Written by Bill Fishburne
Treading Water
We present our annual overview of real estate in Western North Carolina for the year just finished, additionally taking note of how our region fits into some significant market trends that will be operative during the year to come.
While running for Vice President in l992, Tennessee Senator Al Gore famously stated that, “Everything that ought to be down is up. Everything that should be up is down.”
Twenty-six years later, what should be up is up and what should be down is down. Mostly down. (Mortgage rates are climbing slowly as are all the rivers, creeks, and ponds in our area. But that’s another story.)
Overall, the residential real estate market was good in 2017, better in 2018, and will continue to be good in 2019. Local trends are positive for stable unit sales, dollar volume, and home value appreciation. The Asheville area continues to gain in population; business and industry are expanding; the arts are growing; and real estate prices have increased at a steady rate every month since April 2013.
Residential home sales, including single-family homes, townhouses, and condominiums, declined slightly in 2018 in the regions of interest to most Western North Carolina residents, but were still very strong. Buncombe County sales wrapped up the year with 3,868 units sold vs. 4,074 in 2017. That is a decline of 5.1%. Haywood County unit sales dropped 3.3%, to 1,091 units; while Henderson County unit sales increased 1.8%, from 2,054 to 2,091.
The WNC Regional Multiple Listing Service defines the term “Asheville Region” to include all the counties in Western North Carolina. A separate measure, the Asheville Metro Area, cuts that down to just Buncombe, Henderson, Haywood, Madison, and Transylvania counties—those where Asheville is considered the economic, cultural, and social hub.
Our region’s relatively flat sales mirror the Realtors Confidence Index – Six Month Outlook, which registered 49 for detached single-family homes at year’s end. A score of 50 or higher indicates market conditions are expected to improve. The outlook for townhomes was 42, indicating a more difficult sales market, while condominiums scored 40 on the chart. All three numbers are in keeping with previous outlooks on this charting tool.
Days on Market
Another great tool in a tight market is Median Days on Market. Nationwide, properties were typically on the market for 33 days this past year, compared to 37 days in 2017. Going deeper for our area specifically, the median figure is 37 days in the Asheville Region, 24 days in Buncombe County, 20 days in Henderson, and 39 days in Haywood. Almost all counties in the area reported properties were selling briskly and not sitting on the market as they did during the 2008 recession. (Editor’s Note: For the purposes of this report, the “Asheville Region” will henceforth be referred to here simply as the “Region.”)
The controlling factor in sales in a Seller’s Market is inventory. In 2018 the availability of stand-alone houses, condos, and townhouses in the Region decreased by 4.7%, following a 12% decline in 2017. Buncombe County had a slight 1.6% increase in 2018—a difference of 1,444 available homes in 2017 vs. 1,467 at the end of 2018.
Continuing strong sales combines with a flat to declining inventory to reduce the number of months a house sits on the market prior to selling. The Months Supply of Homes for Sale in Buncombe was essentially flat, at 4.3 months at the end of 2017 and 4.4 months in 2018. This chart is calculated by dividing the units for sale by the sales per month. Six months of inventory is considered to be a balanced market, where buyer and seller have equal desires to buy and sell. Neither side has a negotiating advantage and multiple offers sometimes occur but are unlikely. When available inventory drops below the six-month level it starts to become a seller’s market, and vice-versa: when there is more than a six-month supply, it starts trending towards a buyer’s market.
New listings in our area remain strong. There were 13,780 new listings in the Region in 2018, but Buncombe was flat with 5,519 in 2017 vs. 5,451 in 2018. Haywood County listings were flat at 1,460; while Henderson County showed a market 10.1% increase, to 2,817 new units in the MLS.
Pending sales at years-end were 9,652 for the entire Region, 3,914 in Buncombe, 2,110 in Henderson, and 1,077 in Haywood—all essentially the same as in 2017.
Median sales prices continued a five-year climb, wrapping up with a 6.5% increase in Buncombe County at $293,000; an 8.3% increase to $260,000 in Henderson; and a whopping 13.1% increase in Haywood to $217,500. The Region overall came in at $255,000, a 5.4% increase. These figures represent continuing strong Annual Appreciation, as charted by the Federal Home Finance Agency.
New Home Sales
New Home Sales represent about 5% of total sales in the Region. There were 458 New Home sales in the Region in 2017, with a 10.6% increase to 507 in 2018. New home subdivisions are selling out quickly again, but the high cost of building materials and scarcity of skilled tradesmen to do framing, drywall, electrical, and roofing work have taken their toll. Homebuilders find it increasingly difficult to accurately forecast costs and meet forecasted completion dates.
