The Reality

A December 31 headline in the Wall Street Journal read “Home Prices Declined at Record Pace in October” noting that the S&P Case-Schiller data on the sales of single family homes in 20 major metropolitan areas across the country showed a return to 2004 levels. This was followed by a report in January that average home prices in the 20 metropolitan areas in November had “plunged 18.2” from November 2007.

While the real estate market on the Outer Banks differs significantly in many ways from the markets that make the national headlines, the Outer Banks has certainly not been immune to significant declines in sales and property values since the annual average and median sales prices peaked in 2005. The charts on the adjoining page [to obtain the charts, please call for our Village View newsletter, 877.482.4242] provide sobering evidence of the decline in sales volumes and average and median prices. Total sales of single family homes in the report area (Corolla to S Nags Head including Colington) for 2008 declined 27.5% from 2007; the annual average sales price declined 10.5% and the median sales price was down 8.2%. As a point of comparison, National Association of Realtors (NAR) reported a 14.9% decline in the national average sales price and a 14.8% decline in the national median sales price for single family homes. Total home sales for the report area in Q4 2008 were down 37% from Q4 2007.

Even though sales volumes continue to trend downward, there are buyers in the market looking for the right opportunities. But the statistics reflect the absence of a sufficient number of buyers to effect even a modest change in market trends. Owners expecting to sell their properties in this highly competitive market must accept that buyers have a distinct advantage. The challenge for sellers is not limited to the size of the unsold inventory of homes. There is also pricing competition from the foreclosed, or bank owned properties, and the short sellers (homes listed for sale at a price less than the mortgage debt); a relatively new phenomenon that has emerged over the past couple of years, at least on the Outer Banks.

Seller’s Approach to This Market
So how should an owner who wants to sell, or is compelled to sell for whatever reason, approach this market? First and foremost, be realistic about price expectations. Prospective buyers are very well informed of current market trends and conditions. They are looking for properties that are competitively priced and, in their view, provide good value for investment. Bank owned and short sale properties are typically priced somewhat lower than other similar properties and are most always sold “as is”; i.e., the seller will not pay for any repairs. Some of the bank owned properties have been stripped of furnishings and fixtures and may reflect neglected maintenance; but properly priced, they can pose serious competition for the sellers of well maintained properties of similar size, features and location. Properties that are overpriced for this market will get little, if any, attention, or be outright ignored by prospective buyers. Sellers must realize that no amount of advertising or promotion will overcome a pricing disadvantage. In this market, price is king. There is simply nothing to be gained from putting a property on the market at an unrealistic price. Even if a seller should get to the point of contract at a price above the current market, the property must still clear the appraisal hurdle. This means that recently sold comparable properties must support the contract price. Otherwise, the contract price will most likely be subject to renegotiation with the buyer; thus, opening the door for the buyer to walk away.

The Recovery
There are some economists predicting that a recovery will begin in the second half of 2009 while an increasing number of others say that it will be 2010. Typically, the second quarter of the year is the peak buying season on the Outer Banks so we may see some rebound in the volume of sales. However, there is no evidence that suggests that the real estate market is on the precipice of entering a recovery process on the Outer Banks or elsewhere. Confronted with the continuing economic uncertainties, stock market volatility and rising unemployment, buying a vacation home is simply not high on the priority list for many families these days. Buyers in this market are bargain shoppers. But, in time, a recovery will begin, sales will increase reducing the inventory of unsold homes and prices will stabilize for a period of time before home values begin to recover.

In the meantime, Village Realty continues to market our listings aggressively and to work with our buyer clients and prospects in identifying real estate investment opportunities on the Outer Banks. The reduction in sales prices has significantly improved the ratio of rental income to purchase price providing buyers of vacation rental homes with much improved cash flow opportunities and improved affordability for second home and retirement home buyers. Despite some reports to the contrary, mortgage money at historically low rates for conforming loans (loan amounts up to $417,000) is readily available for credit worthy buyers with sufficient cash for down payments. Jumbo and super-jumbo loans (loan amounts above the $417,000 threshold), while available, pose a somewhat greater challenge regarding rates and loan-to- value ratios. The first step for a serious buyer should be to get prequalified by a lender. Village Realty agents are available to assist buyers with this process. Prequalification provides buyers with guidance regarding price affordability and improves their ability to focus on homes priced within their financial means.

The Return to Normalcy
The Outer Banks continues to be a very special place and increasingly popular vacation destination. Normalcy will return to the real estate market. That means fewer properties for sale and, in all probability, at prices higher than they are today. Buyers should be keeping a watchful eye for that special place that meets their investment or quality of life objectives. There may not be another value opportunity equal to the present. The experienced agents at Village Realty are market savvy and ready to assist you explore the real estate opportunities on the Outer Banks.

(C) 2009 Village Realty. All Rights Reserved.

The data used in compiling the results reflected in the graphs was extracted from the Outer Banks MLS. The data extracted is limited to single family detached home sales (excludes condos, townhomes and duplexes) in the communities from Corolla through S Nags Head including Colington, which is termed  “Beach Area” for purposes of this report. The information used in the compilation of the graphs is deemed to be reliable but not guaranteed.