My best friend from college is an accomplished, beloved, and skilled (National Board certified!) high school English & journalism teacher. She’s done everything she was supposed to do; she started working after school at a Christian bookstore at 16 years old, saved her earnings, refrained from going out and spending wildly, etc., because she knew that if she wanted to experience financial stability in her twenties, like buying her first home, that’s how early she needed to start.
Now we’re in our twenties and she’s ready to buy a house and move out of her apartment. She has an elderly cat and a young German Shepherd - all they need is a small place in Hillsborough or Durham with enough outdoor space for the puppy. She’s done everything right. She has a healthy down payment, a great credit score, and a practical mindset.
But it’s the summer of 2021; every time we speak, we talk about the overwhelming anxiety that comes with watching every home in her price range sell five figures above asking price with due diligence checks that make her reasonable 10% down look like pennies.
When she sent me this TikTok video and asked, excitedly, “is this &%!^ing true??” I knew this phenomenon was starting to turn some heads and would be worth discussing. Yes, it’s true: some 40% of Americans missed their mortgage payment in April 2021. 25% have missed more than one payment since the start of the year.
What Does This Mean?
This post is for those in the fortunate position of being poised to take financial advantage of the nation’s economic recovery through real estate investment. If you are in the 40% missing their housing payments, I say this with all sincerity: my heart goes out to you, and I hope you are able to get back on track soon.
If, like me, you’re looking for the highest-return and lowest-risk investment opportunities, you need to be paying attention to federal mortgage forbearance. An overview of COVID-19 hardship forbearance can be found here. In short: HUD/FHA, USDA, or VA borrowers must apply for initial forbearance no later than June 30, 2021, and Fannie Mae/Freddie Mac borrowers do not currently have an application deadline. Initial forbearance can be 3-6 months, with the option to apply to extend to 12 months.
Forbearance means foreclosure proceedings cannot begin on defaulting borrowers until their forbearance, or grace, period expires. At the end of their grace period, borrowers are responsible for paying all missed payments, regardless of the state of their finances at this time. With 40% of people having missed one payment and 25% missing more than one, millions of Americans will soon be staring down the intimidating and stressful process of being foreclosed upon by their banks for nonpayment.
Standup comedian John Mulaney described having a mortgage in the best and most succinct way I’ve seen to date: “A bank bought a house, and I get to keep my shirts and pants there while I pay it off for 30 years.” If you stop paying it off, the bank no longer permits you to keep your shirts and pants there.
With residential housing in the Raleigh-Durham areas being in such high demand with relatively low supply, the resumption of foreclosure will forcibly liquidate housing supply that was previously held up by mortgage relief. Not only will we have more houses available for purchase, but their sale price is going to be lower than what it would be if the owners sold in a traditional re-sale transaction. The bank will try to recoup as much of its losses as possible rather than be concerned with riding the wave of increased housing prices.
The foreclosure market in Raleigh-Durham is going to take off as homeowners gradually lose the federal government’s support in keeping the lenders at bay. It will be a crapshoot whether or not these homes are in good shape or not; regardless, they will be the answers to many prayers said by frustrated home buyers.
What About the Bubble?
It's not a bubble. It's supply and demand.
In 2008, the real estate market crashed after a housing bubble popped. Mortgage lenders were lending obscene amounts of money to underqualified people who quickly turned around and defaulted on the loan they had to stretch to get in order to purchase an overpriced home. Money was too cheap and houses were overpriced to keep up, thus creating an artificial bubble.
Since 2020, the price of a certain type of house (suburban, single-family & townhomes, to be brief) has skyrocketed. My townhome in North Raleigh was worth $190,000 in 2019. Now, identical models across the street are selling for $250,000 (closed March 2021). That home was listed at a reasonable price of $220,000 and someone chose to pay $30,000 more. They didn’t have any certainty that their lender (if they used one) would agree the house was worth $250,000 and finance the whole purchase since the house wasn’t priced that high.
