Triangle Inventory, Midyear Update

Here are some more mid-year Raleigh-area real estate stats from Triangle MLS. Halfway through 2024 some major trends continue. Like most markets, inventory is so low that prices are still creeping up despite relatively high inflation and mortgage rates.

“Months of Inventory” is a popular metric since it provides a rare forward-looking guide to the market’s direction. At 1.8, both Wake County (including the city of Raleigh) and Durham County will run out of houses to sell in around 7 weeks if no new listings come on the market. There will be new listings of course, but the rate will not improve until more houses come on the market than are sold. This metric should be 4-6 months, so it must double or triple to return to historic norms.

Land costs go down as you drive away from Raleigh-Durham International Airport (RDU) so the picture improves somewhat. Lee, Harnett, Warren, Nash, and Franklin all have three or more months of inventory. Closer in, Orange, Chatham, Johnston, Alamance, and even Person and Granville have less than three months.


More on the pullback in the overall dollar volume later this week. *Halifax is an outlier because the sold data is so thin and can be excluded.

Triangle Housing: A Look at Affordability

What is Affordability? 

The special thing about Affordability is its variability since it’s a relative concept. After all, what a person can afford depends on perspective to some degree. Most guidelines advise aspirational homeowners to plan on allocating no more than 30% of their household income to housing. Spread across sixteen counties, each community, each development, indeed each family, have specific affordability results. The Triangle MLS (TMLS) dataset tells a story about affordability featuring both temporal and spatial variability expressed as an Index. This month TMLS is taking a look at 2024 Year to Date sales data, mortgage rates, and the latest Household Income estimates to update policymakers, lenders, builders, and the rest of the housing community on the latest affordability challenges. 

A housing affordability index (HAI) of 100 means that Median Household Income (MHI) is 100% of that necessary to afford a Median-Priced House at prevailing mortgage rates. 

Affordability is about three things: the buyer’s income, the cost of money, and the price of houses. These factors are tightly interconnected so that a smooth path up or down is possible, but it makes the choreography difficult. 

If the price of houses generally rises at the same rate as household income, the line stays level. As long as the price of money from the nice mortgage people remains within a moderate range, there are no hardships. But those three things, income, bank rates, and house prices do not always move together and sometimes they diverge. When that happens, well, pain happens, but to varying degrees so this post will review the current conditions of the counties around RTP and then take a look forward.

The scope of the chart below is all sixteen counties, Residential properties in all categories: Single Family Detached, Condo, and Townhomes looking back over twenty years. 

The two lines are the Housing Affordability Index (HAI), the bold line, and the 30-year Mortgage Rate, the dotted line. The rate is 69 for the 16-county area, so Median Household Income is 69% of the income necessary to qualify for a median-priced home financed by a traditional mortgage at prevailing rates. That rate was 147 in March 2020, the month the COVID pandemic began to materially impact the American economy. 

The inverse path of the mortgage line is striking. Find 2019 on the chart, it’s where the dotted line, the Mortgage Rate, starts to fall. The Federal Reserve in that year began a program to stimulate the economy by lowering rates. The result was a sharp rise in HAI followed by a slow climb to 140-150, indicating Median Income was 140% to 150% of the income necessary to qualify. In other words, more than enough for middle-income households. 

So it is unavoidable to resolve that, for the entire 16-county area, Housing Affordability is at an all time low. Compared to the month COVID started, March 2020, the index is down over 53%. From 147 to 69. Homes are half as affordable as they were four years ago and, notably, the index had never been below 100 until March 2022. The impact has been dramatic across all price ranges and all parts of the Triangle, less so the farther you get from the Central Business Districts, RDU, and RTP. 

Next, zooming in on Wake County, the submarket that includes Raleigh and dominates the 16-county region, is now 68, down over 50% from the pre-COVID economy when the index was 141. This closely tracks the market-wide stats since Wake County transactions 

Transactions in May 2024, to demonstrate the dominance of Wake County data in the 16-county data.

Next, Durham County over the same period demonstrated similar results. 68, down from 135 pre-COVID. 

Orange and Chatham Counties combined dropped by the same percentage as the other counties but were already less affordable than the other counties pre-COVID at 105. May 2024 has come to rest at a level lower than any in the Metro area: 53 out of 100. 

Johnston County is more affordable at 71. Down the same percentage as the others since pre-COVID.  

Alamance County, below, also at 68, down the same percentage as the others. 

Our Mortgage friends say that most first-time buyers have to “drive until they qualify”. A longer commute lowers the house prices and helps affordability but which direction matters. In our area, the most affordable is in the northwest, Halifax County, followed by adjacent Warren and Vance counties. 

Levers for Affordability

For affordability to improve there are only three levers to pull, metaphorically: 

Median Household Income has to go up. In the Triangle, we have better than average prospects for rises in income. The median household income in Wake County, North Carolina has shown a positive trend in recent years. As of 2022, the median household income was approximately $97,099, showing a steady increase from previous years ($91,558 in 2021 and $88,763 in 2020)​ (FRED)​​ (Census.gov)​. Surrounding counties have a similar projected increase.

Mortgage Rates have to fall, or moderate. While not historically high, they seem much higher since they doubled from recent rates. The real problem is rates when compared to house prices and income. They moved up much faster than the other two variables and have not fallen much below 7%. Predictions are for rates to moderate but not fall below 6% for several quarters. 

The Average price of a house has to come down for the average income person to be able to afford one. But, of course, the average person is not a financial construct, they are a person with all the accompanying complexity with their particular income and expectations. Looking at the Median Home Price in the area over the last twenty years the rise is dramatic and recent. A TMLS Study revealed an inflection point in 2016 when the market began a rise the Stock Market would call a Bull Market. 

