As housing inventory gets even tighter, prices spike

In the red hot local real estate business, it's a little taboo to use "the B-word."

That's mainly because everyone has painfully fresh memories of the last housing bubble, which burst with a near-nuclear detonation in 2008, leading to a worldwide recession with impacts that lingered for years.

So pardon professionals like Mike Figura, founder of Mosaic Community Lifestyle Realty and a local market analyst, who is dancing around the B-word in light of the first quarter real estate report. It shows record sales in the city of Asheville and housing inventory levels that are so tight that everything priced under $1 million fits in the "less than six months" category.

Inventory refers to the number of months it would take for all homes currently for sale to sell, based on monthly sales volume. When inventory is tight, prices just keep climbing, and that can lead to, well, let's not say the word out loud.

"It's getting a little frothy out there," Figura said, noting that he opened his company in 2005. "When I started, it did feel similar to what's going on now, in terms of bidding wars and setting new records each quarter."

In short, the first quarter of 2017 indicates a fantastic seller's market, with 327 homes sold in Asheville and 510 in Buncombe County. In Asheville, the median home sales price also set a record, at $275,000, and the county was close to one set last year, at $243,450.

Getting outbid is common

Asheville native Janis Turner, 40, knows exactly what that hot market means for buyers. A mental health clinician, Turner sold her West Asheville home three years ago and moved away, but she recently returned.

After living in an apartment "for the first time in forever," she started looking for a house about a month ago.

"In that month, I put in three offers on three different homes," Turner said. "Within 24 hours of my offer, I would get a call from my real estate agent saying they had numerous offers and they were calling for 'first and best.' Two times I got outbid, in less than a month."

The third time was the charm, and Turner is closing on a three-bedroom, one-and-a-half-bath home in Candler. She'll pay about $200,000 for the 1,800-square-foot home, which dates to 1920 but has been completely renovated, and she feels like she's getting a good deal.

"The housing prices are significantly higher than when I moved from the area three years ago," Turner said. "I sold my home in West Asheville right off Haywood Road three years ago for $155,000. It was a two-bedroom, two bath. I kick myself."

Kent Wolff, senior loan officer at Mountain Lifestyles Mortgage, is handling the mortgage for Turner. Her story has become commonplace.

"We consistently have clients who make full-price or over full-price offers on one, two or in some examples, even a third home, only to lose to people bidding even higher," Wolff said. "Many home buyers are understandably becoming more frustrated or increasingly discouraged with the limited level of inventory available in the Asheville. It's really a challenge for everyone, minus the sellers."

Don Davies, whose firm RealSearch conducts market studies, traced several records in the first quarter for Buncombe County, all related to that seller's market:

• Median asking price of all homes for sale, at $399,995.
• Average selling price of all homes (including single-family, condos, town homes and mobile homes), at $314,172.
• Average selling price of all homes in the last 12 months, at $315,163.

"The inventory is low, and that drives prices up, and the number of sales is very strong," Davies said. "They have not slowed — they're actually about 1 percent higher for this time of year, and last year was a record-setting year."

So, dare he utter the B-word?

"I don't know if we're in a situation where we're creating bubbles, but we are seeing appreciation in selling prices of about 10-12 percent (a year), and I'm not sure if that's sustainable," Davies said.

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Lack of speculation

He and Figura temper their comments by noting that one key element of the previous bubble is absent today: speculative buying, in which investors were snapping up properties strictly to flip them for a profit.

"What’s different in this case is there is real demand," Figura said. "People are actually buying homes for themselves."

For homebuilders, times are good, but they too are treading lightly, the specter of 2008 always hovering over the job site.

"Growth wise, our business has just exploded since the downturn," said Jody Guokos, founder and president of JAG Construction, a green home building company. "Last year, we grew more than we had grown in any of our previous years. We’re seeing year over year growth that continues to beat the previous year — 40 percent in the case of last year."

So, he should be happy, right? The B-word should not be a factor in his life.

And yet, he thinks about the painful image of a market bubble bursting "every day of my life."

"When every story you see is about the inventory is even lower and the median home price is up, you just start to get nervous," Guokos said. "Just when you think things can't get worse again, they can. I'm starting to feel like we’re at the point. The bottom is going to drop one of these days."

He quickly walks that back a bit, though, noting that if a correction comes, he suspects it will be nothing like the last one, mainly because the speculation element is missing. For the most part, he's building homes in the $400,000-$500,000 range, whereas three or four years ago that figure was about $100,000 lower.

"It's not so much people building bigger homes, it's that they want more bells and whistles," Guokos said. "What we're seeing is people are feeling the last eight years they had decent income, and they've started to look at their mortgage payments, saying, 'I can afford a little more, I can afford an extra $600 a month to add that $80,000 to the value.'"

Another issue driving the tightness of the market inventory and ensuing rising prices is the lack of spec homes on the market. During the previous boom, builders and investors would build subdivisions or homes before they had a seller locked in, or on speculation.

And they were selling the homes pretty quickly. But after the bust, banks tightened lending on such projects, and wary home builders stopped building unless they had a buyer locked in.

Davies said one developer he knows who's building a small subdivision told him point blank, "I'm going to build one at a time, instead of 10 at a time, so I can make sure it sells."

Figura and his business partners are building a 45-home development in West Asheville called Craggy Park, and they are building all spec homes, in part because of the high demand for homes in that area and the shortage of buildable land. The homes will range from 1,600-2,400-square feet and likely sell in the mid-$300,000 range to the high $400,000's, Figura said.

He's seen personally how tight the market is for buyers.

"It takes a lot of planning and patience, depending on the price range your’e in, especially homes in the lower price ranges and on up to $600,000," Figura said. "You’ve got inventory of less than three months in some of those case, so you're competing with a lot of other buyers."

A little relief may be coming, as Figura points out in his report that the average "days on market" for homes in Asheville increased from 55 days in 2016 to 68 in the first quarter. In Buncombe it rose from 77 to 82 days.

That, Figura says in his report, "is likely due to more sellers pricing their homes higher than market value, causing the homes to take longer to sell."

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In-migration a driver

But, the buyers keep coming, drawn by what has brought them here for decades — beautiful scenery, a vibrant city and prices that may seem high to locals but are way cheaper than northern states, Florida, Texas or California.

Tom Tveidt, founder of Syneva Economics in Asheville, looked at Census data covering 2010-2016, and it shows that for the four metro counties — Buncombe, Henderson, Haywood and Madison — "essentially all of the net population change is due to new people moving in." Of that influx, 95 percent of the newcomers are from the U.S., the rest international.

Buncombe did have a gain of 884 people from births outpacing deaths, but the other three counties had negative numbers in the "natural gain" department.

"So only about 3 percent of the net population growth in the metro was due to the local population increasing; the remaining 97 percent are newcomers," Tveidt said. "This has been the case for at least the last decade."

That comes as no surprise to Turner.

"I think my fear is that people with money are moving in and pushing out local people who may not have the money," Turner said. "I feel like it's definitely going to change the culture in the area."

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By the numbers:

Total number of residential homes, condos, townhouses, mobile homes available as of April 5: 1,134.

Number of homes put on the market since Jan. 1: 1,260.

Median asking price: $399,995 (new record high).

Number of homes sold Jan. 1-March 31, 2017: 837.

Median selling price: $255,000 (new record).

Average selling price of all homes sold in the last 12 months: $315,163 (new record).

Source: RealSearch, Don Davies. Number derived from MLS data and may not reflect all real estate activity in the market.