How is the market?? (Raleigh, Durham: for sale, apartment complex, condo)

[KCfromNC]

I've seen a lot of "prices didn't go up too much here", so I figured I'd show where I got my 20-30% figure from. Look at the 3rd graph on this page -

HousingTracker.net: Home Affordability Measures for Raleigh, North Carolina

From 1997 through mid 2004, the home price to income ratio here was steady at about 2.5-2.7. That is, people bought houses that cost about 2.5 times their annual income. This time period covers the dot com boom, the subsequent stock market crash, 9/11, the run up in the stock market starting in 2003, and so on. In other words, regardless of the overall economy, people spent roughly the same amount on a house compared to their income.

Then, in late '04, this ratio stared climbing. Right now the ratio is 3.4, which puts it nearly 30% above the historical average. Nothing about the economy changed, at least not on the scale of the dot-com boom or bust. The only real change was a massive nationwide credit and real estate bubble started to affect this area. That bubble is now imploding - those lenders that haven't gone bankrupt are no longer giving 100% financing to anyone who can sign their names. And with other area's real estate bubbles popping, equity refugees are no longer able to move here with 6 figure+ profits.

With the causes for the huge shift away from historical norms ending, I don't see how the price to income ratio won't return to normal levels. Granted, we may get some rise in the median wages here to offset some of that 30%, but I see 20% drops as reasonable to get back in line with where the numbers have been for the past decade. And my fear is that with bubbles, they tend to go up too far on the upswing, and then drop too far on the downside before returning to normal...

Keep in mind that this number is a ratio, so it's telling us that house prices went up faster than people's ability to pay. It has nothing to do with people getting raises and buying bigger houses in line with those raises - if that were the case the ratio would stay the same (bigger house / equally bigger income = same ratio). Instead, it's people buying much more house that has been historically affordable. It's certainly not as bad as other areas - Miami prices jumped to 9x average income (but then again their prices are falling 1-2% per month so saying we're better off than them is not confidence inspiring). But still, it's tough to explain this in any other way except for the effect of the national bubble on prices here.

One thing to keep in mind is this could just be forecasting a collapse in the high end ($400K+) home prices - dropping those guys significantly would reduce the average price even if the lower end didn't move. But so far the sales numbers aren't indicating that - the low end is slow too.

[REwatchDog]

It is my believe that only people who post that "things are picking up" are real estate agents.
I know couple of friends that are real estate agents, good ones, were very busy in 2005. They are totally idle, no work. If something picked up for them – it is the number of listings. More sellers, but no buyers.
Coworker of mine bought a brand new home in Cary, closed seven months ago for mid $400s (7% less that listing price). Couple of weeks ago there was a closing in the neighborhood for same floor plan with better elevation and more upgrades for $50K less.
The immigration into this area is slowing down. In fact some expect people will leave Wake county as more local companies (high tech, and pharmaceuticals) need to adjust to the current economic environment and downsize their workforce.
IMO prices will not drop 10%, they will drop 25-30%.
The situation now reminds me of the bubble in the stock market in March, 2000. Everybody new a correction is inevitable, but people still spend their entire life saving buying stocks. Oh, yes – the professionals (stock brokers, financial analyst…) maintained their "professional" views and opinions that things are picking up and there are great deals out there…
No – you can't blame the financial analysts and stock brokers for telling you (in 2000) "now it is the right time to buy stocks". You also can't blame the real estate agents to tell you now it is the right time to buy home in Wake County (or anywhere else) in 2008. All of them are decent people. However, if they tell you not to buy, they will be unemployed. In the last 50 years there were bad times in the stock market – have you ever seen a stock broker telling you "don't buy!". Also, there were bad times in the housing market – have you ever seen real estate agent coming on TV and announcing "don't buy!, wait for better times". No – according to them there was never a time that people shouldn't buy.
Yes – you can do your own homework, research the market and see what is the trend. If you don't mind losing 20-30% than you are lucky, you are free to do whatever you like.
I for myself didn't listen to the financial experts in March 2000 and pulled out all my investments from the stock market. It worked for me once so I will not listen to the real estate industry today and keep my money until things are showing signs of improvements.
Just my 2c.

[TuborgP]

And when the stock bubble broke it was not all stocks. Yes there was the over inflated dot com boom. Just as now there is Las Vegas, California, Miami etc. There were stocks that rose while most fell. Do you really think every real estate market is a bubble to burst? Yes the post about housing cost to income is very accurate and appropriate. Just as P/E was relevant back then. Internet stocks were not valued correctly and fell. Some housing markets here will also. There are only so many who can afford at the higher price points. Builders will build at price points that worksand not build as many. Equilibrium will be restored in the Triangle as this market never got to far out of whack. Hmmmm maybe I don't need all brick? Not all 400K houses are the same in all neighborhoods. Buy and just be aware of VALUATIONSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS

[VickiR]

As an agent, I must admit that I don't read most of what is written about figures and facts. First of all, when you start quoting the "medium prices", that doesn't help ME, at all. When I list a house and check the comps, I prefer to use only go by what is being sold in that neighborhood and what is currently listed IN THAT NEIGHBORHOOD. I can TELL my sellers that houses are selling between $325,000 and $350,000 but $25,000 difference is way to much difference when they price the house. So, I have to really narrow down the comps to find the house most similar to the house that I'm pricing.