It’s Economics 101: with fewer desirable houses available, those that are will sell for more money because there are more people competing to buy it. One of my own listings on the Raleigh/Cary border went under contract for almost 120% of list price after a bidding war between sight-unseen buyers. I didn’t have time to have any showings or an open house before my seller accepted a very compelling offer; competition is that fierce. Just look on Zillow for recently closed sales in any suburban neighborhood in Raleigh, Cary, or Apex. I’ll bet you dollars to donuts at least 75% of nearby 2021 sales closed over the asking price.
Increased liquidity in housing supply will not burst a market bubble, because there isn’t one to burst. Increased liquidity will relieve pressure on and lessen competition & demand for these desirable suburban homes.
Buyer’s agents will, more than likely, rejoice. We will pray to the real estate gods for relief from having to have the same conversation - “Your offer was rejected in favor of someone willing to pay $60,000 more” - with increasingly discouraged bustomers. Listing agents may even have to start actively marketing their listings again soon.
Hang in there. This housing market insanity will not last forever. Just keep an eye out for an increase in foreclosure listings near you, and watch the news for information on the federal mortgage forbearance programs.
When I earned my real estate license in October 2019, I went into this business not really knowing what the day-to-day of a real estate agent looked like. I saw a few friends who had real estate licenses posting on social media about showings on beautiful, sunny days, the excitement of writing offers, etc., but what they did on a daily, mundane basis I had no idea.
I knew I didn’t want to be a “churn & burn” agent who, in overly simplified terms, works in quantity over quality. They know just enough about the market to price accurately and move a lot of inventory. Nor did I want to turn into a data-mining recluse who scared people off with too many numbers and not enough people skills. They warned us about both ends of the spectrum in new agent training.
I had just under 4 months in real estate before COVID-19 came in and upended everything. The more experienced agents I was working with took the changes much harder than I did - the established models of practice they were comfortable with had been changed, but I wasn’t even comfortable enough with those models yet to be upset when they were taken away.
In the immediate aftermath of the pandemic’s beginning, I found myself staring at a lot of maps. Raleigh and Durham are my primary areas of operation, so I watched those cities like a hawk to see what new trends were emerging as the “Great Reshuffling” of 2020 began. Checking my MLS for recent activity became as habitual as checking Instagram in the morning; I wanted to see where homes were selling quickly, which areas were increasing in price and popularity, and which areas were being deserted.
Now, just after COVID-19’s birthday, what was at first thought to be temporary trends in housing desirability are the new normal. Residents want pandemic-friendly housing with space both inside and outside the home for every member of the family to learn, work, and/or play. The best places to live in Raleigh now are not what they were before 2020. These supposedly temporary trends have become permanent.
I-540 is the New Beltline
Ever since I was a kid growing up in Apex, I-440, aka the Beltline, was the major highway everyone took when they needed to go somewhere important. As the belt surrounding downtown Raleigh, it denoted where the white flight suburbs on the outside of the loop ended and soon-to-be-gentrified urban Raleigh began. Which side of the Beltline you lived on was illustrative of what type of housing you lived in, what community amenities you had at your disposal, quality of your schools, and more.
When I-540, another concentric circle of highway, was built, living near 540 became the new hot places to be (unless you lived near the toll section; people were pissed about that). New home construction near the road popped up in droves; whether it was the luxury townhomes of 540 Townes or single-family White Oak Estates, people wanted to live near this new piece of infrastructure. As it was then, living near a major highway that encircles Raleigh and its surrounding cities is still a huge priority for many current buyers.
At the time, we called anything within the circle of 440 “inside the beltline.” Fonville Morisey even has an “ITB” office. Gentrification abounds. ITB was the place to be if you wanted the best of both worlds: prosperous Southern urban living funded by RTP, and a lively downtown scene with young professionals shelling out double digits for a cocktail at the upscale bar & restaurant within the shortest walking distance from their remodeled home.
