2018 was the first year, post-recession, where annual sales were lower than the prior year. Rising interest rates and house prices, hurricane Matthew, and lack of inventory in affordable sub-markets, in my opinion were the main culprits. Demand has never been a real issue for the residential market, given our economic demographics and the number of people who move to the area on a daily basis.
Housing is a shelter choice between rent and ownership. The ownership side has stated benefits of mortgage interest deduction and house price appreciation, while the rental side has stated benefits of a lower term commitment and maintenance free living. Rental rates in the overall RTP market have been increasing, thus providing additional benefits to the ownership side of shelter. Additionally, house prices, post-recession, have averaged 5%+ in annualized house price metrics. Given the supposed advantages of ownership, why would sales decline?
The following contain my opinions as to why;
1). Mortgage rate increases; as noted in my October report, the combination of rising interest rates and house prices have added +/-$150 per month to the mortgage associated with transactions in the average sales price range. While rates abated in December, they are projected to increase during 2019.
2). Price levels and location options associated with new home inventory; new home inventory added during 2018 increased 7% compared to 2017. The average list price of new home inventory added during the year was $400,000. This metric represents a 39% premium compared to the average sales price of a re-sale. This premium, combined with the level of current interest rates could produce financial metrics too high for many current owners to justify the purchase of a new home.
3). Change in mentality in the move-down market; historically move-down sellers have downsized in house size and house price. That is not possible in many sub-markets in which potential move-down sellers reside. The average list price of new homes added during 2018 in Cary was 440k, in north Raleigh was 574k and in 1TB was 739k. While some move-down sellers have adopted to the new downsize in house, upsize in price reality, many have not and choose to "age-out" in their current residence. These potential re-sale listings do not come on the market, further constricting re-sale inventory in the above, and other in demand sub-markets.
Source: Triangle Multiple Update by Stacy P. Anfindsen (12/2018)