Outer Banks Market Trends

market trendsWe’re starting to get our first glimpse of the 2018 Outer Banks economic picture and the image that is emerging is of a growing and healthy economy. Tourism continues to increase, the real estate market is strong and the indications are that new construction continues to expand.

It’s important to remember that this is based on statistical information and there are a number of variables that may affect the numbers.

As an example, one of the numbers we look at for our tourism picture are Occupancy Tax Collections as reported by the Outer Banks Visitors Bureau.

The numbers they report do not include increases in rental rates or any increase in the number of properties or rooms available for visitors. With that caveat in hand, we would also point out that by any standard, Occupancy Tax Collections have far outstripped the rate of inflation over the past 15 years.

Occupancy and Meal Tax Collections

These statistics come from the Outer Banks Visitors Bureau and are for Dare County only. Currituck County also collects Occupancy and Meal Taxes but their reports have a considerable lag time.

As noted earlier, all indications are that the Outer Banks tourism industry is healthy and growing.

Although Hatteras Island lost two weeks of revenue because the company constructing the replacement bridge across Oregon Inlet severed the power line to Hatteras Island, Dare County collections still grew at an annual rate of 5.8%. The only glitch was a 4.5% decline in August—undoubtedly a reflection of the situation on Hatteras Island.

Overall, the northern beaches outperformed Hatteras Island, although the power situation certainly affected that.

What does this mean?

Generally speaking rentals increase at about the same rate as inflation. There are a number of mitigating factors in that, but as a basis for understanding what’s happening, that is a good place to start.

With that in mind, the increase in collections occur in two areas: stronger shoulder seasons and more properties or rooms available for rental.

Both would seem to be the case.

We know April and May in the spring and September and October in the fall have become increasingly important to the Outer Banks economy and the numbers bear that out. From 2016 to 2017 shoulder season occupancy increased by 13.5%.

Visitation is harder to quantify because there is no one method to count visitors that everyone agrees is accurate. There is, however, some evidence that an increase in visitors is also occurring. Jockey’s Ridge State Park in Nags Head reported more than 1.5 million visitors last year, an increase of 18.8% over 2016, making it the most visited state park in North Carolina.

Real Estate Sales and Construction

We’re going to start this section with a reminder that nothing substitutes for working with someone with knowledge of the local market. There is a lot of nuance in any market and that’s where the experts at Outer Banks Blue become so important.

The Outer Banks real estate and housing market is healthy. The exception seems to be commercial properties that do not seem to be keeping pace with residential sales, but other than that, there does not appear to be much of a downside in the market.

A quick snapshot of the health of the real estate sales is Land Transfer Tax collections. Since every real estate transaction in Dare County carries a transfer tax, trends in the market can be tracked.

A transfer tax is a percentage of a sale and has nothing to do with the number of sales that are happening; nonetheless, if over time, there is a steady increase in collections, it’s a very good indicator that the market is expanding.

For the past five years at least, Dare County Land Transfer Tax collections have been increasing. Although we are at the mid point of fiscal year 2017-2018, it looks as though 2018 will continue that trend. Through February collections were up 6.6%

One of the trends that does seem to be emerging is a shift from a buyer’s market to a seller’s market. It’s never all one way or another, but there are some indicators that point to the change.

In 2011 the average number of days on the market after a property was listed was 238; through February of this year, the average number of has been 152.

The number of units sold is also an indicator. In 2011 1075 units were sold; in 2017, which gives us a full year for comparison there were 1544 units sold, a 43.6% increase.

The increase in the number of units sold and coupled with a decrease in days on the market is consistent with investors looking to take advantage of a growing visitation market. Not everyone is purchasing a property for rental, but an increase in Occupancy Tax collections coupled with indications of an increase in the number of visitors coming to the Outer Banks seems to point to more investors looking to Outer Banks property management opportunities.

There is a significant amount of new home construction on the Outer Banks, and early indications are that it will continue.

For the year 2017 there was a small decrease in the number of building permits issued. That trend seems to have reversed itself through February.

Building permits are very much in the raw data category. Permits are sometimes issued but construction never takes place. The number of permits also does not say what the permits are issued for. Nonetheless, there is some interesting information that can be taken from the initial reports.

The number of permits issued through February is up a modest 2.6%, but what is significant is the average permit value has increased by 11.5%. That is a clear signal that that larger, more complex projects are being planned, and a part of that would be new home construction.

That means the Outer Banks tourism market will continue to expand. It also means that, for existing rental property owners, a competitive market is going to stay competitive and may become even a bit more competitive.