When the pandemic began, ITB lost its sparkle almost instantly. Living in a tiny apartment, congested townhome community, or historic neighborhood/street within walking distance to all of downtown’s amenities lost its appeal as soon as we lost those downtown amenities. News outlets across the country reported on the mass exoduses from downtown areas by those with the means to do so; people were afraid to live so closely stacked atop each other while a virus whose contagion relied on humans living atop each other was making the rounds. U-Haul truck rentals went up while apartment occupancy went down.
One year on, we can see where all those people wanted to settle. They wanted to move somewhere that would allow them the best of both worlds: nearby public amenities, like shopping centers, parks, schools, and hospitals, but also have sufficient space and privacy that they didn’t feel constantly exposed to contagion. Suburban townhomes and single-family homes became the best thing since sliced bread and the ballpoint pen. Whereas ITB homes used to hold that moniker, the desirability those homes used to boast has been shifted to homes in between 440 and 540. Any further north and you run the risk of losing easy highway access to Raleigh. I-540 is the new marker for where the best housing lies.
The reason this metaphor is of a donut and not, say, a biscuit, is because homes in the very core of the ITB region - downtown Raleigh - have become expressly undesirable. There are no single family or town homes in the downtown area that offer the same peace of mind and elbow room as the cake of the donut between 440 and 540. When defining the geographic region in and around the city of Raleigh in which people have flocked by the thousands, we have to punch a hole in the middle to represent from where they all left, as shown in this map:
This map is a screenshot from the Triangle Multiple Listing Service (TMLS) representing a saved geographic search for available housing within this area. I check this search weekly to keep an eye on inventory levels. In addition to the geographic restriction, the search is also limited to single-family and townhome listings.
As of today, 29 March, there are a total of 227 Active or Coming Soon listings in the donut, with 1,649 closings in the last 90 days for an average of 18 home sales a day. If we look as far back as the approximate start of the pandemic, 15 March 2020, total closed sales amount to 9,516. That’s an overall average of 26 closings a day for this area.
For reference, if we expand to include all of Raleigh and its surrounding suburban cities, not just the donut, there have been a total of 23,088 closings since 15 March 2020. This is an average of 63 closings a day.
What Does This Mean for You?
In short, this means that you now have a visual representation of the physical location of the hottest housing market Raleigh has seen in a very long time. Durham residents: don’t worry. You have a donut too, and I will be mapping it. Real estate brokers across the Triangle all have stories about how limited supply and increased demand have frustrated their buyers and delighted** their sellers.
You can also use this data to enjoy the benefits of market awareness. If you already live within the donut, take a look around your subdivision and see what price other homes near you have listed and sold for. A home in my partner’s neighborhood recently sold for $400,000 after listing at $360,000. All depending on your location and condition of your home, of course, but you may be pleasantly surprised by your home’s new market value.
If you want to move inside the donut, I wish you the best of luck. If you need an agent to help you do it, I know who you should call :). 17% of home purchases in the Triangle were financed as all cash in January & February of 2021; the highest percentage I’ve seen since October 2019. Many of my first-time (read: financed) home buyers have experienced disappointment after disappointment because the homes they offer to purchase are snatched up by an all-cash, quick-close buyer. The lack of a lender, whose reputation precedes them as a persnickety and mercurial bunch, helps these cash buyers win out almost every time.
It is possible to relocate within the donut with a mortgage. Don’t let my attempts to temper expectations completely turn you off from trying to purchase. If you speak with anyone who’s been involved in a real estate transaction in the last decade or so, be it as an agent or a consumer, they can tell you that today’s buyers have to have a thicker skin than yesterday’s buyers (that is, those who purchased before the pandemic). Brace yourself for the intensity of multiple offer situations, and try to keep from falling in love with “the one” before you get under contract and are into your due diligence period.
If you are considering participating as a real estate consumer (buyer or seller), it would behoove you to keep an eye on the donut to know where you can afford to buy and/or how much you should expect to sell for. If you are a real estate professional, it would behoove you to be aware of the donut so you can appropriately guide and coach your clients through the intricacies, stressful moments, and minutiae of doing business in this kind of heated market. Regardless of the degree of your involvement in Raleigh real estate, it will behoove you to be aware of the Raleigh Donut. It is not going anywhere anytime soon.
