Landlords and investors, we would like to keep you updated on what the industry experts are saying about the real estate market. It is our hope and desire that this information, and the practical application, that we make of it will help you to make informed investment decisions that will take advantage of the current state of the housing market.

Home Prices are Still Rising

Based on the CoreLogic Home Price Insights for July 2017, “Home prices nationwide, including distressed sales, increased year over year by 6.7 percent in July 2017 compared with July 2016.” Now what is really interesting is that the Labor Department reports that the Consumer Price Index which measures inflation over the same period at 1.7 percent. This puts the net value increase at 5 percent which is very good. This indicates a healthy real estate market.

CoreLogic is also forecasting that the year over year increase from July 2017 to 2018 will slow to only 5.0 percent. While this is not as attractive, it is still within 20 year average annual home appreciation rate at 4.4 percent.

Affordability Cracks Emerging

This fast paced growth, however, has some drawbacks which are emerging. “Home prices in July continued to rise at a solid pace with no signs of slowing down. The combination of steadily rising purchase demand along with very tight inventory of unsold homes should keep upward pressure on home prices for the remainder of this year. While mortgage interest rates remain low, affordability cracks are emerging as over a third of U.S. top cities are now overvalued.” Stated Frank Martell, President and CEO of CoreLogic.

What does this mean?

Essentially what we are seeing is that the prices of homes are rising faster than what consumers can afford. The cost of housing should not exceed 30 percent of a household’s income. In many cases, however, housing expenses are approaching 50 percent. This is seen even more in rental properties. Most of the new construction is for high quality or luxury apartments with very few new developments being geared towards lower income (unsubsidized) housing.

The North Carolina State of the Market Report

The U.S. is a large nation with multiple micro economies. So how about we bring this a little closer to home. What is going on specifically in our market area? Let’s start with a statewide summary. North Carolina has shown a year-over-year price change of 5.1 percent. CoreLogic has forecasted the annual growth rate from July 2017 to July 2018 to be 4 percent.

Wilmington, NC Housing Market

Based on the same July 2017 housing report from CoreLogic, Wilmington is considered overvalued and will stay overvalued until at least 2022 and has been overvalued since 2006. The median sold price based on data supplied by Realtor.com is $225,000. Rental properties are still in a very high demand though rent increases are leveling out. Rental statistics, that were compiled using Yardi Matrix which has data on 80 percent of the U.S. metro area rental markets, indicated that rents within the Wilmington area range between $945 and $923 per month.

Average Rental Rates

All Rentals $915

Studio (564 Sq. Ft.) $739

1 Bedroom (677 Sq. Ft.) $804

2 Bedrooms (1,059 Sq. Ft.) $920

3 Bedrooms (1,323 Sq. Ft.) $1,334

Raleigh, NC Housing Market

CoreLogic places the home values within the Raleigh metro area as being well within the normal range of value. Their forecast does not indicate any changes up to 2022. The U.S. Department of Housing and Urban Development completed a Comprehensive Housing Market Analysis in December 2016. HUD confirmed CoreLogic by also stating the sales and rental housing market is “currently balanced.” The vacancy rate on rentals dropped from 8.6 percent in April 2010 to only 5.5 percent. Apartments have an even lower vacancy rate of 4.2 percent and currently make up approximately 60 percent of renter-occupied units.

Average Rental Rates

Central Raleigh $1,198

North Cary/Morrisville $1,124

Northeast Raleigh $976

Southeast Raleigh $945

North Carolina Investor Advice

We have gone over quite a lot of data from many reliable sources. The question remains: What should you do with all this information? Should you buy, sell, or hold your real estate investment now that you know the state of the real estate market? First, let’s summarize what we know.

Housing values have risen this year and prices are forecasted to level out some in 2018. The rental markets in Raleigh and Wilmington, North Carolina have high demand and low vacancy. There is a shortage of affordable housing – both in the ownership market and the rental market.

If You Want to Sell Your Real Estate Investment

As a real estate investor, how can you use this information? If you are contemplating selling any of your investments, wait until the spring of 2018. You will continue to benefit from 2017 price appreciation. You will skip the slight price discounting that occurs in the fourth quarter. (Who wants to buy during Christmas?) And you can utilize the reduced value growth in 2018 to reinvest.

If You Want to Buy Real Estate Investments

Buying real estate investments is less about what the market is doing and more about what your real estate portfolio and personal finances are doing. If you are ready to invest in more properties, then talk to your agent about what you are looking for to balance your portfolio. We suggest looking for apartment buildings and multi-family rentals that will appeal to lower to middle-income classes. There is a high demand for non-subsidized but low to medium income rentals. We are not talking about becoming a slumlord or setting up tenement housing but rather to focus on reasonably priced rentals. The lower price per unit plus low vacancy combined with our careful tenant screening will make these very viable investment opportunities.