Therefore, I can then tell my sellers that the house should sell between $335,000 to $345,000 and allow them to price. This makes so much more sense that giving out such broad numbers. Thats what I find wrong with all the so called statistics.

So when anyone pulls the statistics, I don't believe it tells the true story. How can you pull ALL statistics for North Raleigh and get a correct answer? Its impossible. Which is why most sellers call a Realtor to do what APPEARS to be simple but really is not. No, I am NOT advertising but trying to simplify this so that everyone understands how simple this really is!

For those buyers that purchased a year ago, based on what you paid, you most likely will not make any money if you were to sell NOW. However, most people are not looking to buy and sell within a year, unless you are an investor. Investors take risks. Most buyers are looking to buy a home. Big difference.

Numbers just don't tell the entire story and thats just a fact that I put out there because I know this market. I have buyers and sellers EVERY DAY. I'm out there. I am not just reading and believeing what I'm reading. Based on what Mike and Debbie are seeing, I'd bet they totally understand what I'm saying and would agree with it.

I say this...if you believe its not a good time for YOU to buy, don't buy. If you believe its not a good time for YOU to sell, don't sell.

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>>>>>>>>> stepping down from the soapbox now...Vicki

[travelmate38]

Another factor many here are overlooking is price for the actual house you get. I understand the analogy behind, "location, location, location", BUT... in Wake you still get a decently built and sized home with some space for $200-$350. In many of the other areas mentioned, I.E. So. California, Boston, etc, you can't buy a dog house for these prices. A studio condo starts in this range. I know, not all markets are equal, but the point is, we still get a big bang for our buck in the greater Wake county compared to many of these markets that that had huge 10-25% appreciation rate for a decade, causing the "huge correction" numbers we see.

I honestly, whole heartedly believe, the market in places like Wake Forest and Cary are going to hold true for median priced homes. Sure, we will see a mild drop on the higher end and perhaps those homes under $180. There are just waaaaaay too many folks from all across America wanting to reside here for there to be a huge drastic, "board em up" type crash. I see the biggest difference being 2-3 months to sell the average fairly priced home, versus 2-3 weeks we saw last year. Prices will remain, then continue their climb in 2-3 years. I'll bet the farm on it!

[rnc2mbfl]

Another thing to consider is that houses have been getting bigger over the last several decades. Luxury features have also been a recent phenom. The price for increased size and more luxury is going to be higher. Also, mortgage rates have been much lower over the last several years than they have been "historically". This has allowed people to afford more house than they did when rates were between 8% and 10% like they used to be in the 80's
I have to laugh at the concern over "3.4". Most cities with similar economies would LOVE to have that metric. In fact, many cities with horrible economies would love to have that metric.
For those who speak of gloom and doom, may I suggest you go look at metros with real problems in their markets like Miami, Detroit, San Diego, Las Vegas, etc. But, then again, the cynical person inside tells me that those who speak of gloom and doom are really just opportunists who want to profit locally from the national hysteria....sort of like those who continue to short good companies in the stock market because the "sheep" that make up the masses of small time investors are kept in perpetual fear.

[meimei88]

Thank you KCfromNC! I'm a buyer. Your data helps me understand the big picture.

[KCfromNC]

Originally Posted by rnc2mbfl

Another thing to consider is that houses have been getting bigger over the last several decades. Luxury features have also been a recent phenom. The price for increased size and more luxury is going to be higher.

I don't see what this has to do with anything. It's not like builders suddenly started building nice houses in 2005 when everything built in 2004 and before was bare bones. Whatever the reason for the increase in prices, be it luxury, increased costs of land and supplies, builder greed, whatever - it doesn't change the fact that house prices have gone up way quicker than incomes over the past 2 years.

Also, mortgage rates have been much lower over the last several years than they have been "historically". This has allowed people to afford more house than they did when rates were between 8% and 10% like they used to be in the 80's

Rates in 2001-2004 weren't in the 8 to 10% range, and yet somehow the price to income ratio didn't go crazy then. In fact, rates in 2003-2004 were better than those in 2006-2007, and yet the affordability went outside of historical norms in 2006-2007 but not in 2003-2004. I don't think there's any correlation here.

