In local real estate markets all across the United States, the average listing price for homes are soaring, with the supply of homes coming on the market at historic lows, as low mortgage interest rates continue to increase the purchasing power for potential buyers.

Many owners are finding themselves in a predicament about whether to stay put in their homes, or compete in the scorching real estate market to realize the gains from the increasing equity in their homes and purchasing anew before mortgage rates increase from their historic lows.

With property taxes likely to increase due to recent shortfalls in county and municipal governments due to the coronavirus pandemic, and the recent revaluation from the tax authorities in places such as Wake County and Orange County, homeowners are starting to feel the squeeze.

But who’s feeling squeezed the most, by these dramatic changes in the housing markets across the state?

It could be renters, who may not be able to compete with rising home prices and increasing competition from relocating movers while simultaneously facing double-digit increases in monthly rental rates, resulting in few affordable housing options, no matter where they’re seeking to reside in North Carolina, finds a new study.

One measure of how hot a real estate market is becoming is the entrance of nationally-focused, tech-enabled real estate companies, including iBuyers, as they measure up to 40 different metrics prior to entering markets where the average home sale price is increasing, yet still within the target range where the median household income still supports a purchase price for the average home.

Across North Carolina, real estate markets are heating up

Take for instance, that two of the five hottest real estate markets in the entire country are in North Carolina, and they’re likely not the first ones you’d guess.  Neither is the third North Carolinian city that falls in the top 10 hottest markets in the country.

They’re Jacksonville, N.C., and Fayetteville, N.C., according to data released this week by the National Association of Realtors (NAR), which uses the ratio of pending sales to active listings as one measure of estimating where demand is highest, and thus local markets where home prices may increase due to demand outpacing the supply, or inventory, of homes.

Jacksonville, N.C., and Fayetteville, N.C., have pending-to-supply ratios of 5:1 and 4.6:1, respectively.

Greenville, N.C., with a ratio of 3.8, ranks in the top 10 as well.

According to the National Association of Realtors, any ratio above 1 means that on any given day in the local market, demand is higher than available supply, which is also the case for the Greensboro-High Point market, with a ratio of 3.8, and Winston-Salem, which measures 2.6.  Other markets like Burlington (2.0), Goldsboro (2.0), and New Bern (1.9) are seeing demand outpace supply.

The ratio in the Charlotte-Concord-Gastonia market is 1.7, in Raleigh, it is 1.5, in Asheville, 1.3, and in Durham-Chapel Hill, 1.2.

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Other measures to establish whether a real estate market is hot, heating up, or scorching, includes how quickly the average or median listing price is increasing.

“Prices are the best indicator of demand and supply fundamentals,” the study reads.  Nationwide, the National Association of Realtors finds that there is a shortage of 2.4 million homes in order to reach the target of a stable real estate market, where there is six months of supply of inventory available, the lowest point since 1982.

Take the Charlotte market, where the median list price has increased by 18.3 percent year-over-year, while the change in active listings has decreased by 62.6 percent.

In Raleigh, the median listing price is 12 percent higher than the prior year and active listings have decreased by 70.3 percent, and in Durham, median list price has increased by 14.5 percent and active listings are down 60.4 percent.


Homeowners may see increase in property taxes

As home sale prices have risen in recent years, many counties across North Carolina completed their statutory requirement to reassess the taxable value of real property, which must occur at least once every eight years. Statewide, some property owners, particularly in the state’s hottest real estate markets, are seeing dramatic increases in the assessed value of their property, in part because the prior reassessment period came in 2010, 2011, 2012, or 2013, during the slow housing recovery following the Great Recession when home prices crashed, then made modest gains, though they may look minuscule by today’s year-over-year growth metrics.

According to a report released earlier this week by ATTOM Data Solutions, which tracked and analyzed property taxes for almost 87 million U.S.-based single family homes, local counties and municipalities generated $323 billion in ad valorem tax revenue in 2020, an increase of 5.4 percent compared to the data from 2019.

On average, American homeowners–the data only tracked the county’s nearly 87 million single family homes–paid $3,719 in property taxes in 2020, up 4.4 percent from the average a year prior.  But the effective tax rate actually decreased for single family home owners, from 1.14 percent in 2019 to just 1.1 percent in 2020.

“While reappraisals generally do not lead to an increase in taxes for any one class of properties, like homeowners, a reappraisal does update the property assessments used to set property taxes,” said Todd Teta, Chief Product Officer at ATTOM Data Solutions in an interview with WRAL TechWire.  “The key drivers of tax increases are associated with the rising costs of running governments and schools or declining tax bases, not necessarily reappraisals.”

From an absolute position, homeowners may be seeing the price of real estate taxes increase, the study found, but due to increasing estimated market value of property, the effective tax rate decreased relative to a property’s value in some markets.

In Raleigh, for example, the average property tax bill due on a single family residence within the city limits was $2,890, up from an average tax bill of $2,633 in the prior year, according to the data from ATTOM Data Solutions.

For Wake County, which conducted its most recent reappraisal with an effective date of January 1, 2020, ATTOM Data Solutions found that property owner’s effective tax rate was just .87%, lower than the national average, despite homeowners, on average, paying 9.7% more in property taxes. The effective tax rate in Wake County was .81%, found ATTOM Data Solutions.

The difference in effective tax rates is just .06 percentage points, in part because the average estimated home value for single family homes in Wake County is $355,499, up from the firm’s estimated average in 2019 of $343,323.  Looking at another measure, across all residential property in Wake County, the average sale price of a residence increased from $361,789 in 2019 to $400,235 in 2020, according to December 2020 data from the Triangle Multiple Listing Service, or an increase of 10.6 percent year-over-year.

