This month the North Carolina Department of Commerce released projected job growth numbers for the next seven years which include the state’s fastest annual growth rate in Wilmington. New jobs mean new workers: as our population continues to grow, real estate will keep rocking in the Cape Fear region, but not without its challenges. We asked a panel of local industry leaders for their thoughts on some of the most important trends and issues facing home buyers and real estate professionals.
How does the current market feel when compared to five years ago?
SHERRI PRIDGEN: If we look back at the past five years, it’s been interesting to see where we’ve come from and where we’ve gone. In 2014 we had a good mortgage rate, a high supply of homes, a buyers’ market, and a slower demand for homes. Today, we have a little higher mortgage rate, but we have hit an unbelievable high demand that’s creating a shallow supply of homes, now we’re in a sellers’ market.
In the last five years, housing supply is down by more than 60 percent, and the prices have risen 23 percent. Specifically houses under $299,999, which make up 60 percent of the markets closed homes, are down by 66 percent. If this decline in supply continues, it will continue to cause prices to rise.
SHAWN HORTON: Location, location, location still reigns king when it comes to the local real estate market. When you look at what is selling quickly, much of it is due to its location within the area. Sellers who understand their product and likely buyers, coupled with buyers who understand their own needs -- and have done their research -- are efficiently connecting with one another.
KEITH BEATTY: Five years ago, we were only a couple of years from the slow pull out from the real estate depression. The market is much more vibrant and consistent now. Additionally, our local job market is much stronger.
FRED KUMPEL: The current market feels stronger than 2014 for a number of reasons: the continued growth and development in the Cape Fear region, rebuilding post-Hurricane Florence, and the strength of the economy. We’re fortunate to be in a desirable, growth-focused area. That said, housing prices have gone up considerably and the labor shortage is catching up with us.
What impact did Hurricane Florence have on your activities related to residential real estate?
BEATTY: Florence was a big blow to our area, especially the surrounding counties. Other than a few communities, I feel New Hanover county bounced back quicker than Brunswick and Pender.
My team’s business was off about 20 percent in the fourth quarter of 2018; fortunately, people are resilient and potential new residents to our area have short memories. We expect our team to have one of its best years ever in 2019.
PRIDGEN: Hurricane Florence has had a tremendous impact on us. The real estate market in September 2018 when Florence came through causing billions of dollars in damage to our area, sales were down 50 percent compared to the same time the previous year. Literally the housing market just stopped.
One month after the storm, the real estate market rebounded, posting a five percent gain in closed sales over October 2017. However, it left its mark with damage to homes for sale or ones that were planning to be listed — a tremendous blow to our already short supply of homes, especially for under $300,000. There were 327 listed homes under $300,000 that were pulled off the market and never put back on after the storm, 17 percent of the inventory -- that was a considerable amount of inventory. This lack of inventory added fuel to help the average sales price increase dramatically since the storm; we’re in a housing supply shortage period, there’s no other way to say it.
HORTON: Just like that -- our entire world was shifted on its axis from Hurricane Florence. For 45 days, our industry dealt with what many in our membership have called a major disruption. That disruption brought with it a new sense of reality for our members. Timelines, schedules, material pricing, closings, and the overall construction processes tumbled into turmoil.
Almost a month and a half later, our community unified and put forth a recovery effort that involved people from all walks of life pitching in to help their neighbors. We saw our local permitting and inspections offices get back on their feet as well. Transition seven months later, and we have found that the new home construction industry has rebounded and is still flourishing region wide.
KUMPEL: After 74 years in the same location, Strickland’s moved to Oleander Drive and outfitted a new showroom in July 2016. We spent the next two years enhancing and improving the showroom. Hurricane Florence meant doing it all over again – only this time in a matter of weeks instead of years.
Our product lines center around added comfort and luxury. So, although we saw a short burst of increased business for people needing to replace or rebuild, we’re already at the end of that bubble. People need roofs and flooring and drywall, but new blinds, shades, shutters or closets are lower priorities after an event like Florence. That said, the market hasn’t slowed down, but projects are taking a lot longer to finish because contractors and installers are stretched so thin.
What factors do homebuyers consider when deciding between building a new home or buying an existing one?
BEATTY: As always, the two major factors are price and location. It has become increasingly difficult to find affordable homes in the best locations. This is especially true for new homes which are moving outwards from the city to find affordable land. Affordable is probably not the right word, but less expensive may be better.
In today’s market the resale inventory is very low and many of them need extensive remodeling that the potential homeowner often does not want to take on. This pushes many buyers towards new home communities.
PRIDGEN: There are a lot of motivating factors for buyers. Convenience and cost are the two biggest advantages of buying a preexisting home. The convenience of purchasing a ready to move in home is very appealing to people relocating for a new job or people who have children that are starting at a new school. Generally, existing homes are in more developed and desirable locations.
