Recently I was having lunch in Raleigh with my oldest son, Andy, who is a freshman at NC State University. We were discussing his economics class and he commented that economics and the law of supply and demand seemed to be common sense. If you have a lot of something, and there isn’t demand for it, you can’t charge very much. In contrast, if you have high demand for a product, and there is a limited supply, you can charge more.
I agreed, but then added, “Sometimes there is an X Factor in the equation that holds prices down.” He asked “What the heck would that be?” So, I explained the X Factor that’s very present in the current Outer Banks real estate market.
For example, in 2012 the total dollar volume in residential sale was up 18% from 2011 and the number of closed units was up 21%. Given recent Outer Banks sales stats, that’s a great sign for the health of our market. Add the fact that current home inventory is the lowest it’s been since 2005, and it would appear our market is trending upward. Sales are up and supply is down, therefore prices should be going up, right?
But, this is not so on the Outer Banks. Prices have remained flat for the last two years. The X Factor in our market, and across the country, is the large inventory of distressed homes holding down resale prices. In 2012 Foreclosures and Short Sales accounted for 30% of all residential sales. Until that percentage drops to (or below) 10% they will continue to have an impact on real estate values.
Although distressed sales made up 30% of sales in 2012, the good news is the percentage was down significantly from 37% in 2011. This year’s sales forecast calls for stable pricing and an increase in 2013 transactions. If you need to sell, now is actually a good time to list your property, and if buying an Outer Banks beach home is on your bucket list, this is definitely the time to get in the game. Finally, there’s a light at the end of the tunnel for resort property owners and real estate investors.
“So,” Andy asked me, “How do you make the X factor go away?” After careful consideration, I asked if he remembered what his pitching coach said when they faced a big challenge. He always asked the team, “Do you know how you eat an elephant?” The answer … one bite at a time!