As a result, we are still drawing down on the last bits of oversupply inventory from the 2008-2013 recession. Many of these homes need remodeling, and those tasks are going to handymen where possible or are being done by homeowners themselves. The shortage of new construction has contributed to tight inventory in the low-to-mid price ranges ($200,000 to $400,000). Since this is also where the bulk of sales are happening it is no wonder prices have appreciated at a far faster rate than the historic average of 3 to 6% per year.
Haywood County continues to offer the most affordable housing in the Region, with a median sales price of just $217,500 and a median distance of 22 miles to downtown Asheville. With gasoline now hovering just over $2 per gallon, Haywood is a good location for young buyers just getting a toehold in home ownership. Along those same lines, there are many mortgages available that offer financing between 97% and 100% of the purchase price.
The second most common question put to Realtors is, “Are we in a bubble market? Is real estate going to crash again?” Here’s the data:
CoreLogic, a California-based financial services company, sees 2019 as a period of modestly increasing sales with a cooling off of price increases nationwide. So do the Fed, the National Association of Realtors, and every other analyst we could find in researching this article. For example, CoreLogic says:
“The CoreLogic HPI Forecast indicates that home prices will increase by 4.8% on a year-over-year basis from November 2018 to November 2019… On a month-over-month basis, home prices are expected to decrease slightly by 0.8% from November 2018 to December 2018.”
What that means is home values will continue to rise, but not as strongly (month over month) as in 2018. Real estate will continue to be a good investment according to the current indicators.
Why Buy? Isn’t it Better to Rent For a While?
Not in most circumstances. Renting achieves none of the renter’s primary objectives in life. It is literally money down a hole and a far-from-optimal environment in which to raise children. Home ownership has been described as a uniquely American goal or ideal. Countries with a history of serfdom, collectivism, or other non-investment housing scenarios also have the highest incidences of privation, starvation, and revolution, especially when it is government housing. Those depersonalizing environments and lack of lifetime equity are difficult to overcome.
The Joint Center for Housing Studies at Harvard University
recently produced a study on Reasons to Own a Home:
Privacy: Having a space that is wholly your own.
Family: Putting the needs of your family first.
Stability: Having control of your future direction and security.
Financial Investment: Having the opportunity to grow your assets and wealth.
Physical Comforts: Having amenities and features that enhance daily experiences.
Personal Expression: Ability to display your unique personality, desire, and interests.
Accomplishment: Reflection of your efforts and success.
Creativity: Opportunity to create, build, and grow things.
Community/Neighbors: Being part of a broader community and society.
Friends: Entertaining and sharing with friends.
Few of these objectives, really, can be reached while living in someone else’s building. Or in your parents’ basement.
So, while it is clear that private home ownership in a huge goal in life, it tends to decline when the costs exceed that of reasonable rents. We’re not in a declining market today. In August 2018 the percentage of income needed to afford a medium-priced home was 17.5% of a buyer’s annual income. At the same time, those who rent needed to apply 28.4% of their annual income for median rent. The cost of renting has historically averaged 25.8% of total income, while the cost of buying was close behind at 21%. Today’s figures are more than 10% points apart and it can honestly be said there is no reason not to buy a home if you can meet basic the mortgage criteria of debt to equity ratio, net cash flow, credit history, and stable employment. Mortgages with no down payment such as VA loans are still available, even during the “government shutdown” that was happening as this Capital at Play report was being written. Consult a qualified mortgage broker to start the process, even before you pick out a house.
US News & World Report recently reported it would be a better to sell your house now than wait until 2020. The report bases this on the facts that new buyers are still entering the market, interest rates are still low-ish, and homeowners today probably have high equity. Which bring us to the next topic…
Net Worth
In part because buying is less expensive than renting, plus the equity growth of the home investment, a home owner’s net worth is typically 44 times greater than that of a renter, according to the latest Federal Reserve Survey of Consumer Finances (2013-2016) in which they collect data across all economic and social groups.
The median net worth of a homeowner at the end of the three-year survey period was $231,400—a 15% increase since 2013. At the same time, the median net worth of renters decreased by 5% ($5,200 today compared to $5,500 in 2013). Why the divergence? Appreciation vs. increasing costs for landlords, and, of course, increased rents.
Simply put, home ownership is a form of “forced savings.” Every time you pay your mortgage you are contributing (ever-so-slightly in the early years) to your net worth by increasing your equity in your home. For the fifth year in a row, Gallup reported that Americans picked real estate as the best long-term investment. This year’s results showed that 34% of Americans chose real estate, followed by stocks at 26%, and then gold, savings accounts/CDs, or bonds. The Fed also reports that 65% of Americans now think home ownership is a good investment, compared to just 60% who felt that way in 2017.
