SOUTHEASTERN N.C. — Months supply has reached a record low in New Hanover County, as a frenzied sellers’ market eats up available inventory within days of listing — regardless of price point.
The region has had a low inventory problem for years, but the pandemic exacerbated an already insatiable demand for homes.
Inventory is as low as area experts have ever seen it. “It physically really can’t get any lower,” said Tom Gale, president of Cape Fear Realtors. “We’ve gone off the deep end at this point.”
A new dynamic
A measurement of how long it would take the market to consume all available properties if no new units are listed, months supply is at 0.8 months as of March. It’s the lowest figure in Cape Fear Realtors’ 16-year database, down 79% compared to last March. Healthy markets hover around four and six months of supply; less than four, sellers have the advantage, and more than six, buyers have more negotiating power, according to ShowingTime, a real-estate market research firm.
Last month, there were just 328 homes for sale under $300,000 in the tri-county region (population: 440,000 people), down 74% compared to last year. “When you have that much of a shortage, it definitely skews things,” Gale said.
Soaring population growth paired with pandemic restrictions boosted real estate interest beyond already strong pre-Covid levels. “We artificially constrained supply,” Gale said about the period of reduced activity last spring. “Ever since then, we haven’t been able to get caught up.”
Inventory of both existing and new homes has bottomed out. Sellers are tempted — rightfully so — to list and collect on an escalating price tag: At $295,000 last month in the tri-county area, the median sale price has grown by $35,100 (13%) in just a year.
Despite the temptation, the reality of selling is more complicated. A well-priced home in good condition is likely to sell in a matter of days (Gale said the actual window is much tighter than the median days on market figure last month — 18 — reaching a 15-year low, with deals already in place while parties wait for loans to close). Even if a seller was interested in listing, it’s as hard as it’s ever been to find a home because of the severely low inventory.
“So now we’ve really reached the point where the market has seized up,” Gale said. “Whatever activity there would be is not happening because the chicken and egg of, people don’t want to list their home because they can’t find it and no one can else can buy your home because they can’t find it.”
On the buyer side, the shriveled-up supply has prompted bidding wars, with multiple offers over asking price becoming a norm. “You get some people if this is their sixth or twelfth offer that they’ve written, some people are just desperate and they’re willing to overpay versus what the previous comps were just because they’re done continuing to try to get the offer accepted,” Gale said.
Buyers are asking agents what to offer in order to lock down a contract and escape the deflating feeling of losing out on multiple bids. “All bets are off,” Gale said. “If you want to keep looking for the next four months, we can keep looking. But, unfortunately, at every turn, prices are only going higher. So if you miss out on this one, the next one’s going to be listed for a higher price.”
The predicament puts both buyers and agents in a tough spot, at risk of advising or paying more than a house is actually worth, above its appraised value. “When people are desperate and making rash decisions, that’s when you have market volatility. I want to make sure people are making smart, financially measured decisions,” Gale said.
Tim Milam, owner of Coldwell Banker Sea Coast Advantage, said if a seller’s chances of finding a new home (in this market or elsewhere) are dire, his agents have sometimes advised them to wait it out — even though sale prices are at an all-time high. “I’m proud when that happens. The reality is, what they want to buy, they can’t find,” Milam said. “It’s a dynamic that’s new to the market.”
The typical means of buying and selling have flip-flopped. In a more relaxed market, buyers would often make an offer contingent on the sale of their own home — a once-common move that’s now far less attractive today. “Here’s what it used to be: Put my house on the market, get it under contract, now I go find a house and make it subject to my house closing,” Milam said. “Well, it’s kind of reverse now. You might want to go find your house, put it under contract, and then come back and list your house.”
Milam said buyers are writing more personal letters to sellers than ever before, hoping to win them over emotionally instead. “When you write an offer for 10 or 15 or $20,000 more than the asking price, and you lose, you can’t help but ask yourself, ‘How did I lose this?’” he said.
There’s more out-of-market demand than ever, further intensifying competition for local buyers. Milam said Coldwell Banker Sea Coast Advantage’s website has seen its highest-ever traffic, with visitors from the northeast and California honing in on this market, with comparatively cheaper homes and lower taxes. “We’re just no longer a hidden secret like we were 20, 25 years ago,” he said.
In a multiple-offer scenario, cash buyers are prioritized (really, regardless of market conditions, cash buyers are preferred); this puts median-to-low-income buyers using a lending service at a disadvantage when competing at the same price point. Oftentimes, loans are contingent upon appraised value. Buyers who intend to borrow need to be prepared with the ability to access more capital — and quickly — if they plan to pay above asking.
“You really need to be prepared to make an offer, not only the first time you view a house, but you have to have your offer basically in hand. It’s every price point,” said Ariana Jo, an agent with Intracoastal Realty. “It’s really tough especially for these first-time buyers who have never been through the experience to have to make that impulsive decision to move forward and to be willing to pay over the list price.”
Buyers are also offering more cash down as due diligence. These non-refundable fees get paid upfront, showing a seller the buyer’s seriousness during the inspection phase and get attributed to the closing cost. If the buyer chooses to back out before the sale closes, the seller keeps the money. It used to cost just a couple hundred dollars to lock in a contract. Now, it’s normal to see due diligence fees in the thousands.
“It happened overnight,” Jo said.
In the triangle area and in larger metropolitans, it’s not unusual to see due diligence fees in the double digits, according to Jo. Increased fees and shorter due diligence periods are just part of the overall portfolio buyers are using to make their offer stand out.
An expensive rental market means prospective buyers are also struggling to find housing at a price point where a mortgage begins to make more sense. “They’re also competing at a high level for a high amount for something they don’t build equity in,” Jo said.
‘It’s a state and national issue’
The simplest solution to low inventory is to introduce new homes on the market. Sellers in existing homes are hesitant to list and builders aren’t able to meet demand.
“The challenge is in keeping up,” said Cameron Moore, president of Wilmington Cape Fear Home Builders Association. “It’s not just here — it’s a state and it’s a national issue.”
Covid-19 clogged homebuilders’ supply chain, resulting in price increases and delivery delays that persist today. Windows, doors, roofing, siding, cabinets, flooring, paint — “pretty much anything that goes into the house right now is having some type of delay,” Moore said.
A typical lumber-framing package for a 2,200 square-foot house, valued at $12,000 to $15,000 before the pandemic, now costs more than $30,000, Moore explained. Thirty-year interest rates hit all-time lows in January, at 2.6%, and remain attractively low this month, at about 3%.
Though the low rates mean more buying power, the wiggle room disappears when it covers increased costs. “Money isn’t going as far,” Moore said.
Builders have begun adding escalation clauses into their contracts to cover cost increases on the supply side, a risk many buyers are willing to take. “Consumers are still buying houses,” Moore said. “It’s not deterring the house-buying process from what we can tell.”
Some builders with the means to do so are stockpiling products in storage facilities to lock in prices and secure supply in anticipation of future builds — a new market trend.
While the increased demand may on the surface seem positive for builders, Moore said the industry is bracing through the cost increases. “I have builders right now that for all practical purposes could very well be building for free just to keep the employee base moving,” he said. “It’s not even a question of margins anymore. It is literally a question right now of survival. That’s what this comes down to: is surviving everything that’s going on in the market right now, and trying to figure out where you can put the next product on the ground.”
Send tips and comments to Johanna Ferebee Still at email@example.com