‘Price fatigue’ – why the Triangle’s hot housing market is cooling off

Triangle sees a ‘shocking’ decline in the number of starter homes for sale

There’s been a “shocking” decline in the number of homes available for under $200,000 in the Triangle over the past five years, with availability of homes under $150,000 dropping 93 percent.
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There’s been a “shocking” decline in the number of homes available for under $200,000 in the Triangle over the past five years, with availability of homes under $150,000 dropping 93 percent.

A “negative mood” has descended upon the Triangle’s housing market, as mortgage rates begin to climb after years of staying low.

While the Triangle, with its impressive job growth, is still one of the most attractive real estate markets in the country, it isn’t roaring quite like it was earlier this year.

Closed sales in the Triangle were down 1 percent in October compared to a year ago and showings of houses were down 5 percent, according to the Triangle Area Residential Realty Market Report. Those numbers were an improvement on September, which was heavily affected by Hurricane Florence.

Nationally, home sales fell to their lowest level in three years in September, decreasing 4.1 percent below the rate in September of 2017 — a drop that the National Association of Realtors’ Chief Economist Lawrence Yun attributed in a presentation to rising interest rates and home prices.

“There is a negative mood in the market,” said Stacey Anfindsen, a Cary-based appraiser with Birch Appraisal, who puts together the monthly Triangle Area Residential Realty Market Report.

The buzz kill, Anfindsen said in a phone interview with The News & Observer, is the mortgage rates, which are going to continue rising.

The average 30-year fixed rate in October was 4.83 percent, up from 3.9 percent in October 2017, according to Freddie Mac. That increase equates to a monthly payment on a $325,000 house being $143 more expensive than at the same time in 2017, or $1,716 more expensive for the year.

“Even though we have a lot of people with good jobs, at some point $140 more a month means something,” Anfindsen said.

Anfindsen’s assessment isn’t the only local report pointing a finger at mortgage rates.

A quarterly report from Metrostudy noted that “builders in the third quarter were reporting signs of a slowdown in buyer traffic compared to 2017 and the first half of 2018, as home mortgage rates have started to rise alongside continuing new home base price escalations.”

The Metrostudy report also noted that wages might not be growing fast enough to keep up with the market’s price increases.

While average weekly wages in the region increased on average by 3.9 percent compared to three years ago, the median new home price in the Triangle has increased 13 percent, according to Metrostudy.

“We are starting to see more price fatigue because we have had such high price increases for the past two years,” Amanda Hoyle, regional director of Metrostudy’s Raleigh office, said in a phone interview. “There are some buyers that are stepping back.”

Watching the rates go up

Kenneth Miller, a research assistant at a Durham-based bio-pharmaceutical company, said interest rates were a big concern as he visited almost a dozen banks to get pre-approved for a loan to buy a house. After eight years of saving money and living in apartments, Miller, 29, is currently searching for a house in northern Durham and Wake counties for around $200,000.

“I have been looking at the interest rates, and they have been slowly climbing over the past year, so it has weighed pretty heavily” on my decision, Miller said in a phone interview.

Miller said when he was visiting banks, he mainly saw rates between 5.25 percent and 6 percent, before eventually landing an interest rate below 5 percent at a local credit union. He added that he wanted to jump into the market now, because he was sure prices and rates were only going to increase.

“Right now seems the time to do it, because in the next year, prices could become little inhospitable to my income bracket,” he said.

In the Triangle, it’s not unusual for homes to be sold within days of hitting the market, often leading to them selling above the asking price. Homes below $200,000 have especially been competitive.

The median sales price for a home in the Triangle in October was around $259,000, which was a 3.5 percent increase from the year before, according to Triangle MLS.

The increased competition has contributed to many people feeling like if they don’t buy a house now, they won’t be able to later, especially in light of rising rates.

