RALEIGH – The Raleigh real estate market saw the fourth-greatest increase in the country, according to a newly released report from a global provider of title insurance and risk solutions. And Charlotte’s real estate market ranked second for the percentage growth, year-over-year, the report concluded.
Mark Fleming, the chief economist at the First American Financial Corporation, which released the report, noted that the methodology used serves as a measure of housing affordability.
The report compares December 2021 to December 2020, and is known as the Real House Price Index, or PHPI, which measures price changes of single-family properties across the United States. The index adjusts for the impact of income and interest rate changes on consumer buying power, and found that nationally, the index increased 21.7% year-over-year.
But in Raleigh, the increase was greater—31.5%.
That change in real home prices, as measured in the index, was the fourth greatest change in terms of percentage in the United States.
Charlotte ranked second, with a percentage increase of 36%, according to the report.
“Even though household income increased 5% since December 2020 and boosted consumer house-buying power, it was not enough to offset the impact of higher mortgage rates and rising nominal prices on affordability,” said Fleming. “In the near term, affordability is likely to wane further, as mortgage rates are expected to continue to rise and the pace of house price appreciation exceeds gains in household income.”
A December report from the Wake County Board of Commissioners noted that one in four residents were struggling to find affordable places to live.
Triangle housing market: Demand at ‘all-time high’ but affordability at ‘all-time low’
Are existing owners ‘locked in’?
“When mortgage rates fall, a potential home buyer can buy the same amount of home for a lower monthly payment or buy more home for the same monthly payment,” said Fleming, noting that the nation has seen a 40-year “tailwind” with mortgage rates declining, resulting in purchasers of real estate buying a home at a given rate only to be able to sell, capture equity, and move into a higher-priced home when a lower mortgage rate could be secured.
“This long-run decline in mortgage rates has encouraged existing homeowners to move out and move up,” Fleming said. “Faster house price appreciation, modestly rising mortgage rates and record low levels of homes for sale have been the economic dynamics dominating the housing market during the second half 2021.”
Existing homeowners, including more than ever before in North Carolina, are equity-rich. But those owners of real property may also have secured “historically low fixed-rate mortgages,” said Fleming, noting that this could create a bit of a “lock-in effect” as mortgage rates rise.
Those who own property may choose to remain living in that property due to the lower interest rate and financing structure on the existing home compared to what they could qualify for in a new mortgage, with a new home purchase, is the logic behind the concept of the so-called lock-in effect. Mortgage rates have risen in recent weeks as the Federal Reserve continues to indicate that it may raise interest rates, as soon as March 2022. And prices continue to rise, as well, as demand remains at an “all-time high” while affordability remains at an “all-time low” in the Triangle, according to the executive director of Triangle Multiple Listing Service, TMLS.
Report: Number of Raleigh homes for sale down 50%, list prices up more than 9% in December
Inventory is low, too
“Additionally, the record low level of houses for sale makes it difficult to find a better, more attractive house to buy, so sellers – who are also prospective buyers – don’t sell for fear of not finding something to buy,” said Fleming. The Wake County real estate market, for example, is the fastest and priciest market on record, according to a recent report from the Wake County Register of Deeds.
The number of homes for sale was down 50% year-over-year in Raleigh, a January 2022 report found. There were only 1,270 new listings in Wake County in January 2022, according to the latest TMLS report.
“The good news is that builders have been breaking ground on more new homes, which may alleviate some of the supply crunch and encourage existing buyers to move,” said Fleming. Raleigh was ranked in the top six cities for homebuilding opportunity by a National Association of REALTORS analysis in September 2021.
According to the index, there was no region of the country that saw a decrease in real house prices year-over-year.
