Similar to any other marketplace in which goods or services are exchanged, the real estate market is affected by the law of supply and demand. Market dynamics impact the availability of supplies, causing prices to increase or decrease, and this has an impact on the behavior of buyers.
As many with an interest in the local market will remember, the past few years have been characterized by significantly increased levels of demand coupled with historically low inventory levels. This has led to some challenging situations for Buyers seeking to purchase a home, as many properties have garnered multiple offers and sold at significantly above asking prices. As we recently discussed at an Economic Forecast Summit sponsored by the Cape Fear REALTORS® and the National Association of Home Builders, existing home sales across the US declined for the first time in 10 years.
It’s worth pointing out that the decline in the Wilmington area was not as significant as it was in the rest of the nation, at approximately 19 percent, but that is obviously still a large number. Most economists point to the Fed’s response to the uptick in inflation and its decision to increase interest rates as an explanation for the cooling of the market.
The pace of sales has declined, but curiously, prices have not. We are still in a market that is highly favorable to home sellers as a result of current inventory levels, which remain at historic lows. Consider that the average number of days on the market for homes in New Hanover County was only five in 2022, the same as it was in 2021.
Simply put, there are more buyers than available homes, and this is at least a partial explanation for why prices have remained stable. So why are more sellers not entering the market?
One reason the economists point to is the increase in interest rates. Many homeowners were fortunate enough to purchase when the average rate was around three to four percent. Therefore, it makes sense as to why they would be unwilling to sell their home and swap out the low rate for a much higher one and, as a result, possibly a significantly higher monthly payment.
Another issue contributing to the lack of inventory is the cost and pace of new construction. The explanations why are also centered on market dynamics. It has been widely publicized that the price of lumber surged to unprecedented levels during the pandemic for a variety of reasons, one of which includes a tax on Canadian lumber shipments into the US.
The price of lumber has since abated, but the industry is facing a number of other challenges. Supply chain disruptions from the pandemic are still an issue, impeding the pace of home building. To name a few, builders have struggled to procure a variety of necessary products, including concrete, appliances, garage doors, windows, electrical supplies, and more.
Labor procurement has been another ongoing issue for the construction industry. As of November 2022, there were nearly 390,000 open positions in construction, which should serve as an explanation for why the number of housing starts in 2022 represented an approximately 12 percent decrease, the first decline in 11 years. Unfortunately, while the supply chain issues appear to be on the decline, the forecast for the labor force is not as favorable, as the industry is forecasting labor shortages for the next several years to come.
All of these being said, the future appears to be bright for Wilmington and the surrounding areas, as the market has remained more stable than in many other parts of the country, even in the face of interest rate and supply side headwinds.
As with any market, the Real Estate Market runs in cycles. To better understand the history attributed to these cycles, connect with a REALTOR® and get the guidance you need to achieve your goals, visit CapeFear.REALTOR or call 910-762-7400.
Steve Mitchell is the 2023 president of Cape Fear REALTORS®, an organization with nearly 3,500 members who serve as the region’s Voice of Real Estate. Cape Fear REALTORS®, through advocacy, education, and community involvement, support efforts to protect the rights of property owners, promote the availability of housing, and provide resources to guarantee every individual has the right to share in the “American Dream.” For further information on this topic and the association, please visit www.capefear.realtor or contact the Cape Fear REALTORS® at 910-762-7400.
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