For buyers, rising rates can mean a home they could afford earlier this year is no longer in their price range. Eventually that might lead to sellers needing to lower prices to attract buyers whose purchasing power has been affected by higher interest rates.

For Annie Harrison, a 39-year-old teacher in Durham, one of the motivating reasons she jumped back into the housing market earlier this year was due to concerns over rising prices and interest rates. Harrison and her husband traded a home in Durham’s American Village neighborhood for a larger home on the western edge of the county.

“We knew that mortgage rates were manageable for us at that time, but we were anxious that they would rise beyond what we were comfortable paying,” Harrison said in an email.

Annie Harrison, who recently bought a new home in Durham, motivated in part by rising prices and interest rates. She is pictured here in a hallway at Forest View Elementary in Durham, N.C. Friday, Nov. 16, 2018. Chuck Liddy

Harrison said she doubts they would’ve been able to manage the switch if they had waited to buy this fall, because of the increase in rates.

“Mortgage rates were already rising and we didn’t want to pay much more,” she said. She also worried that the person buying their old house might eventually have to lower their bid as well.

Diana Braun, president of the Raleigh Regional Association of Realtors, said it’s natural for home buyers to “pause and reflect on what they can afford,” when rates start going up.

“So you do see some pausing in the market,” Braun, a broker at Real Living Pittman Properties, said in an interview. “People that want to purchase a home will certainly do, but they will have to make an adjustment.”

Though, Braun said, she always reminds people that historically speaking rates are still low.

“I have to remind them that in the 1980s, rates were at 16 or 18 percent,” she said. “Hopefully we don’t see those days again.”

There are still affordable homes available, Braun said, but those are the ones that are attracting the most offers, especially in areas closer to Raleigh. Buyers need to be pre-approved for a mortgage to have a realistic chance at landing those homes, she said.

‘A more normal market’

Tom Gongaware, a general manager at Allen Tate Realtor’s Raleigh office, agreed that in the grand scheme of things rates are still low. But that doesn’t mean people are used to them rising, after so many years of the rates staying low.

“Yes, interest rates have ticked up, but they are still very low,” Gongaware said in a phone interview. “But I do think that sellers are realizing that we are transitioning to a more balanced market and are going to be a bit more realistic in their pricing, which will encourage buyers to come back.”

A combination of higher rates and more new construction finally being completed could bring relief to the rising prices the Triangle has seen.

It won’t be a buyer’s market but hopefully “a more normal market,” he added.

Still, with 64 people moving to Wake County alone per day, Braun said, those people are still going to be buying houses.

The house at 1624 Morning Mountain Road near Falls Lake in North Raleigh sold for $5.5 million in July 2018. The buyer was not revealed, but the address is the same as that of Eli Global, a firm founded by Durham resident Greg Lindberg.

That is why Davidson Homes, a home builder from Alabama, decided to recently expand to the area. The company has previously built homes around Huntsville, Ala., and Nashville, Tenn.

Brad Nelson, the division president of the Triangle for Davidson Homes, said the area’s growth makes it an obvious place to invest.

“Raleigh, and the Triangle in general, are always getting accolades as one of the best places to start as a college graduate or one of the best places to live,” Nelson said by phone. “There’s a lot of job growth here and people are following the jobs. New homes seem to accompany that.”

Davidson plans to build around 100 homes next year, mainly in southern Wake County, in the $300,000 to $350,000 range. Some of them will be targeted toward retirees, he added.

According to the report from Metrostudy, as interest rates rise, builders might have to start adjusting their prices as well. Nelson said his company did have some concerns about rising interest rates, but noted that not every buyer is worried about rates as much.

“It is a concern, but that just underscores the importance of making sure you have opportunities from a value perspective,” Nelson said. “On the flip side you do have a segment of the buyer market that are more insulated from rate increases than a first-time buyer. Rates can certainly play a critical role, but less so when you are dealing with a more mature empty-nester.”

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Eanes: 919-419-6684, @zeanes