RALEIGH – Raleigh ranks near the top of a new study of the top real estate markets in the country conducted by the National Association of Realtors, ranking sixth out of 130 local markets analyzed across the United States.
The newly created Homebuilders’ Local Opportunity Index, or HLOI, is a real estate market index that was designed by the National Association of Realtors with the purpose of identifying the regions in the United States that provide the best short- and long-term opportunities for homebuilders to invest in constructing new homes.
Raleigh ranked sixth out of 130 local real estate markets, and Wilmington tied for fourth, according to the new index, known as the Homebuilders’ Local Opportunity Index, or HLOI.
Nadia Evangelou, a senior economist and the director of forecasting for the National Association of Realtors, told WRAL TechWire that the United States is facing an “urgent housing shortage.”
Evangelou noted that even though it is clear the country needs additional residential housing to meet demand, homebuilders continue to report increasing material and labor costs and other challenges that make it difficult to construct new homes at a pace to keep up with market demand.
That’s why the National Association of Realtors built the index, said Evangelou, to identify which regions in the country present the best short- and long-term opportunities for homebuilders to construct new homes.
In Raleigh, and in Wilmington, the underlying economic conditions are favorable to homebuilding, according to the index, said Evangelou.
Factors that greatly impacted how the two cities ranked in the index include a low inventory of homes, the relationship of new single-family home permits issued in the region compared to the rate of newly created jobs, a low forbearance rate, and low vacancy rates.
Another key factor: both regions are adding households, as “these areas have experienced migration gains in the first half of the year,” said Evangelou. “With more people moving in these areas, demand for housing will be strong.”
And the housing that is available in Raleigh and in Wilmington remains more affordable than other, similar housing options nationwide, said Evangelou, who noted that more than 40% of the millennial renters can afford to buy the typical home in Raleigh, an indicator that home buying demand is likely to remain high in the region.
Take as an example Knightdale Station, a new construction neighborhood announced earlier this week by homebuilder Toll Brothers, which will be located in Wake County along Business 64 with access to 540.
“There is a high demand for homeownership within the town of Knightdale and we are excited to announce this beautiful new community of single-family homes offered at an attractive price point to fit more home buyers’ needs,” said David E. Kelly, Division President of Toll Brothers in North Carolina in a statement announcing the 70-home project.
The company said in its statement that the new construction homes in Knightdale Station will start priced in the mid-$500,000s and will be luxury homes with 3,187-3,611 square feet, 4 or 5 bedrooms, 3.5 or 4.5 baths, and two- or three-car garages with “the very best of luxury living with top-of-the-line finishes, new modern floor plans, and meticulously-crafted details.”
Knightdale is an example of an area where development opportunity is high, as a “tertiary” Triangle market, as discussed by a panel of real estate developers at a virtual event earlier this month, defined by Matt Hohorst, vice president of ARCO Design/Build, as markets that were within a 40-minute commute of downtown Raleigh but outside of the city limits.
“In these areas there is high demand, low supply, less competition, more construction workers, and people can afford to buy the homes that they build,” said Evangelou. “This index combines all this valuable information in only one score.”
Each region in the index is ranked on a score of 1 to 100. A lower score on the index means the region is well-positioned for homebuilding opportunity. The top region in the country scored 11–Wilmington scored 13, and Raleigh scored 14.
Charlotte, which according to Evangelou shares some of the same market dynamics as Raleigh and Wilmington, ranked in a tie for 16th with a score of 23.
The study tracks 12 indicators and also uses proprietary data, said Evangelou, to compute the index, and those indicators are:
- months of supply of inventory,
- the ratio of single-family permits per new job created,
- the share of real estate investors, the forbearance rate,
- the vacancy rate,
- the share of construction workers in the market,
- year-over-year employment growth,
- average hourly wage for construction workers,
- the share of inbound migrations to the region for households and for businesses,
- qualifying income for housing, and
- the share of millennial renters who could qualify to purchase the average home in the market.
The index does not include any indicators of climate risk, said Evangelou.
“From the perspective of the private equity and institutional debt investors that finance large developers and projects, and the insurance providers—I can tell you that sustainability and climate risk, in particular, are a very real focus,” said Brad Ives, former Assistant Secretary for Natural Resources at the North Carolina Department of Environment and Natural Resources and former Chief Sustainability Officer for the University of North Carolina at Chapel Hill. Ives is now co-founder of Credo ESG Solutions. Ives co-wrote a column that appeared on WRAL TechWire earlier this week.
“Further, municipalities are beginning to be assessed, by investors and credit rating agencies, for their adaptation measures,” said Ives. “So, if builders, homeowners, and municipal leaders around the state know that concern for climate impacts is influencing investment and insurance strategy, they will realize that they should do the same to ensure the safety of homes, communities, and the resilience of their own investments.”
The September release of the index was the first analysis of the markets, and the index will be updated monthly, according to Evangelou.
The October index will incorporate the recent data on new home construction from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development which showed an increase in new construction for residential units in August 2021 compared to July 2021, said Evangelou.