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“Reappraisals are important because they help ensure that all properties are valued and taxed equitably,” reads the Wake County Department of Tax Administration website regarding real estate reappraisal.  “The process also provides a basis for determining an owner’s share of services funded by property taxes including: education, law enforcement and emergency medical services, health and human services, environmental services and community services.”

The amount of taxes that a homeowner pays depends on the property’s assessed value, which in North Carolina, according to NCGS 105-286, must be completed by the county taxing authority at least once every eight years (Wake County conducts reassessments every four years) using a rigorous approach that includes a schedule of values (Wake County’s is here), and the tax rate set each year by elected officials in the county and in the municipality in which the property resides.

“When assessments are reset, they are typically increased to reflect current market values,” said Teta.  “But tax rates can also decrease to reflect the increased assessments.”

When it comes to property taxation, in North Carolina, owners of real estate are taxed according to the fair market value as measured in the octennial reassessment.  Wake County will next reassess in 2023, with an effective date of Jan. 1, 2024.

Orange County, on the other hand, just completed the 2021 revaluation, and home owners in the region, which includes Chapel Hill, will be receiving their property value notice soon, as they were mailed on March 31, 2021.

Some may see an increase in reappraised value, said Teta, but others may end up seeing little or no change.

“What usually happens after a reappraisal is that some property owners’ taxes increase, while others decrease, and some remain the same,” said Teta. “That happens because reappraisals attempt to smooth out inequities in assessments that can build up over time between different neighborhoods, which temporarily results in some property owners overpaying and some underpaying.”


Renters are feeling the squeeze, and it may continue

Rising home valuations, particularly in Orange County, given that 2021 is the year of the revaluation, might further exacerbate housing affordability in Chapel Hill and across the county, particularly for renters, who’ve already seen a year-over-year increase in rental rates of 21%, according to a new study from Zumper.

Residents may not have much luck seeking housing in neighboring counties, either, said Neil Gerstein, the Zumper analyst who authored the report and a corresponding blog post, in an interview with WRAL TechWire.

That’s because Durham County ranked second in the data set with a year-over-year rent increase of 29 percent.  In Durham, the median household income is $65,317, and the average monthly rental price is $1,287.

“North Carolina has experienced quite robust rent growth from a year ago prior to the pandemic,” said Gerstein.  “The Triangle region of the state contains some of the higher growth rates we’ve seen at the county level, particularly in Durham and Orange Counties.”

The Zumper data has similar findings to an October study from Apartment Guide, which found that during the first six months of the pandemic, Durham saw the highest percentage increase, of 34 percent.

In other words, the average renter making the median household income in Durham County would spend nearly 24 percent of their gross income on housing, before income taxes or any other payroll deductions are taken out of their paycheck.

In the first seven months after the onset of the global coronavirus pandemic, between March and October 2020, Durham County had a net migration gain of about 900 people when directly compared with Wake County, according to Nadia Evangelou, an economist with the National Association of Realtors.  That migration data mirrors a trend observed from home buyers and from renters during the pandemic, which Gerstein calls the “neighboring cities effect,” where people often chose to move away from urban centers and into suburban counties.

“Rent growth tended to be larger in higher income counties within North Carolina, but the significant growth has undoubtedly made renting less affordable for many North Carolinians,” said Gerstein, especially as average wages and income is lower in North Carolina compared to other states and regions.  “Growth doesn’t appear to be waning at this point, like it is in other parts of the country, so this unaffordability could last for a while,” he said.

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Nationwide, renters who are also in low-income households are feeling the squeeze, as housing has become yet another facet in which the coronavirus has disproportionately harmed lower-income Americans, said Gerstein.  The latest Household Pulse Survey found that 20% of households earning less than $30,000 were behind on rent payments, while only 12% of households earning more than $30,000 were feeling the same squeeze.  In total, an estimated $33 billion is owed in back rent by about 6 million households as of March 2021, found Moody’s Analytics, an average of about $5,300 per household.

That could mean the country is approaching an eviction crisis, despite the recently passed American Rescue Plan that contains $21.6 billion to help cover back rent and utilities, though approximately $11 billion–and growing–in back rent would persist, said Gerstein, even after federal assistance to renters.

Nationwide, Gerstein found that the more expensive a city’s pre-pandemic rent was, the more likely it was to decrease, but the cheaper a region was pre-pandemic, the more likely it was to increase.  As more Americans receive vaccinations, and companies weigh if and how to return workers to office locations, Gerstein expects stabilization in rent increases.

There might even be some reversal of the trends Gerstein measured and analyzed, particularly the fluctuations in rental rates from urban, dense city centers, like Charlotte, into suburban cities and counties, like Gaston County, during the onset of and the aftermath of the coronavirus pandemic, where the neighboring cities effect was a likely contributor to the year-over-year rent growth of 23.5%.  In Gaston County, the the average monthly rental rate for a one-bedroom is now $1,105, and the 23.5% increase ranked seventh for all counties with more than 100,000 people.

“North Carolina markets saw a lot of growth likely due to an influx of renters leaving more expensive areas, so it has a lot of tailwind growth,” he said.  “Additionally, we see markets in this part of the country healing up in recent months, so those tailwinds could propel prices to grow even more in North Carolina in the coming months.”

That could mean that renters interested in leasing a new rental in Charlotte, particularly near the city center, may be able to find a deal, relative to prior years.  And, for Charlotte residents, there’s another silver lining in data from ATTOM Data Solutions, as wages are rising faster than rents in Mecklenburg County.

But maybe not for long, said Gerstein.  “North Carolina markets could go the way of other markets that grew a lot in the pandemic and wane in the future,” he said.  “We don’t expect prices to snap back to where they were pre-pandemic right away, so the effect these price changes had on housing affordability will likely be felt into the medium and perhaps distant future.