some love the larger lifestyle communities like Brunswick Forest, Compass Pointe and St. James with the golf course and a large HOA. Others prefer the smaller developments, with more limited amenities and a smaller HOA. What they have in common is they want to buy into an established neighborhood with existing homes and amenities on the ground. That gives them a true sense that the development is sound and carrying true to its vision. Since the recession there is very little buying on faith.
Buyers certainly are way more attentive to communities offering a “lifestyle with amenities.” We see our local developers and builders meeting those demands with increased focus on that area.
The key is, of course, having amenities that are not too expensive. No doubt, our area developers have done an excellent job focusing and providing these amenities and, in my opinion, at very reasonable costs to buyers. River lots, restaurants, exercise facilities and pools are the most common and seem to be in high demand. Walking trails and offsite storage areas are also very common buyer demands.
The developers of communities like Brunswick Forest, Compass Pointe, The Bluffs on the Cape Fear, Autumn Hall and RiverLights are building amenities very early in the development process, because that’s what people are attracted to.
It takes a financial effort by these development teams to build these enhancements before lots are sold, but things like green space and trails help transform developments into close-knit communities. You can’t just put in a clubhouse and a pool; people are looking for that feeling of home, and amenities help with that.
I believe the lifestyle community developers know exactly what their customers want and clearly, amenities are key. Our area is a hot spot for America’s retiring population and they are flocking here. This trend is expected to continue for many years and they usually desire a home with retirement amenities, such as golf courses, a pool, access to water and boating, tennis facilities and nature trails, among others.
Interest rates remain low but are slowly on the rise. What impact will rising rates have on home sales?
Interest rates have risen somewhat over the past year but rates still remain very low from a historic perspective. The average 30-year fixed interest rate for a client with good credit is currently a little above four percent.
Just 10 years ago in 2007, that average rate would have been two percent higher at around six percent. Twenty years ago it would have been nearly eight percent. There will always be slight ups and downs with interest rates but we are still at near historic lows, and a client who is sitting on the fence because of rate should act now.
There are many factors that drive home sales and a low interest rate is only one of them. But if interest rates do go higher, the housing market could be negatively impacted. Higher mortgage rates can decrease housing affordability and thus have the potential to lower the demand for home purchases.
Personally, I don’t see much of a change, as long as it stays right at or under 4.5 percent. From a long-term average, anything at this mark is still a very good rate, and from the long-term investment perspective of owning a home, I think people will still continue to buy.
I think the key is going to be lending terms and credit scores. Those two attributes alone will have the longest-term effect on the market. The other important thing to remember is affordability. If you take the interest rate question out in terms of impact, it really comes down to what the buyer can afford.
We all know interest rates have been at historic lows for the past 10 years and although they are rising slowly, they remain at levels that continue to offer great value. We expect interest rates to rise to 4.75 to 5 percent by the end of 2017. That being said, they are still low. But with higher demand on homes on the market and shorter supply, the market is reacting to more buyers getting out earlier this year than in the past to purchase homes.
Typically, rates below 6 percent are not going to slow down the housing market much but with so many years at such low levels, buyers are getting off the fence and not putting it off any longer.
What are the biggest local issues likely to impact the area market?
Again, the same as last year, the biggest issue to impact us here locally will be the city and county’s Unified Development Ordinance (UDO). These documents can have such a dramatic effect on growth, and we are going to play our part as a stakeholder to make sure it affects it in a positive way.
Because of our geographic location, I believe the Waters of the U.S. (WOTUS) Act has an enormous impact on our market. Our region has water almost everywhere you look. Increased regulations and restrictions negatively affect private property rights for all and, in particular, those in our local area.
NIMBY (not-in-my-backyard) [mentalities], and follow-through and commitment to city and county comprehensive plans.
No doubt, the UDO will need to be carefully drafted. We must make it clear to businesses that want to relocate to our area and we must do so while being fair to all.
So many times I hear people saying the business community wants to build everything and - fast. That is just not true. What we want to see is a clarification in process. We all live and raise our families here, so we, too, want to protect the area and believe strongly we can accomplish that with growth that is good for the area. We have a lot to offer and we want to do all we can to help bring quality and good-paying jobs to the area while at the same time protect the area in which we live.
This can be accomplished with a good UDO and I feel confident we are heading in the right direction here.
Employment is, of course, one of the biggest factors in the housing market. Creating an image of a business-friendly area that encourages growth and new industry will only help our local housing market, and should be of paramount importance to local government. The more available jobs we have here, the more opportunity for increased growth. We would also love to see the state government revisit the issue of film industry tax incentives. The loss of this has certainly been damaging to the local economy.
How would the UDO New Hanover County officials will soon begin discussing help streamline the permitting and building processes?
As mentioned, this all is determined by concise codes and being clear on what is expected of businesses who want to relocate to our area. We believe in a comprehensive plan that is well thought out, involving our local citizens and politicians to help make good decisions for the future.
Without growth, I believe cities and counties will erode over time. We can attract businesses that are well-suited for our area or at least help them look at our area, provided we have clear codes and regulations for them to follow.
Our current ordinances have been in place for a long time and need clarification, and we are grateful to the City of Wilmington and New Hanover County for working on this UDO together.
A plan like a UDO will help consolidate the regulations that govern development in the unincorporated areas of New Hanover County. It will serve as a living document that responds to changing goals and objectives, addresses emerging trends and technologies, and stays current with state and federal regulations.
The City of Wilmington’s Land Development Code does this for development within the city limits, so a plan for the county is much-needed and well-timed.
It really comes down to having clear, common-sense, concise codes. The development community needs a clear path to get projects submitted and approved. Both ordinances, as they exist now, have been in place more than 25 years and have had multiple amendments made to them. The homebuilders association was very involved in both comprehensive plans and we will continue to be involved in the code-rewrite portions.
What are your predictions for the industry under the new presidential administration?
As with any new administration, there is always some apprehension as to how things will progress. President Trump is a real estate developer and we hope he will support things like keeping a lid on regulations.
It is also clear that Congress is eyeing new tax reform and we oppose changes that would negatively impact the Mortgage Interest Deduction or deductibility of property tax. These are important housing incentives.
Residential housing is an important engine in a recovering economy and unfortunately, we’re still recovering from the last decade.
I think, overall, we will see some kind of tax reform, as well as more executive orders scaling back some of the development regulations. One that we are anxiously waiting on is more definitive action on the WOTUS rule. But, in general, just like we have seen regulatory reform on the state level, I think with the current administration, we will see it on the national level, as well.
I think we’ll see less regulation of areas where small businesses can achieve their goals. America is made up of so many small businesses and with the past regulations that were put in place, it seems like too much burden is being placed on the small business owners.
I do think we’ll see a tax reform and that will hopefully inspire many to spend money here in the United States and allow more business to grow. After being in business for well over 25 years, I’ve learned that we can be successful no matter who is president.
My hope is we’ll see an increased housing demand, as I do feel so many Americans want to own a home, and if they can only find good jobs, more can live the American dream of homeownership. We’ve built six Habitat for Humanity homes and I can tell you, being a homeowner is something so many of us take for granted. Yet we should not. It’s a privilege to own a home, and hopefully more people will have that joy.