New data shows the super-charged COVID-era housing market beginning to cool off in many regions across the country, including the Carolinas. In June, roughly a quarter of all sellers in Raleigh dropped their asking price. And for the first time in a decade, according to one index U.S. home prices recently fell slightly — hopeful signs for what has been an unsustainable upward trend. Here in the Triad where values have been steadily rising over the past five years, affordability continues to be a big concern.
Allen Tate Realtors Regional Vice President Tony Jarrett has worked in the industry for 32 years and oversees about 600 agents in the Piedmont and High Country. He says to understand where the Triad’s housing market stands today, it helps to take a quick look back at supply. Right before COVID-19 arrived, the for-sale inventory — that’s active “For Sale” signs for both Guilford and Forsyth counties was already down by roughly 20%. Then came March 2020.
“I thought the world was turning upside down kind of like we did in ’08 and ’09, and then within 60 days we saw a rush of people saying, ‘Hey, I can work anywhere I want to,'" says Jarrett. "'I need a house.' Or ‘I need a home office, or I need a second home.’"
To describe what happened next, Jarrett offers a familiar scenario.
“It’s Friday night," he says. "The weather forecast says it’s going to be a snowstorm. You run to the grocery store. And when you run to the grocery store to get that inventory, you see half the inventory gone on the shelves at the grocery store. To me that’s what we’ve gone through these last two years. We’ve had a rush of buyers come into the store and suddenly there are not that many options left."
Jarrett says in addition to counting “For Sale” signs, analysts study the number of new listings — sellers just coming onto the market — to better understand the current housing landscape. He says at its low point, the monthly supply of homes, or the number of weeks it would take to run out of inventory, was three weeks. A healthy market? Four to six months. But here, Jarrett sees some room for optimism.
“A lot of sellers are coming back on the market," Jarrett says. "The market is shifting. It’s becoming healthy. We’ve been very unhealthy. And we’re at about one to one and a half months and we believe it’s going to be at about three months by the fall which is much better for buyers."
Another consideration when analyzing the housing market is new construction, and here, the negative impacts of the pandemic — supply chain backlogs and labor shortages — were compounded by a major disruption years ago: the Great Recession.
“The ’08, ’09 market really crashed us, so that had a big impact on builders," says Jarrett. "And so, we went from 11,400 — to be exact — permits being issued on average to 2,400 permits being issued [in 2012]. So, that’s almost an 80% decrease in new homes permits being issued. That’s pretty dramatic."
And here, Jarrett sees things beginning to trend in the right direction with an uptick in new housing starts beginning in June which is also good for consumers. But there’s much ground to make up after years of decline. A healthy market typically sees new construction at 30% of inventory. Today it’s roughly 13%. So, even though the buyer demand is there, Jarrett says builders have yet to catch up.
Putting even more pressure on the market have been interest rates. Jarrett says they’re finally beginning to normalize — slightly below the fifty-year average of 8%. But the 2010s brought us towards 4% rates which he calls not normal, not healthy, and not sustainable. The impact of what he calls “cheap money” on buyer behavior and pricing was swift.
"It made a run," says Jarrett. "There was such a huge demand of buying that we would have a seller put a house on the market and within a couple of hours probably would have five to ten offers. Because think about it this way, I was at a 6% and now I’m at a 3%. Well, my buying power just significantly increased. So, people were moving up the price ladder to buy bigger homes, larger homes, more expensive homes."
And those homes have been appreciating in value at unprecedented rates. Meanwhile returns on savings accounts and stock investments have been comparatively low, adding even more fuel to the real estate market. In 2019 the median asking price for homes in Greensboro was just over $180,000. Three years later it’s $283,000 — a $100,000 increase placing the Gate City in the top 5 metropolitan areas for price growth according to realtor.com.
Unlike in the aftermath of the housing bubble and burst of ’08 and ‘09, Jarrett says it’s not likely these prices will come crashing down.
“Thirty to thirty-five percent of everything we sold in ‘09 was distressed, upside down, under water," he says. "So, the thing that came out of ’08, ’09 was, let’s reform the mortgage industry. And so, people that are getting loans qualify for those loans. We used to joke in our industry that if you could fog a mirror, you could get a loan in ‘09. Now you can’t. You’ve got to have good money."
While Jarrett doesn’t see huge price drops in the housing market, he does envision a deceleration of home appreciation from earning 20% the past 12 months to somewhere in the single digits — maybe 8 to 10% — by the second half of this year. He says most real estate economists are predicting 3 to 5% appreciation within the next five years. After the government’s aggressive economic stimulus measures and historically low interest rates, Jarrett says he looks forward to a return to normalcy.
“When I started in the business, I would look at you and say, 'I’m going to help you find your dream home,'" says Jarrett. "We don’t use those words anymore because it may take you four to five offers on four to five different properties before I get you in a home. I think with that shifting back to, ‘Hey maybe it’ll take us two now instead of four, maybe you’ve got some more options, maybe we don’t have to do this crazy money that we were doing.' I think that’s going to be healthy for both sides of the equation."