Also, remember we’re having these shortages of houses, but we’re also seeing a shortage of materials, workers, and land that can be developed for new homes.
People are still building their dream homes, it takes about $30,000 more to build, and that extra cost can push people out of their comfort zone. It comes down to a buyer’s motivation; do they want to go in and get down into the weeds designing a home? Some people like that; some don’t.
HORTON: Location. Lifestyle amenities such as swimming pools, social gathering areas, and access to fitness centers. Home personalization opportunities. Timeframe of purchase; do I have time to build? Price.
How hands-on are today’s homebuyers with the design of new homes or renovations of existing homes? Is this different from years past?
BEATTY: People buying homes under $500k have very little say so on the design and changes of new homes. In years past our local builders were much more accommodating to changes. Since the national and regional builders moved into our area that has all changed. However, purchasers still have a lot of say in how their home is decorated.
KUMPEL: Today’s homeowners are much more hands on when it comes to building and renovations. I think we have HGTV, Houzz, Pinterest, and Instagram to thank for that. The culture has really increased awareness around design, and people are much more fluent in design language.
The downside to this is that these programs and platforms create idealized, unrealistic expectations. There are a lot of misconceptions around cost and how quickly things can be done. The idea of remodeling a room in a weekend for less than $1,000? That’s more likely to happen with TV magic than in real life.
Another reason I think homeowners are so hands-on is because they are still remembering the 2008 market crash. A decade ago, the bottom dropped for so many homeowners who weren’t able to see a return on investment for home improvement projects that were specific to their tastes or needs. Now, customers want to make upgrades and improvements that will hold their value no matter what the market does.
HORTON: The use of technology allows buyers to be more informed than ever. They’ve done their research, explored various options and have sought third-party reviews or opinions before venturing out to explore their potential new home.
The process of purchasing a new home is vastly different than renovating. Typically a builder will have a set amount of floor plans and options to choose from. This does allow for some type of customization within reason. When you look at remodels, typically we find the homeowner wanting to achieve more functionality. This could mean removing walls, redesigning or realigning kitchen and bath areas. It also means being careful as to the overall extent of the remodel as moving walls and making additions can add up quick.
PRIDGEN: It varies; some people want to be there every step of the way and see every nail driven. Everybody watches HGTV nowadays, which is good and bad since it’s not easy to do the remodels at the cost they want.
Are you seeing any trends in the types of homes popular with buyers in terms of style, location and amenities?
KUMPEL: Well, I’d say that our business serves a long-term trend, which is the need for smart, space-saving home organization. For years, the master bathroom and the kitchen have been the areas where most homeowners want to invest. Closets are now ranked third on that list. Another trending area is garages and outdoor spaces.
Many people – especially the retirees moving to our area – are downsizing. A typical homeowner might be moving from a 4,000-square-foot home with a basement and an attic to a 2,000-square-foot home with no basement and limited attic space in this region. In other words, they’re trying to fit five pounds into a three-pound bag. As a result, homeowners want to maximize every square foot with smart storage. Likewise, we’re seeing a big trend toward indoor-outdoor living space; garages that double as man caves, party rooms, or gardening centers, outdoor kitchens, lanais, etc.
PRIDGEN: We’re seeing a lot of people now who like the outdoor kitchens, firepits, and outdoor living areas. People want to be where family and friends are going to come over and enjoy a cookout. The more bedrooms and sleeping space, the better to handle visitors. Today the three bedroom home under $350,000 is the most popular home selling across our three county area, which represents 49 percent of all sales of single family homes. I always tell people to be ready; you never know how many friends you have until you move to the coast.
HORTON: When most people think of amenities, they think of golf courses, pools, tennis courts and clubhouses. These will always be traditional feature points especially in the larger planned developments. However, more and more we are seeing developments use their scale and location as their number one strength. Simple things like tying into existing sidewalks/multi-use trails and creating small gathering areas within the development are all working.
Another factor in purchasing decisions is buyers really wanting “convenience.” They want to be around easy-to-get-to neighborhood services like restaurants, shopping, and movies, or just have convenient access to places where they spend the bulk of their time.
BEATTY: For younger buyers and first-time buyers, it is all about price. If they see value in the product and can afford it they will make a decision to purchase.
From an interior design standpoint, what are homeowners looking for?
HORTON: Functionality! Today’s buyer is savvy and very critical in terms of a home’s layout and the use of space. Consumers want a home with flow, moving you from one space to the next without choppy design elements or orientation. They want to get the most out of the price of the home, utilizing every nook and cranny with minimal waste.
Open floor plans between the kitchen, living room and more casual eating areas are still the top drivers. Buyers will also seek ways to keep their master bedroom downstairs as well. Even with our families, we see this as ‘future insurance’ either for our owner, or more likely, for resale.