**Not every seller has been delighted since selling in the pandemic. Limited supply has not pushed us to the point where any house can be sold in any condition for a high price. Those who banked on selling at A+ price while in B- condition are, in fact, the opposite of delighted with how their sale went.
I had a fun conversation over text with a family member the other night. After reading “Where Have All the Houses Gone?” from the New York Times, they asked me: “Should I be buying rental properties?” Of course, I said yes! Absolutely you should be taking advantage of the real estate market! Whether that entails buying properties to rent or embracing a flipping model is up to the individual. There are pros and cons to each.
I’ll start with an aphorism: cash is king. Cash has always been king in real estate: ask any agent what their ideal offer looks like and they will all say “CASH!” Cash offers can close whenever and don’t have to deal with lenders, who can be moody and mercurial. Everyone prefers to work in cash whenever possible. If you are liquid enough to put some of your money into houses, now is the time to do so.
"All listings with at least one price drop from original sold in an average of 88 days at 96% of asking price. "
This is a quote from January’s TARR Report, one of my sources for local market data, and the primary basis for my monthly market review videos. Keep in mind that this includes the entire TMLS, which reaches out to places like Johnston County and Efland.
Non-pandemic-friendly housing aside, this is illustrative of the fact that pricing still needs to be strategic. I’ve heard rumors that pandemic-friendly housing is heading towards such a high demand where sellers can sell in any condition and ask top dollar as if it were new and modernized. We aren’t there yet. Agents still have to price competitively and appropriately for the condition, location, and type of housing they’re selling.
“Resale listings with no price drop sold in an average of 16 days at 101% of asking price.”
This is the meat and potatoes of what matters to you, a potential local real estate investor. Properties with price drops aren’t single-family or town- homes in the suburbs. Single-family or town- homes in the suburbs are these resale listings. I’ll bet you dollars to donuts that the only reason that “days on market” count is 16 is because of the luxury portfolio homes ($750,000 and up) that take so long to negotiate contracts.
ITB has become a donut hole in my mind. I wouldn’t take a listing in downtown Raleigh if they paid me. As a real estate professional, I do not want to take on the futile effort of trying to sell housing in a high-density area while a virus that thrives on density is making the rounds. My time, as well as my customers’ time, is better spent focusing on properties that will improve folks’ quality of life and get them to a state of functionality in their lives.
This leads us to the "cake" of the donut; between 440 and 540. Based on the way consumers have been behaving in the past calendar year, this is what I’ve identified as the sweet spot for pandemic housing. All of those little blue bubbles represent houses that have easy access to both the Beltline and 540; local amenities; everything a consumer would need to raise, educate, and feed their children from home while working remotely themselves. This is where the money is.
Those bubbles represent houses meeting the following criteria:
Time for a throwback to high school algebra. This chart represents data on all those properties inside the donut. Along the top, we have the number of bedrooms and bathrooms; year built; how far over (or under) list price (LP) the sale price (SP) was. Days on Market, the listing price, listing price per square foot, and finally sales price per square foot. On the left, we’ve got rows for the average, minimum, maximum, and median values. Feel free to pause the video here and look more closely at the numbers.
First, I’d like to address the outliers. 114% over asking price represents a Cape Cod single-family resale listing in Stonehenge, a very hot area in North Raleigh off Creedmoor. They severely underpriced it to begin with given how beautiful and modern it is, and they got into quite the bidding war, thus driving the price significantly over asking.
138 Days on Market represents a 2018 custom built single-family in Apex that is within the disclosure radius for Shearon Harris and backs up to a road that is going to be widened soon. They had to be patient for a buyer willing to move into someone else’s idea of custom, as well as the potential headaches surrounding the property.
Lastly, 87% of asking price represents “a mountain retreat tucked away in Cary! No city taxes!” Which is all fine and good until you realize that it is on a well for water and a private septic tank for sewer, they left a weird tile kitchen countertop that was ugly even when it was trendy, and the place hasn’t been deep cleaned in a dog’s age.
