House-buying in North Carolina has become very popular in recent years, but it’s still not clear if buying a home is actually worth it. The real estate market is as vibrant as ever, with fierce competition and high demand for homes, but affordability is still a major issue. Let’s take a look at the current state of affairs to see if buying a house in North Carolina is a good idea or a losing proposition.
The Economics Of House-Buying
The demand for affordable housing has driven much of the recent boom in house-buying in North Carolina. According to Realtor.com, the cost of goods and services, including mortgage, insurance, and taxes, is now just 83% of the median household income in the state. That’s the lowest in the country and well below the 100% mark that economists consider to be affordable.
Many buyers are turning to mortgages with low down payments and flexible terms to make up for the disparity. According to data from the National Association of Home Builders, the share of first-time buyers taking out mortgages in North Carolina jumped from 29% in 2015 to 41% in 2018. The share of purchase applications receiving mortgage approval jumped from 29% to 40%, demonstrating the growing desire among potential house buyers to make their way to the state of North Carolina.
The Demographics Of House-Buying
People are also flocking to the state of North Carolina for employment opportunities. The construction and healthcare industries in the state have seen a surge in demand for workers, and there’s always a need for hospital staff. According to population estimates from the 2018 US Census, 445,900 people in North Carolina were employed in healthcare and social assistance, compared to 365,700 people in 2016. The number of construction workers in the state also increased by 14,600 from 2016 to 2018.
The housing market in North Carolina is primarily made up of first-time buyers, millennials, and people seeking the tax advantages of living in a US region. There’s been a 25% growth in the cost of living in the state over the past five years, which has made buying a home a bit more expensive. Still, the demand for housing has outpaced the rate of inflation, demonstrating the desire for homeownership among ordinary citizens. More than 100,000 people applied for a mortgage in 2018 alone, and a growing number of home loans are now being approved.
More Than 100,000 People Applied For A Mortgage In 2018
More than 100,000 people applied for a mortgage in North Carolina in 2018, and more than 40% of those loans were approved, according to data from mortgage lender Wells Fargo. This is a far cry from the 2007–2008 housing crisis when only 7% of mortgage applications were approved and credit was tight.
Wells Fargo’s Chief Economist Joseph Song said the 2019 mortgage approval rate in the state is the highest it’s been since 2007. The economy is booming, and everyone from CEOs to minimum wage earners is feeling the benefits of a robust housing market. It’s no wonder why so many people are looking to buy a home in North Carolina.
The state’s strong economic performance is also leading to higher demand for quality education. The cost of college is rising, and many borrowers are finding that a four-year degree isn’t as attainable as it was in the past. To counter this, public universities in the state are adjusting their admissions standards and funding programs to attract a greater number of students. This has led to increased competition among high school graduates, encouraging them to pursue college degrees. More than 125,000 students in North Carolina will be enrolled in an accredited educational institution this year, compared to 110,000 in 2016.
This high demand for education is also putting a strain on the financial aid system. The state’s higher education institutions are getting more calls from potential students asking for financial assistance, and they’re doing their best to help these students afford an education. However, the system is not prepared for the increasing demand, and many students are struggling to find the money they need to survive while going to school.
Rising Mortgages, Rising Costs, And Rising Hopes
The desire to own a home is as strong as ever, and more people are seeing the benefits of home ownership in their own lives. Realtor.com ranked the state of North Carolina as the 21st most desirable spot for home buyers, citing low mortgage rates, affordable housing, and a favorable finance environment in the state. The cost of living in North Carolina is also becoming more affordable, with the state ranking 11th in the country for cost of living, according to the National League of Cities.
The demand for housing is prompting lenders to lower mortgage rates and requirements, and many people are taking advantage of these low rates. The Mortgage Bankers Association reports that mortgage rates have dropped to their lowest levels in over 10 years, with the average rate for a 30-year loan falling to 3.41%. This is good news for prospective homeowners looking to make their way to North Carolina.
Affordability Is Still A Major Issue
Even with these low mortgage rates, affordability remains a major issue, especially in pricey areas like Raleigh. It’s difficult for people on minimum wage earnings to make a down payment on a home that, on average, costs more than $500,000. The situation isn’t ideal, and it could lead to housing insecurity, according to Greg Lagerquist, associate professor of real estate at North Carolina State University. Lagerquist warns that while overall home prices are rising, this doesn’t mean that every home is becoming more affordable. It depends on where you look and what you’re looking for. If you want a cheap and simple living space, you might end up spending a lot of money on that.
Rising Home Prices
Overall home prices in the state are rising, in part, because more people want to buy. With mortgage rates at their lowest point in nearly a decade, potential homeowners are seeing the value in owning a home rather than renting. Home prices in the state were at their highest between 2008 and 2011, and while they decreased somewhat, they’re still much higher than they were in the early 2000s.
The year 2018 was a particularly active year for home sales, with over 54,600 properties changing hands, according to the US Congress Joint Economic Committee. Home prices have increased by about 10% since 2017 but still remain below their pre-crisis peak.
Rising Home Sales Drive Up Inflated Prices
One of the biggest issues with home prices is that they’re often based on misinformation and outdated information. Lagerquist notes that while the cost of living in North Carolina is growing, it’s not necessarily the case that every home is becoming more affordable. There are certain areas of the state where home prices have increased by a large margin since 2010, largely because of excessive speculation and lack of supply. When this happens, it can lead to serious inflation and a serious equity gap. If you’re purchasing a home in an area with rapidly rising prices, it’s important to ask yourself if you can actually afford the home you want, rather than just looking at the price tag.
Tax Benefits Of Home Ownership
Aside from the desire to own a home in the state of North Carolina, many people are looking at the potential tax benefits of homeownership. In particular, the state offers homeowners a credit of up to $10,000 if they choose to claim it on their federal income tax return. The credit varies based on the value of your home. If you claim the maximum $10,000 tax credit, you’ll save $20,000 in federal taxes, plus another $10,000 in state taxes (assuming you live in a tax-free state). Not bad for a $30,000 home deposit!
These benefits aren’t limited to federal tax returns either. If you’re purchasing a home in the state, you’ll also be able to claim the credit on your North Carolina state income tax return. Like the federal credit, the state credit is worth up to $10,000 and varies based on the value of your home. The fact that homeownership is a Double-Dependency for federal and state tax returns is often overlooked, but it provides a lot of savings if you take the time to understand it. Just keep in mind that you’ll need to itemize your deductions on your federal tax return in order to qualify for federal savings.