Housing Affordability
Going in to 2019, houses are very affordable. Affordability is measured by cost of housing divided by disposable income. A family with a 142 index can afford 42% more house than the current median home price (100). In simpler terms, ask yourself, “What is the percentage of your mortgage versus your disposable income?” At the peak of the housing bubble of 2008, that number was nearly 100% nationwide, meaning nearly all of a family’s disposable income was eaten up by their mortgage and associated expenses.
The National Association of Realtors Housing Affordability Composite index for the Southeast was 151.6 at the end of October 2018, a declining trend from 162.7 posted a year ago. Much of this change was due to price increases. Higher numbers are better, as previously noted. (Sources: NAR and CoreLogic.)
Mortgage Rates
CoreLogic recently shared that national home prices have increased by 5.6% year-over-year in many areas of the country. Over that same time period, interest rates have remained historically low which has allowed many buyers to enter the market.
As a seller, you will be most concerned about “short-term price”—where home values are headed over the next six months. As a buyer, however, you probably are not overly concerned about price, but instead about the “long-term cost” of the home.
The Mortgage Bankers Association (MBA), Freddie Mac, and Fannie Mae all project that mortgage interest rates will increase by this time next year.
The Federal Reserve reports housing mortgage debt continues to decline, while the value of the real estate it covers continues to increase by an inflation-adjusted 3.6% over the last year. Folks who were under water on their mortgages just five years ago (before the 2013 bottom) have in many cases gotten their noses—indeed, their whole heads—above water.
Short sales and foreclosures in the Asheville Region of the MLS have declined steadily, from 423 in 2013 to just 114 in 2018, out of 9,512 total sales for the year. At some point we stop blaming the economy or the lenders and just accept the fact that unfortunate situations occur and there will always be some defaults.
Housing Price Indices
Regarding the homeowner’s growth in home equity: There is a misconception that your actual equity falls when prices dip. That may not be the case as your mortgage balance declines through the years. Even if prices remained stagnant your percentage ownership would increase. But real estate prices have not remained stagnant. In 2017 we surpassed the home values achieved just before the bubble burst in 2008. Folks who were upside-down on their home mortgage but held onto the property anyhow got right-side-up again and in many cases substantially so. The Federal Reserve Annual Appreciation Report charts housing appreciation by quarters and the Asheville Metro area shows a cumulative 8.05% home price appreciation for the past four quarters, which comes on top of an 8.18% appreciation for the same period one year ago.
The Market in 2019
One indication of residential sales is buyer traffic (open houses, showings, appointments made) in homes that are offered for sale. The Realtor Buyer Traffic Index registered 45 in October 2018, down from the high of 60 in October 2017. That decline of 25% is a worrisome indicator for sales that would have been booked in November and December. The actual closed sales figures for the year did not reflect anywhere near that big a drop, reflecting mostly the continuing shortage of inventory in the bell-weather Buncombe-Henderson-Haywood market.
We might add, in defense of all Realtors, that the Asheville Region is right in line with the national averages of between 12 and 14 showings before a property goes under contract (at which point it is classified among the Pending Sales). That period stretches longer or shorter, but is roughly 30 days in the same region. Higher priced properties might sell with fewer showings; but they also might take much longer to sell because the buyers in those ranges are few and far between. Sellers should check a lot of comparables and absorb a lot of data before setting a price. There’s nothing worse than a property that sits and sits on the market. It’s said that property isn’t really in the market—it’s just listed.
Characteristics of Buyers and Sellers
First-time buyers are about 31% of the market, compared to 32% in 2017. That is expected to increase in 2019 as more jobs are being created and the United States continues to experience a low unemployment rate (as of this writing, 3.9%).
Retirement buyers contributed to a 3% increase in cash sales in 2018, up to 23% total, an increase from 20% in 2017.
Also in 2018, 18% of sellers offered incentives such as providing a homeowner’s warranty (8%), paying for closing costs (also 8%), and undertaking remodeling (3%).
One of the hallmarks of a good real estate transaction (and of your Realtor) is the ability to manage the process so the transaction closes on time. Between August and October 2018, 74% of contracts settled on time (73% in October 2017). Delays are most often incurred when something upsets the mortgage process. Buyers who celebrate their soon-to-be purchase by buying a new car, opening a new credit card, or doing something else that hits their credit report should just wrap it up by shooting themselves in the foot. Everything matters in today’s heavily regulated financial world. Lenders don’t have the latitude they had in 2007. Plan for it.
Understanding the Due Diligence Period
If you haven’t closed a real estate transaction in North Carolina in the past few years, you might not know about the Due Diligence period. This was introduced by the North Carolina Real Estate Commission in 2011 in an effort to protect consumers—specifically, buyers who might have difficulty reclaiming their earnest money when a contract does not go through.
