Contributed by Edward Graham, Professor of Finance and Real Estate, Cameron School, UNCW
About one year ago, remarks were shared by this author concerning the expected impacts on commercial real estate of the COVID “pandemic.” Mass exits from such places as New York City and San Francisco were being observed, with some of the wealthier residents evacuating to Long Island and Westchester County outside New York, and across the nation for the digitally- and zoom-connected denizens of many cities. There was an expectation last year that commercial real estate occupancies would decline and values would be adversely impacted in such “vertically dense” communities as New York and Chicago. Commercial occupancies did decline in many of the larger and even mid-size cities, with subsequent drops in lease rates and property values, but the industrial and residential real estate markets have been, much as was expected in the first months of the pandemic in mid-2020, clear “winners.” The size, depth and breadth of that “victory,” especially in the residential markets, has been noteworthy.
With the pandemic, there was little certainty about how communities like Wilmington, and the Cape Fear Region, would be impacted. There is greater clarity now. Median listing prices in many mid-sized communities across the US fell in the first couple months of the shutdowns, but recovered in most markets by June or July of 2020. Home prices in Wilmington, and across the country, have been headed upward since then.
In February of this year, an article in the Wall Street Journal reported that, in January of 2021, all 180 or so of the housing markets tracked by the National Association of Realtors witnessed monthly price increases among the homes sold in the varied markets. Every market, as this year began, reported that housing prices had increased. That had not happened before. Earlier this year, evidence was provided that, even in real inflation-adjusted terms, home prices are today higher than ever. Wilmington has exhibited similar patterns. Home prices appear to be at an all-time high in the Cape Fear Region, and homes are remaining on the market, once listed, for remarkably short periods of time.
Data published by the Cape Fear REALTORS betray these patterns: In its Local Market Update [link below], median sales prices have increased almost 10% over the year ended in April of 2021. For townhouses and condos, a median price increase of 17.6% was observed over the same period. Prices are going up, days on the market are going down, and the inventory of homes for sale – with both single family homes and the townhouse/condo markets – has fallen almost 75% in the last twelve months. Sellers are typically rewarded with prompt offers for their new listings.
It seems be a seller’s market. But, this is a two-edged sword. A May 4th, 2021 article in the Wall Street Journal describes these two “edges.” Laurie Goodman, vice president for housing finance policy and the founder of the Housing Finance Policy Center at the Urban Institute, comments on Federal Housing Finance Agency data going back to 1991. She observes the historically low interest rates that exist today, in Wilmington and across the US, and believes that “housing prices are unlikely to come down.” But Susan Wachter, a real estate professor at Wharton, doesn’t believe in ever-rising home prices, and reminds young home buyers – whether in North Carolina or North Dakota – to not “stretch financially” and take “on the risk of not being able to pay the mortgage.” This was a painful lesson learned by millions of families just over a decade ago.
At the outset of the pandemic, Wilmington seemed well-situated to receive families migrating away from the vertical density in much larger cities. Now, with effective vaccines widely distributed, and a great many residents returning to SoHo and Chelsea and other neighborhoods in New York City, and with such commercial centers as Independence Mall in Wilmington appearing to “lease up” more quickly than some expected, the nation’s and the area’s economy appear to be returning – in large part – to “normal.” But the admonishments of Goodman and Wachter need to be kept in mind; it could be that area housing values will continue to rise, but at the same time new home buyers should be wary.
Residential markets in Wilmington, and across the US, are not as leveraged or as exposed to financial risk as was the case in the mid 2000’s, prior to the bursting of the real estate “bubble.” But homeowner attention should still be paid to the uncertainty that the future always holds; home prices today are headed upward, and homes bought as little as a year or two ago have proven to be great investments, but there is no guarantee that home prices in Wilmington, or across the US, will continue to rise. They cannot continue to rise, forever, at the current pace.
Robert T. Burrus, Jr., Ph.D., is the dean of the Cameron School of Business at the University of North Carolina Wilmington, named in June 2015. Burrus joined the UNCW faculty in 1998. Prior to his current position, Burrus was interim dean, associate dean of undergraduate studies and the chair of the department of economics and finance. Burrus earned a Ph.D. and a master’s degree in economics from the University of Virginia and a bachelor’s degree in mathematical economics from Wake Forest University. The Cameron School of Business has approximately 90 full-time faculty members and 30 administrative and staff members. The AACSB-accredited business school currently enrolls approximately 2,600 undergraduate students in three degree programs and 750 graduate students in four degree programs. The school also houses the prestigious Cameron Executive Network, a group of more than 200 retired and practicing executives that provide one-on-one mentoring for Cameron students. To learn more about the Cameron School of Business, please visit http://csb.uncw.edu/. Questions and comments can be sent to [email protected].
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