PRIDGEN: We see different choices in kitchens, not so much the white cabinets anymore. People are going with the gray and the blacks. They want the outdoors to come inside. There’s a lot more demand for open spaces, open concepts where people can come in and congregate, instead of the closed room concepts of some older homes.
KUMPEL: It’s still about open concept, casual living. Clean and simple lines. Lots of light. A simpler, less formal approach to spaces. Durability and livability are big factors in what people are looking for today. Even though we sell nearly 30 different finishes for our custom closets, white remains our biggest seller by far. Gray is a popular choice for garage cabinetry. For window treatments, banded shades are hot right now – we’re selling a lot of those. And motorized shades. Home automation is a rapidly growing market. I like to call it the Alexa effect. Apps that integrate into the home, timers, security cameras, we’re seeing lots and lots of this.
How important are outdoor living spaces to people buying homes in our region?
BEATTY: I see it as more important for homes at $500k and above. Especially for retired individuals.
KUMPEL: Outdoor living spaces are huge in our market. Even if people don’t have room for a full-sized pool, they’re getting a lap pool. Or a water feature. Outdoor fireplaces and outdoor kitchens are also on the rise. Garages, porches, patios, and outdoor spaces are just as important as interior spaces in our region.
HORTON: With the area’s mild climate, more homes are embracing the outdoor space as extra living space that can be used year-round. When we step outside we are seeing more emphasis put on the indoor/outdoor convergence. This trend is only going to become more pronounced as many of the areas new communities are building on smaller home sites, which yields less yard. More buyers are embracing these smaller spaces and creating their own higher quality, personalized uses.
What adjustments to your staffing or services have you made to deal with the changing residential real estate market in the area?
KUMPEL: We have hired more installers, and that’s no small feat because it’s a tight labor market and we rely on specialists with industry-specific experience in window coverings and home organization installation.
And, with the growth of our region, our sales reps cover a lot more territory than they used to. In years past, a lot of our business was contained within New Hanover county. With so much new development in neighboring counties, and with so many beach homes and second homes, we’re spending a large percentage of our time in other areas. Our sales reps cover a 60-minute radius on any given day. Trips to Jacksonville, Southport, and Little River are just part and parcel for us now.
BEATTY: During the great real estate depression (2009-2012) my team was just eight members. Since 2012, we have added people as our workload has increased. We have been at 24 team members for the last few years.
In 2010 as a result of the depression, we only sold 108 properties. The last four years we have averaged 400 sales per year and are on track for our goal of 430 units this year. We generate about 700 leads per month from various sources that we have to touch in one way or another, so it takes a combined effort of all our team members to do that.
HORTON: Staffing needs have icreased as the market has grown. It has been important to add new team members as necessary, but with an eye on hiring quality people and training them well. A kind, knowledgeable, hardworking staff creates great experiences for homebuyers.
What are some of the challenges facing the residential real estate market that need to be addressed by our community to keep things moving in a positive direction?
KUMPEL: The community has several challenges to address: affordable housing for the labor market and first-time buyers. Roads, traffic, and public transportation. Overcrowded schools. Our incredible growth rate also presents some incredible challenges. We also need to do more with corporate business to attract – and keep – workers here.
PRIDGEN: For one thing, not everyone moving here is a retiree with a lot of money. Many of our new residents are working here. This modern workforce needs affordable housing, something in short supply across all three counties. We need over 1,000 homes added to our supply to keep up with today’s demand. These are homes priced at under $280,000. Cape Fear REALTORS® is working hard with the City and the County on this issue.
Property insurance and flood insurance are other challenges. The national flood insurance program, which we refer to as NFIP, will provide $350,000 of flood insurance coverage for a Federally backed mortgage. This is in over 20,000 communities nationwide; it’s spread very thin. We have just about broken the bank with the NFIP, having to borrow from taxpayers to make up the difference. We always used to only think of flood zones as being right on the coast, oceanfront, or the second row, maybe if you lived on the Intracoastal Waterway, you’d think about some water pushing in. But now that’s all changing, and the NFIP is just not sustainable. The Congressional Budget Office is working as hard as they can, but it’s not charging enough in the premiums to cover all of these catastrophic losses.
HORTON: For quite some time the City of Wilmington and New Hanover County have used old antiquated codes to deal with development projects far more sophisticated than what the codes allowed for. This has resulted in some lost opportunity for both the private and public-sector side. The good news is that both entities are working through a major overhaul of their respective development ordinances, and we have already stressed that an increased height and density is key moving forward. Both ordinances also call for more mixed use and multi-modal functions. If done correctly with market-based solutions in place, we will find that denser projects can help alleviate some of the commuting and traffic concerns.