Prior to 2011 the only money a buyer had at risk, and the only security a seller had regarding the buyer’s intent, was the earnest money. There were specific conditions under which the earnest money would be returned when a contract fell apart, but all too often a situation would occur that led to complaints and court cases trying to unravel the mess.
So, the Real Estate Commission included the new Due Diligence period in the 2012 contracts to clarify the earnest money return policy and added a separate, generally smaller, Due Diligence fee. The Due Diligence period in North Carolina real estate, just as in business mergers and acquisitions, is a period of time in which the buyer will investigate all aspects of the transaction, from house inspections to arranging the mortgage. The actual time allowed for all this normally ranges from two weeks to six or more depending on the transaction. There is no set time. It is negotiable between buyer and seller working with their experienced Realtors.
The dollar amount of a Due Diligence is also negotiable, with no limits or guidelines. Again, this is where the advice of an experienced Realtor can be invaluable. The thing about the Due Diligence fee is that it is non-refundable when a contract is cancelled, but it is applied to the contract price if the closing does occur. It is considered compensation to a Seller for taking the property off the market while the contracted buyer does his Due Diligence research, inspections, etc. It can be a very useful negotiating tool, especially in a multiple-offer situation, and it places near-total control of the process in the hands of the buyer.
During this Due Diligence period, then, the buyer may choose to back out of the contract for any reason or no reason at all, and the intent is that the earnest money will be fully refunded. Check this topic with your Realtor and get a copy of the North Carolina Real Estate Commission’s booklet to read more about it.
Finally, on this topic, buyers complete their inspections in the Due Diligence period and request repairs with yet another Real Estate Commission form called the Due Diligence Request and Agreement. While complex, the 2012 contract changes do seem to have reduced legal issues regarding earnest money deposits.
Home Ownership Demand
It is worth noting at this point that one of the big reasons why inventory has remained so low for so long is that an entire generation of home buyers is finally buying! The millennial generation (ages 19-35) has been the driving force behind bidding wars in many areas of the country as they ditch their renter lifestyles and put down roots in new communities.
Financial services company First American recently released a study entitled “How ‘Renter’ Millennials Will Transform the Housing Market.” In their study, they explained that:
“…As more millennials age into their early-to-mid-thirties, decide to and get married, have children, and form traditional households, they will continue to be the primary drivers of home ownership demand.
“Because of this, it is safe to say that one aspect of 2019’s housing market that WILL NOT slow down is the demand for housing from young renters who are no longer satisfied living in someone else’s homes.
Suggestions for 2019
Real estate is normally the biggest investment you will ever make. People buy their first house when they are young (starter houses) and roll that investment forward through larger homes as their family situation changes. When I see folks socially and they tell me they’re going to have a change in their life with a baby coming along (1st, 2nd, etc.), I know they’ll be back in the housing market very shortly. Dittos at the other end when the last kid heads off to find his or her own dream, be it work, college, the military, or marriage. These are life-changing moments and downsizing might soon follow. It happens about every seven years despite plans to be in your “forever” home. Life happens. Things change. It pays to stay in touch with, and pay attention to, the market.
Another great piece of advice (in addition to “Cleanliness”) is to re-invest your home equity in additional real estate. Don’t take out a home equity loan to pay for Christmas or something that doesn’t last. I suggest you consider (with your financial advisor or Realtor) buying a rental property every few years. The stock market goes up and down. Mutual funds wax and wane and new ones come along. But as NASCAR founder Big Bill France once told me, God isn’t making any more real estate. If you’re seriously considering how to pay for a kid’s college education, wouldn’t buying that newborn child a rental house be a good idea?
Consider that the equity will build, and that the rental income will pay the mortgage and other expenses. My personal opinion is, don’t manage it yourself. You already have a job. Pay a professional property manager to look after it, including maintenance and repairs, upgrades, finding new tenants, and collecting rent. For most people the professional manager will do a better job based on experience and a certain hard edge that is sometimes necessary when dealing with itinerant dwellers. And finally, unless you build a heck of a rental property portfolio, you need to keep your day job.
Another thing is to pay the mortgage down as quickly as is practical for you. Your objective is to have a salable, debt-free property in 15 to 20 years that is in good condition, reasonably upgraded and will sell for enough to pay for your kid’s college education or other nest egg. And no, I cannot tell you what four years of college will cost in 2035. The median home price in 2000 was $119,000 vs. today’s $255,000. Apply that to the buying price of your rental property and you begin to see the logic of real estate investment.
Bill Fishburne is a Realtor with Beverly-Hanks & Associates
in Hendersonville, North Carolina. He is a two-term
president of the Henderson County Board of Realtors
and was named Realtor of the Year in 2014.
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