Now, the good stuff. On average, properties inside the donut are selling for more than asking price. I really wish that 13% decrease in price wasn’t in there gumming up the works, because on the raw data sheet there are a lot of sales 1-6% over asking. A median single-digit days on market count is excellent; in addition to selling for a lot of money, these houses are moving fast. 3 days on market means they spent 2 days negotiating the bidding war.
There is no shortage of opportunities to make a great return on houses right now. The Brit’s colloquialism “safe as houses” has never been more accurate. Identifying properties within this suitable location as well as in a suitable condition for profit can provide quite a return over what your money would be doing for you in a market right now.
If you or anyone you know is curious about using their assets to both contribute to local inventory of pandemic-friendly housing and earn a comfortable return on their money, give them my number. Local, personal investors can go a long way to increase property values and quality of life for their neighbors in ways that big investors like Zillow can’t. Come be part of the solution with me.
Case studies available on request.
Welcome to 2021. I've found my first rumor of impending doom.
As Christopher Hitchens once wrote, “that which can be presented without evidence can be dismissed without evidence.” However, faithful readers, I would not do that to you. I am here to help you, with evidence, help you understand and counter claims made by the uneducated and fearful.
In his TARR Report for November 2020, author Stacey Anfidsen found that month end inventory for November 2020 had decreased by a staggering 51% from November 2019.
My mother-in-law’s neighbor hired a contractor to work on their house to get it ready for sale. When my partner went by to pull her trash cans in this morning, the contractor stopped him for a quick chat. Turns out an attorney this contractor works for has started sounding the alarm bells about an impending real estate market crash in 2021. After asking a couple pointed questions, my partner learned that this attorney is ringing the alarm because he’s been listening to others who say there just has to be a market crash at some point, right? Prices keep going up and everyone wants to buy.
This person is correct that everyone (in the hyperbolic sense) wants to buy right now. Just look at any of the articles I wrote earlier in 2020 to understand the factors driving those who are capable into the suburban home search. I will still stand by all conclusions made in those articles. There is no hotter commodity right now than housing that allows you to remain distanced from those outside your “quaran-team,” have the space and privacy to host multiple school and work video calls, and entertain both yourselves and others in a safe way.
Let’s put it all together. If this attorney and his friends think the housing market is going to crash, where is the evidence to support his conclusions? If we look at the conditions required to produce a crash, the data is not in his favor.
For a crash, supply needs to outpace demand. We need to have more houses on the market than we know what to do with. Anyone who has tried to buy a house in the last 10 months can tell you we are far from that point. For one of my half-dozen buyer clients, I’ve written 4 different offers at a minimum of 110% of asking price, with all other terms exactly what the sellers wanted, and I’ll probably write 4 more before we manage to get one accepted. There are too many cash buyers snatching up all the inventory - cash being a preferred financing method to sellers as there is no persnickety lender to pull the rug out at the last minute.
Not only do we have personal experiences of area agents to draw conclusions from, but we also have data. The aforementioned Stacey Anfidsen’s TARR reports are very informative. Two important metrics are month-end inventory and number of homes listed during the month. We will look at both of these going back to June 2020 (October unavailable).
That’s a lot of down arrows. Even in months when inventory increased a bit, like July and September, the month-end inventory still trended downwards. A continuous decrease in inventory tells us that there are still more people buying homes than selling them. If we were headed for a crash soon, the arrows would be pointing the opposite direction.
With more people wanting to buy homes than are available, I feel pretty confident saying that we are not yet looking at a market crash for Raleigh-Durham. This can certainly change in the next couple months, but what’s going to happen that would allow such a difference? Interest rates are going to remain low as the American economy continues to struggle against the impacts of COVID-19. The virus isn’t going away and, despite the availability of a vaccine that not everyone will take, there are variants popping up around the world. Only a matter of time before these variants get to the U.S. and we go back into some kind of lockdown like the U.K.
As glad as I am that this attorney has friends he trusts, I would caution him, and you, to look for corroborating data before spreading potentially unsupported information. More of y’all will need to have me sell your homes before we start worrying about a crash. I’m very happy about that, and I hope you are too.
