Asheville real estate prices continue booming, but is a glut on the horizon?

John Boyle | The Citizen-Times

Show Caption Hide Caption Asheville real estate sets records Yet again, Asheville and Buncombe County set records in the second quarter of 2018 for the median home sales price .

Sir Isaac Newton might be a bit confounded by the Asheville real estate market.

The originator of the laws of physics, Newton is attributed with famously saying, "What goes up, must come down." But that expression doesn't seem to hold true when it comes to the Asheville area's real estate market and prices — at least not over the past seven years.

Yet again, Asheville and Buncombe County set records in the second quarter for the median home sales price — $325,000 in the city and $290,000 in the county. Between the end of 2017 and the end of the second quarter, June 30, it rose 8.5 percent in Asheville and 5.8 percent in the county, according to an analysis by Mosaic Community Lifestyle Realty.

"It probably will stop at some point, but this has been going on since 2011, where we've seen a consistent uptick in the median price," said Mike Figura, Mosaic's owner.

Some cooling indicators

While prices continue to rise, Figura said some indicators do suggest a gradual cooling of the local market. For instance, both Asheville and Buncombe had fewer home sales overall in the first half of this year compared to last, with sales down 9.2 percent in Asheville and 6.6 percent in Buncombe.

Also, the average days on the market increased, which means homes aren't selling as fast. And at the higher end of market, houses are lingering too, creating more inventory.

But overall, the market remains positive, at least for sellers, who can expect a premium price, especially in highly desirable areas like West Asheville. If you're buying, though, expect to pay more.

Building out quickly

At the Sovereign Oaks and High Hickory developments, both in the Swannanoa area, developer Andy Baker said he's been pleasantly surprised by the steady demand for home sites. Prices in both developments range from $100,0000-$300,000 for the land, with homeowners building houses in the $600,000-$1.5 million range.

"What’s been interesting for me to see in Sovereign Oaks is how quickly it’s building out," Baker said. "These are all custom homes, and we've got well over 50 new builds approved in there. That’s pretty significant."

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Both Sovereign Oaks and High Hickory incorporate similar themes, such as a lot of open spaces and gardens, and the inclusion of areas where owners can have bees and chickens. High Hickory has been open for about a year and already sold about 35 sites, with another section opening Aug. 18.

The development will have just 72 home sites on 430 acres.

While some of Mosaic's analysis suggest higher priced homes, those at $450,000 or more, are beginning to linger longer on the market, Baker said they're not seeing that.

"I haven’t seen a slowdown," he said. "I’m aware this can't go on forever. But the biggest indicator (of an overheated market) is that spec buyer, and we’re not seeing that."

Before the real estate bust of 2008-09, buyers were snapping up properties on speculation or as investments, often flipping them a few months later at a sizable profit. They never had any intention of living on site.

Buying a home, not speculating

That's just not happening at his two developments, said Baker, who is also the owner of the brokerage firm, TFM Carolina Inc., which markets both sites. For the sake of a stable market, that's a good sign.

"I can say for a very high percentage, if not all of them, it’s their primary residence," Baker said. "And there’s about half of the folks who are relocating from Asheville and the Asheville area to that site, and the balance are coming in from out of town. The mere fact that it's their primary residence, that's what’s interesting to me — this is not a second home, not a spec buyer. It’s a buyer-owner."

Buyers are also building smaller homes than before the boom and crash. Sovereign Oaks requires a minimum house size of 1,200 square feet, while High Hickory sets the bar at 1,000 square feet. Most buyers are building homes in the 1,800-2,800-square-foot range, Baker said.

'Can't build them fast enough'

Besides selling homes, Figura is also a partner in a residential development in West Asheville called Craggy Park. Located off Louisiana Avenue, the development will have 45 homes, with pricing starting at $450,000.

"There’s nine built," Figura said. "We're doing them all on spec, and we're rolling out one a month. We can’t build them fast enough at this point."

On "spec" means they build the house without a buyer beforehand, then put it on the market.

Like Baker, Figura is a realist and knows Newton's laws of physics can't be ignored forever. In his analysis, he sees some signs that market may be cooling a little.

The lower and middle price ranges remain hot sellers, meaning houses move quickly, even though inventory levels were a little higher in the second quarter of 2018 compared with the same period in 2017.

Increase in inventory

"There were some significant increases in inventory levels in the higher price ranges between the second quarters of 2017 and 2018 in the both the city and county," Figura wrote in the report.

Inventory is a measure of the amount of houses for sale in a given area, and it's a good indicator of how healthy a market is. If a market is sluggish, it will have too much inventory, meaning houses are selling more slowly.

In the real estate business, "inventory" is measured in months, and it gauges how long it would take for the current number of homes for sale in the market to sell.

As a rule of thumb, Figura says, when inventory levels are more than six months, it's a buyer’s market and prices drop. When inventory levels drop below six months, it's a seller's market and prices rise.

His report found that in Asheville, "inventory levels are below six months in all price ranges below $600,000." In Buncombe, "inventory levels are below six months in all price ranges below $400,000."

"There were some significant increases in inventory levels in the higher price ranges between the second quarters of 2017 and 2018 in the both the city and county," Figura found.

He attributes those increases at the high end in Asheville "to a combination of fewer sales and more homes on the market," while in Buncombe County, the increase in inventory is mostly due to more homes on the market — "the number of sales staying relatively flat and even increasing in some price ranges."

$400,000 the new bottom?

Nobody is ringing the alarm bells, but Figura contends "if builders aren’t smart about what they're building, they could flood the upper prices rangers." He also noted that construction costs keep increasing, in part because of increased prices on materials and partly because, with unemployment so low, it's hard to find enough workers.

The hurricanes and flooding last year that left a trail of destruction also increased demand on materials. For instance, Figura said, lumber is up about 30 percent over last year, and that could increase more with tariffs being imposed on countries such as Canada, a major lumber producer.

All this makes it harder for builders to build homes in those lower price points.

"I know in West Asheville it's hard to build under $400,000 and make it worth the costs, with the land costs being so high and construction being so high," Figura said. "The $400,000--$450,000 price point is almost the new low. A lot of builders are moving to the $500,000-$600,000-$700,000 range, which is a healthy part of the market. But if too many builders do that, then that part of the market could become overbuilt."

Still a strong market overall

Overall, Figura doesn't foresee serious trouble in the local market in the near future. Demand remains strong, and the Asheville area's appeal to retirees is only growing.

As long as interest rates don't rise precipitously, prices should continue to go up, he said. The labor market is strong, unemployment is low and consumer confidence is high, all solid economic indicators.

And believe it or not, our market is still a bargain for a lot of folks.

"Really, what I think will take down our market is when the markets that feed our market go into recession," Figura said. "Then we'll feel it. But right now, a lot of people are still moving here from Seattle, Chicago, California. This is still a bargain to them."

Asheville, Buncombe real estate figures for 2018

Median home sale price: $315,000 for first half of 2018, up from $290,288 in 2017.

Percentage increase of median price: Up 8.5 percent in Asheville and 5.8 percent in Buncombe County for first half of 2018.

Number of sales, first half of 2018, in Asheville — 701, compared to 772 for the same period in 2017, a 9.2 percent decline.

Number of sales, first half of 2018, in Buncombe — 1,135, compared to 1,215 for the same period in 2017, a 6.6 percent decline.

Average days on the market for the first half of 2018: 62 days in Asheville (up from 57 in 2017), and 80 in Buncombe County (up from 72 in 2017).

Source: Mosaic Community Lifestyle Realty, using Carolina Multiple Listing Service data