The County is moving far more expeditiously than the City, which has been concerning to our membership. We understand the City is purposefully moving forward with stakeholder meetings from June through November to gather input. With so much at stake from a development and real estate perspective the HBA will certainly make sure to have a seat at the table as both ordinances move forward.
In the coming months the New Hanover County Commissioners will have the opportunity to adopt seven new zoning districts as well as modifications to the current Planned Development district. The Association has been very supportive of these new districts as they bring forward opportunities for greater density and housing diversity that in the end starts to create solutions for affordability.
BEATTY: Over the last few years, you have heard a lot in the news about a lack of affordable housing. Rents have risen to more than house payments in many cases, with the cost of land, government regulations, and labor/materials cost you cannot build a home in New Hanover county for less than $200,000. I personally do not see how homes under $200,000 can be built in our county without the assistance of city and county officials and a rollback of unnecessary regulations.
How are you dealing with shortages in the market for professionals such as contractors, installers, designers and others?
KUMPEL: It’s a tough labor market, especially for our business, because we insist on hiring professionals with previous, industry-specific experience. We currently have an opening in our custom drapery division and we’re looking for someone with a very specific skill set and experience level. It takes time.
BEATTY: Like most things in business supply and demand dictates price and time. A shortage of skilled labor has increased builders pricing and lead to a longer delivery of time. My builders used to be able to deliver a $350,000 priced home in about four months, that now takes six months or longer to complete.
HORTON: The housing industry is critical to the American economy, and a skilled and capable workforce that is adequate to meet demand is vital to the nation’s home builders. In a January 2019 survey of NAHB members, more than 80 percent reported that the availability and cost of workers was a significant issue for their business. This translates into higher housing costs, increased home prices, difficulties completing projects on time, and lower economic growth.
Locally the WCFHBA has waged war on labor. With our continued partnerships with New Hanover County Schools, Career Pathway Programs, SEA-Tech, and CFCC we are slowly but surely making progress. These relationships helped us launch Construction Institute and participate in a lot of localized construction fairs and expos.
To see immediate impacts we must urge Congress to create a new, market-based guest worker program for the construction sector that complements ongoing localized recruitment and training efforts. We need to find and support common sense approaches that provide clear, lawful pathways for DACA-eligible individuals and those with TPS designation towards permanent residency. At the same time we are encouraging our lawmakers to increase funding for job training programs to help prepare individuals for home building career.
What do you think the future holds for our real estate market?
BEATTY: I am very optimistic about the future of residential real estate in our area. Interest rates have dropped a full percentage point just from last fall and the indicators are that they will continue to lower. This makes homes more affordable to many more people. Also, there is still a great deal of interested people moving to our area from the Northeast. My team had a booth in two of the Live South shows and the combined attendance was over 2,500 couples. Additionally, our job market is much stronger than it was only a few years ago. These three things and others should ensure a healthy growing residential real estate market in our area over the next few years.
HORTON: With the finalization of the I-140 corridor we have seen a lot of development interest in the northern section of Brunswick County. With its completion, this last leg of the bypass opened up approximately 3,000+ acres of land to potential development. Now comes the question of infrastructure, particularly water and sewer to support this potential growth.
At the same time our region is going to see a very aggressive transportation infrastructure campaign that in ten years will transform many of our roadways and improve service areas.
Many national policies and regulations that come out of the White House and Congress have an effect on our local real estate market. For example, the housing industry is just now finally seeing prices drop back down to pre-tariff levels that were instituted in 2017 on Canadian softwood lumber shipments into the United States.
Due to those tariffs we saw the average new single-family home increase by more than $6,000 and the market value of an average new multifamily housing unit rise by roughly $2,400. Each year, the U.S. residential construction and remodeling industries rely on tens of billions of dollars in building materials sourced from Mexico and Canada that constitute parts of a home and represent American jobs.
KUMPEL: I think our area will remain in this bubble for the foreseeable future. So many people are choosing the Southeast and this area in particular for the climate and its gentler real estate taxes relative to where they are coming from. Property values will continue to increase. Wilmington will become even more metropolitan, and the spread in the surrounding counties will continue, hopefully with a mix of housing for all income brackets to help sustain our market and our economy.
PRIDGEN: I remember when I-40 opened, all of a sudden everyone from the north started making that left turn off 95. We’re growing, our housing demand is growing, and we expect this to continue through this year and into next year. We’re aware that our housing supply is depleting fast, and we’re working feverishly to catch up.
The lower priced homes under $350,000 will continue to be in the highest demand, and they will continue to increase in price. These homes are getting multiple offers, and the properties are selling in days, not months like the homes above this price point.
I think we hold a golden key in Wilmington and the area beaches. It’s a tremendous area, we have a positive market, and just a wonderful place to live. Once people get here, they very seldom want to leave.