Happy New Year!
News of a 94.1% effective vaccine from Moderna seeking emergency FDA approval for use against COVID-19 has put the taste of hope in even the most sour mouth. With this news potentially returning us towards something resembling “normal” and bringing some future predictions into focus, we can’t ignore the ways this past year has changed human society, just as we can’t ignore how a vaccine will impact the future. When it comes to housing, many such futurists are predicting a somewhat comforting trend: folks’ taste in their living situation is unlikely to shift too dramatically in the near future.
The Road So Far
For a more detailed exploration of how and why the pandemic has changed the way humans relate to the space they live in, both shared and individual, please take a few minutes to read through Digesting Architecture and A Suburban Renaissance so I don't repeat myself and bore you too much. In short, ever since the concept of a deadly miasma (i.e. tuberculosis in the late 19th century) returned to the public consciousness as COVID-19 spread, people have, in record numbers, sought housing with more privacy, fewer collective spaces, and increased ability to sequester themselves from the public. This “Great Reshuffling” is so significant that, in the Triangle alone, a record 85% of detached suburban housing listed for re-sale in Q3 of this year sold within the quarter. 77% of those homes sold in fewer than 30 days.
These figures are record-breaking in a lot of ways. Detached housing (“detached” in this context meaning a property that is not in direct physical contact with another, i.e single-family homes) is so highly valued that most available inventory is selling almost immediately once listed. This time last year, approximately 45% of homes listed in Wake County sold within the calendar month they were listed for sale; this year, approximately 90% sold within their same month. Single-family housing offers privacy, an ability to quarantine your family, and run both school and work from the same building. It’s unlikely we’ll see the importance of these things diminish anytime soon.
Money Money Money Money
On the 17th of November, CNN’s Julia Buckley published the report World’s most expensive cities to live in during Covid. She listed the top 10 as:
What do all these cities have in common? They are highly metropolitan with staggeringly dense populations and a very high cost for a “basket of 138 everyday items,” as Buckley measured. In the middle of a viral pandemic, these cities have the highest cost of living on the planet in tandem with a lot of people stacked on top of each other, essentially pushing their residents into one giant “superspreader” event all day, every day.
The good news for you, dear North Carolina resident, is that the Raleigh-Durham area has been relatively well isolated from these economic impacts. We also do not share the characteristics of these cities that make them so unpalatable. It’s rare that any of my posts have good news, I know, but bear with me.
Just as Raleigh-Durham withstood the Great Recession in 2008 well compared to the rest of the nation, we are weathering the economic impacts of COVID-19 relatively well. When the rest of the country is struggling to make mortgage payments, many of our residents are taking advantage of current mortgage rates & home prices to sell their home and upgrade to something better for the kids to log in to school from. Our downtown residents have, in large part, had the ability to move out from their cramped living quarters and retreat to a safer, more socially distanced residence. Cost of living is not so exorbitant that it prevented people from taking action to protect themselves when it became clear that downtown, crowded living was no longer safe.
Not only have we been poised to weather the economic storm well, but we are also predicted to keep our stability through the end of 2020 and into 2021. The tailwinds fueling folks’ preference and appetite for detached housing are not going anywhere; people from more expensive and congested areas like NYC and LA still need somewhere safe and affordable to go. Out of state buyers will still make up a significant portion of all market participants. In-state buyers with high borrowing power will still be searching for their ideal pandemic property, fueling the market with their sale of current and subsequent purchase of new property.
Anyone who has lived here for more than a few years knows that Raleigh-Durham is an attractive area to move. You need only measure the increasing traffic density on I-440 to confirm. As long as the airport flies, RTP needs workers, and Raleigh/Durham still offer great amenities and entertainment for residents, there are going to be transplants moving in. This bodes well for the Triangle’s economy, jobs market, and real estate alike! As always, I look forward to watching how this data shakes out over the next few months. I hope to soon be reporting that the Triangle maintains its affordability in tandem with the high quality of life and relative safety we now enjoy.