Which brings us to another important point to consider. Summer is coming; properties should look as good as possible with any improvements done as soon as they can be made. However, looking at the trends in construction, it is apparent that contractors and builders are very busy right now. There is going to be lead time in getting any work done. Schedule the work as soon as possible.

Building a House on a Sandbar

Building a house on the Outer BanksWith its beautiful beaches and inviting waters, there are very few places as relaxing, as perfect for a vacation or a weekend getaway, as the Outer Banks. That’s why hundreds of thousands of visitors arrive every week during the summer, and even in the shoulder seasons people still look forward to some time by the sea.

With that popularity, quite a number of our visitors think about moving to the Outer Banks either to work or retire. Many look to build locally, either as a second home or primary residence. Building in an environment as remarkable as the Outer Banks is different from most other locations, and there is some information first time property owners planning to build need to be aware of when they begin their project.

This is general information. There are many reputable and very good builders and contractors on the Outer Banks who can fill in the details.

CAMA

An acronym for Coastal Area Management Act, the regulations covered by CAMA are administered by the Coastal Resources Commission and enforced by the NC Department of Environmental Quality. CAMA regulations and permits cover any area of environmental concern (AEC) in the 20 coastal counties of North Carolina. An AEC is defined by CAMA as, “…an area of natural importance: It may be easily destroyed by erosion or flooding; or it may have environmental, social, economic or aesthetic values that make it valuable to our state.”

In their literature about permits and regulations, CAMA note that AECs only pertain to about 3% of the land within its jurisdiction. That figure is certainly higher in Dare County and along the Currituck Banks, but it is a valid point that not every construction project on the Outer Banks requires a CAMA permit.

However, for projects that do fall within CAMA guideline, it is imperative that a permit is issued. CAMA enforcement includes work stoppage and fines, and in some cases the fines are assessed daily until the infraction is corrected.

For the most part, CAMA regulations protect wetlands and areas near the shoreline, shorelines that include the ocean and sounds.

CAMA has created a list of general guidelines for when a project might need a permit:

▪  in, or on the shore of, navigable waters within the 20 CAMA counties;

▪  on a marsh or wetland;

▪  within 75 feet of the normal high water line along an estuarine shoreline;

▪  near the ocean beach;

▪  near an inlet;

▪  within 30 feet of the normal high water level of areas designated as inland fishing waters by the N.C. Marine Fisheries Commission and the N.C. Wildlife Resources Commission;

▪  near a public water supply;

▪  within 575 feet of Outstanding Resource Waters defined by the Environmental Management Commission.

Outer Banks builders and contractors are aware of the guidelines and should be able to get the necessary permits if required.

Weather

On a beautiful summer day with the surf running at 2’ and a gentle southwest breeze, it may be hard to imagine how harsh the environment is on buildings. But it is. The Outer Banks is considered one of the most severe environments for building in the United States.

There is always some salt content in the air and that is exacerbated in the winter when northeast winds dominate and nor’easters track up the coast. There is also almost always moisture in the air. That combination of salt and moisture is very corrosive.

The FEMA guidelines put into perspective what to expect:

“Materials and construction methods in a coastal environment should be resistant to flood and wind damage, wind-driven rain, corrosion, moisture, and decay…”

Wind is certainly a concern on the Outer Banks and all newly constructed buildings must be able to withstand a 120 mph wind.

Construction

Outer Banks homes have two somewhat unique characteristics in their construction—pilings and septic systems.

Pilings

Almost every home on the Outer Banks is built on pilings, and there are two very good reasons for that. Neither is more important than the other, and in combination, they make a good case for elevating the structure.

Even though the latest FEMA flood zone maps have moved much of the northern Outer Banks into more favorable flood zone designations, the fact is, this is a low lying area susceptible to ocean overwash or soundside flooding during storms. Elevating the structure is the most effective way to stop 6” of water from creeping into a home.

The other reason for building on pilings is two closely related factors.

Inland areas typically have dense soils with a ground water table at least 6’-8’ below the surface and usually more. Neither is the case on the Outer Banks. The soil is sandy and the water table is just below the surface. Basement construction typical of homes inland is not practical with those environmental factors.

In some of the higher elevations, the water table is deeper, but the soil still tends to be sandy.

Septic Systems

Except for an area of the central business district of Kill Devil Hills, there are no central sewer systems on the Outer Banks. Waste is handled by septic systems that are part of the homeowner’s property and responsibility.

Because of advances in technology, septic systems have become very efficient, and the effect on new home construction should be minimal if it is even apparent. However, some older smaller lots in Kitty Hawk, Kill Devil Hills and Nags Head could limit the size of a structure.

Remember—septic systems do need to be maintained.

This information is designed to guide but is not definitive. As is always the case, a reputable builder who understands local ordinances and building codes is the key to a successful project.