Triangle home prices to contract - or this

Editor’s Note: Each Friday, WRAL TechWire takes a deep dive into the Triangle’s real estate markets, including new home sales, why a drop in sales doesn’t always mean a drop in prices, and the state of the rental market, the topics of this week’s reports. WRAL TechWire reporter Jason Parker, the author of the report and a licensed real estate agent in North Carolina, works with journalists from WRAL.com to track and present market data and report on how people are experiencing the region’s changing real estate markets. These special reports will use the category tag “Triangle Real Estate” or “Triangle Real Estate Market.”

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RALEIGH – A decrease in the total number of home sales does not necessarily mean that home sale prices are falling, too. And though the Triangle’s real estate market is showing some signs of seasonality returning to local markets, the future of the region’s housing market remains uncertain. But a new report finds that Raleigh homes remain overvalued, compared to historical averages.

Raleigh now ranks 12th in the United States for where homes are overvalued compared to expectations based on historical data. Johnson is a co-developer, along with Dr. Eli Beracha, a professor at FIU, of the monthly analysis, which was released on Thursday and tracked the July housing market in 100 metropolitan regions across the country.

“There’s a lot of people who want to move to Raleigh, and homes aren’t being built fast enough,” said Johnson. New home sales in Raleigh, too, were actually up in July 2022 compared to July 2021, a recent report from WRAL TechWire found, though by some other measures, new home sales have fallen. But that’s not because homes aren’t in demand.

And because housing is in such high demand in Raleigh, the average value, right now, in Raleigh, is $462,285, according to the report.

But the statistically-modeled, expected price is $297,000.

“That makes the premium, the percentage difference between the two 55.65 percent,” said Johnson, adding that premium is up slightly from last month, when the price premium was measured at 55.56%.

“Prices cannot deviate this far from their long-term pricing trend without some financial consequence,” said Johnson. “So either Raleigh prices will contract significantly and housing affordability issues will disappear, seemingly overnight.”

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That’s on the one hand. But on the other, the region’s affordability concerns could persist, said Johnson.

“Or, prices will not contract significantly, because of demand, because of supply issues, but then the region will be stuck with affordability issues for a prolonged period,” said Johnson.

“The reason that is so is that the incomes just wouldn’t adjust fast enough,” said Johnson. “Raleigh’s incomes just aren’t supporting current prices.”

Don’t expect prices to crater

Trends and data don’t mean that prices will crater anytime soon, even if home sales slow, which the latest available data shows has happened in the Triangle.

Across the Triangle, home sales dropped by 12.4% in July 2022 compared to the prior year, with 3,694 closed transactions throughout the 16-county region tracked by the Triangle Multiple Listing Service, TMLS. (But new home sales are increasing.)

That’s down from July 2021, when the region saw 4,216 closed sales.

And in Wake County, 1,722 homes sold in July 2022, down 13.4% from the prior year, when 1,988 home transactions occurred. Durham County saw an even larger decrease, as home sales fell to 445 in July 2022 compared to the prior year, when 552 homes sold, a drop of 19.4%.

Triangle home prices rose in July

Still, even though the number of homes sold decreased, prices increased.

“Supply and demand can change, such that prices don’t go down, even when the number of sales goes down,” said Ken Johnson, real estate economist at Florida Atlantic University.

“Consider during the winter, or during Christmas-time, there are less units being sold,” said Johnson. “But prices don’t go down.”

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There’s less supply, but there’s also less demand. “The price could easily stay the same,” said Johnson.

And, in the Triangle, prices are still higher than a year ago.

The latest month of data from TMLS shows that across the entire region, the median sale price rose 18.3% between July 2021 and July 2022. The median priced home in July 2022 was $420,000, according to TMLS, whereas, a year ago, the median priced home sold for $355,000.

And Wake County saw an even greater price appreciation, with the median sale price of real estate within the TMLS data set rising to $490,000 in July 2022 compared to $407,095 in July 2021. That’s an increase of 20.4% year-over-year.

During that time, particularly beginning earlier this spring, home affordability in the Triangle also plunged. The most recent report from TMLS showing that home affordability for Triangle buyers reached a new all-time low in July, even as there was some moderate relief from month-over-month price appreciation.