A boom, but not a bubble? A closer look at the Triangle’s rising housing prices

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RALEIGH, N.C. (WNCN) — The rapid rise in housing prices doesn’t necessarily mean there’s a bubble that’s about to burst, one real estate expert said.

“If it is a bubble, that means it’s just speculation,” said Dr. Yongqiang Chu, a professor in the Belk College of Business at UNC Charlotte.

There’s no debate that prices are surging, though.

The median real estate price in Raleigh was $352,250 last month, up 14 percent from April 2020, according to Redfin.com. And the ones for sale are getting snatched up quicker — with the median time on the market of 34 days a drop of 19 percent from last April.

Source: Redfin.com.

But that doesn’t make it a bubble, Chu said, because those numbers aren’t entirely being driven higher by speculating investors.

“The percent of the population with very high-paying jobs are growing very fast” in both Raleigh and Charlotte, Chu said. “I think the demand is really strong together when we consider that there’s kind of out-of-state buyers coming to these markets and they want to live in this area.

“I think the demand is real,” he said. “And then that’s what’s driving the prices.”

But what’s driving the demand?

Chu points to several factors — and the number of people working remotely during the pandemic could be a big one.

Some of them already live here but want a new house simply because they need more room to work and are taking advantage of relatively low interest rates.

Others — who can do their jobs from anywhere — are choosing to move to the area from larger cities, he said.

“They will be able to live in a relatively lower-cost area like Raleigh, like Charlotte, relative to, of course, New York or San Francisco,” Chu said. “Those buyers, when they come — because they probably just sold their houses in those very expensive areas — they have a lot of cash in their hands, so they’re … able to offer cash.”

Chu acknowledges that there is some level of speculation — perhaps related to the anticipated surge in demand for housing as tech giants Apple and Google move forward with their plans to establish headquarters in the Triangle.

A study from a North Carolina State University researcher found people who lost their jobs during the pandemic tended to make less money. Higher-earners — who also are more likely to be buyers in the current market — tended to keep theirs, or even make more money.

“All these things are playing very important roles,” Chu said. “And that’s why we are seeing the prices are increasing really fast during last a year or so.”

It could also have an effect on another group of people — renters.

Rent for a one-bedroom apartment in Durham was an average of 20 percent higher this April than it was last year, according to apartmentguide.com — ranking seventh on the website’s list of cities with the largest increases.

Source: apartmentguide.com.

“As some people that are looking to buy may realize that they can’t get themselves into a bidding war, or can’t afford something right now, they might be more likely to go back to renting,” said Brian Carberry, the senior managing editor for apartmentguide.com.

“So it actually could saturate the market even more with renters, which could play into that whole supply and demand thing, too, if there are more renters on the market because they’re unable to buy, and there are fewer units available for these renters. You could find yourself getting into more or less a bidding war for some of these units as well.”

Because Chu doesn’t think this is a bubble, there’s nothing to burst.

He expects the prices to continue to climb — albeit at a slower pace — before eventually leveling off, but it’s hard to say when that will happen.

“I don’t think that we are going to see the level of price level off very soon,” he said.

The solution: Increasing the supply of homes. That means building our way out of the boom.

“So the new construction has to keep up with this kind of demand — then we will see that the price will probably not increase as fast as we observed,” he said. “If the new construction cannot keep up then people are just going to build up the prices.”

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