The ten years before 2016, and the ten years (so far) after look quite different. In the period 2006 to 2016 the Median Price hovered between $160,000 and $200,000, never breaking below $160,000 or above $210,000. Then, in a generally unremarkable market for mortgages, the market began a sustained ramp up in prices. A $200,000 Median was sustained for the first time in 2016. Median Price did not cross $300,000 until 2021 but then, remarkably, crossed $400,000 just the following year in 2022 where it remains today. 

A Look Forward

We have established that houses cost more than before, and that relative to income, the cost is exacerbated. So it follows that people at the bottom end of the scale are often priced out of ownership in some communities. Some people, maybe most, traditionally see MLS as a list of houses for sale. If you know an appraiser you might also understand that it’s an important source for accurate information on homes that have recently sold as well. That data is essential in the process of getting that mortgage on your new house. 

But the MLS is even more than those things. It’s a community, a network, a professional organization comprised of some of the largest real estate companies in the state. The group has an independent Board of Directors, a Stakeholder Council made up of five regional Realtor Associations plus NC Licensed Appraisers and NC Licensed Home Inspectors. That group, almost 15,000 of them, pay dues that support the operation of the network and a staff of over two dozen. 

In addition to the basic block-and-tackle of operating the network, Triangle MLS also does research, and enforces strict data quality rules including fining Subscribers over $10,000/month for inaccurate data. The University of North Carolina Kenan Flagler School of Business and Triangle MLS have an Internship Program focused on gathering and reporting open and accurate housing statistics for policymakers and leaders in the region. 

Finally, Triangle MLS wants to encourage prospective home buyers to watch this channel for new ways to access housing. TMLS supports projects like these, all novel ways for some buyers to become owners.

Also, Downpayment Resources presents information that may be perfect for some job types or incomes. 

TMLS also support national organizations like The Urban Land Institute and the National Association of Realtors, both have extensive research on Smart Growth policies, Accessibility, Missing Middle housing, Transportation Policy, and Best Practices for Density and Accessory Dwelling Units (ADUs). 

Our favorite projects are those that allow previously marginalized communities access to equity-producing housing options near transportation and employment centers. Projects like this Cottage project in Raleigh

Those projects produce communities as well as new opportunities for housing the least housed.

Another favorite example is a project in Alabama called Lincoln Mill Village where I had the honor to serve as Board Chair. The organization diligently watched every parcel in an inner-city neighborhood adjacent to an old, mostly abandoned yarn mill. When a property came up for sale, they would seek donations and buy them. They also actively lobbied remote landowners to sell to them, slowly acquiring over half of the houses in the area. Each property was completely renovated and leased to families and people just starting out. 

Taking clients from local recovery programs and Habitat for Humanity, the organization gradually renovated more than 70 houses and flipped the whole neighborhood. The area was so transformed that the organization was forced to move on having been priced out, the community now popular with artists and young families. That’s what success looks like when you have to move on, pictured below.

These kinds of projects, along with traditional development, will likely all be done. Some well, and some not so well. Wherever the demand is this high, business people will capitalize to take advantage of the opportunity, and more supply will come. Triangle MLS’s role is to help make it easier for everyone involved to make data-driven decisions that positively impact the nature of the supply we create.

Conclusion

While Affordability is challenging, Triangle MLS has the oldest, most up-to-date, and most complete information about Affordability available in the area. The leadership and staff of the organization are focused on providing Accurate and Complete information to advance the cause of Home Ownership and the Wealth and well-being of our Communities across the Triangle region. 

Projects and Programs are all focused on empowering our Subscribers to better serve their customers, the buyers and sellers of real estate in our area, and on informing the general public about the Value of MLS. These posts are an important aspect of that value since they represent a primary channel through which TMLS describes Affordability and other metrics. Triangle MLS believes that informed, empowered people make the best decisions whether they are first time homebuyers or the Governor of North Carolina so this site, and this information is intended to be useful for both.

Elections

This is worth quoting, given where we are. Abraham Lincoln while campaigning across Illinois in 1860 was not popular generally. He was at a campaign event and spoke about worthy local men running for District Attorney, or State Attorney General, or the like, and joked that these men may indeed be elected if not for his name on the ballot. This is from Michael Burlingame – Abraham Lincoln: A Life – Vol. 1, Chapter 16:

Lincoln returned to the statehouse, making his way through a dense crowd of people “seizing his hands, and throwing their arms around his neck, body or legs and grasping his coat or anything they could lay hands on, and yelling and acting like madmen.” (Springfield correspondence by A. C. C., 7 November, Independent Democrat (St. Louis), 7 (Concord, New Hampshire), 22 November 1860.)

He spent the rest of the afternoon at the capitol. He manifested “a lively interest in the election” but “scarcely ever alluded to himself or his candidacy.” Rather he “was interested in the fortunes of the local candidates of his town, county and State and to have heard his remarks one would have concluded that the District Attorneyship of a county in Illinois was of far more importance than the Presidency itself.” At one point “he mentioned a candidate for the Legislature in one of these counties who he hoped would be elected, and he would be, Mr. Lincoln added, ‘if he didn’t find Abe Lincoln too heavy a load to carry on the same ticket.’”

Later “he said that elections in this country were like ‘big boils’ – they caused a great deal of pain before they came to a head, but after the trouble was over the body was in better health than before. He hoped that the bitterness of the canvass would pass away ‘as easily as the core of a boil.’”

Michael Burlingame – Abraham Lincoln: A Life – Vol. 1

So, maybe the greatest American President thought of our elections as a great boil, as in the disorder of the skin!