I have to laugh at the concern over "3.4". Most cities with similar economies would LOVE to have that metric. In fact, many cities with horrible economies would love to have that metric.

Austin, TX is 2.7
Atlanta, GA is 2.6

Is RDU inherently better than either of these as far as job opportunities go?

What's made RDU inherently more valuable in 2006 compared to 2004, economically? I'd think if anything the dot com boom of the late 90's would have driven up prices if your argument holds. The data shows differently, though - housing actually got slightly more affordable from 1997 through 2000. Again, I don't think your answer explains anything here either.

For those who speak of gloom and doom, may I suggest you go look at metros with real problems in their markets like Miami, Detroit, San Diego, Las Vegas, etc. But, then again, the cynical person inside tells me that those who speak of gloom and doom are really just opportunists who want to profit locally from the national hysteria....sort of like those who continue to short good companies in the stock market because the "sheep" that make up the masses of small time investors are kept in perpetual fear.

Really? If you had some numbers that showed that this area was doing well, I'm sure you'd post it. You know as well as I do that data doesn't exist. We're certainly not as bad off as some of the worst bubble areas, but then again, no one's predicting 50-60% price reductions here either.

Any evidence people are faking data (including people from the Triangle MLS no less) for their personal economic gain?

[tbill]

All of this discussion is interesting, however which "side" has the correct answer to the initial question. No one can know for sure. My answer is I purchased a 4000 sq. foot home (closing is this week) and moving here from Illinois. We found the home that we want to retire to and "live in" for the balance of our lives. Maybe we got a "deal" or maybe we paid too much, no one will know for at least five years. I doesn't make any difference until it comes time to sell!
I know this well from our Illinois home. Nice home, but we spent many dollars for additional upgrades, (new kitchen, pool with pool house, high end landscaping) and each time I knew we would not recover the cost because we live in a rural town of 3000. The banker across the street build a $875,000 home ten years ago, it sold two weeks ago for $275,000, because no one can afford it in this area. However, both he and I enjoyed our homes. At least your area has new people moving in with jobs, etc.

[rnc2mbfl]

From a financial website regarding mortgages:

"Figuring My Own Rule of Thumb
Let’s take $50,000 in gross annual income. Let’s spend 30% of that income on housing. This is within most lending ratios including the government’s Fannie Mae. 30% of $50,000/12 = $4167 is $1,250 per month. Housing costs include insurance and taxes, so let’s back out $200. That leaves us with $1,050.

For a 30-year fixed mortgage with a rate of 6.25%, a monthly payment of $1,050 roughly equates to a loan amount of $170,000. If you had a 20% downpayment, that would be a $212,500 total house value. So with these numbers, that’s about 3.4-4.25 times gross annual income. Taking a very rough estimate of this to get a rule o’ thumb, you get 4 times your gross annual income."

The Triangle is one solidly balanced RE market and has NEVER been a market to respond to wild euphoria. BTW, the 3.4 metric used in the example above would represent what one might afford with Zero down payment. Regarding the home prices in the last few years, I still contend that the emergence of luxury products (upscale condos, renovated older homes, teardowns, high end infill projects) that have typically higher price points ARE a very recent phenomenon in Raleigh and are accelerating as the City and the Metro grows. These properties are driving the average prices up. Likewise, people are willing to spend more for the old first ring of the city's suburban development as the decision to buy a house is incresingly influenced by traffic and other quality of life issues as the city expands. These ARE very recent developments in our housing market. Just look at the cost of housing in places like North Hills, Quail Hollow, Lakemont, etc. These neighborhoods have escalated tremendously over the last 5 years alone as the designation of "Midtown" came into the public consciousness. Also, look at downtown. "Luxury" condos with granite kitchens, pools, garage parking, etc. are once again a very recent phenomenon. They simply didn't exist 5 years ago. Teardowns galore are happening all over the older parts of the city to replace smaller homes and even old apartment complexes. These all come with a premium price tag.
However, prices have NOT uniformly increased across the city. There are many areas of the city that have seen typically modest price increases in the last few years. A person living in a far flung starter home community isn't typically seeing 20% value increase in 2 years. I know. My brother lives in one of those homes and his house value has only modestly increased since he moved into it 4 years ago. In fact, if he were to sell it today, he'd barely recoup his downpayment after paying a realtor fee and moving expenses.
However, those that are living in the "it" places are seeing values increase much more rapidly as the market demands drive the prices. For those areas to decrease in price will require the demand to subside. If it does, the prices will moderate. If it doesn't, don't hold your breath for a free fall in prices.
Regarding Austin and Atlanta, they are but two markets in the nation. Many economically comparable markets to the Triangle (San Jose, Boston, NJ, DC) have metrics much higher and way out of whack with affordability. They have their own market pressures and issues.