John Hood: Housing Demand Will Stay Strong

RALEIGH — For much of the past year, housing markets were ablaze in many parts of North Carolina. Motivated buyers were flush with cash and armed with low-rate loans. Agents were desperate for inventory to sell. Sellers gasped and smiled as competing offers soared upward. Builders broke ground on as many new projects as available labor and materials allowed.

According to a recent nationwide analysis by the website Redfin, Raleigh had the second-highest per-capita rate of building permits issued for single-family homes during the first quarter of 2022. Among the nation’s metropolitan areas with a million or more residents, only Austin reported a higher rate. Charlotte was number five on the list. Both North Carolina communities had eyepopping increases in median sale prices, as well: 25% and 22% respectively.

Now that the Federal Reserve is hiking interest rates aggressively to combat resurgent inflation, will higher debt-service costs for builders and buyers cause our housing markets take a drastic downtown turn? Don’t count on it.

For a variety of reasons, North Carolina remains an attractive place to live, work, invest, and build new enterprises. During 2021, only seven other state economies grew faster than ours. We were also one of the fastest-growing states in population. Although the real cost of buying or renting housing in North Carolina has gone up, too, the best bet is for such population in-flows to continue for the foreseeable future.

In the Triangle market, for example, Duke University economist David Berger expects only a “modest cooling” in response to higher interest rates. “It’s important to remember we have sort of record low housing inventories,” he observed during a recent virtual briefing for reporters. “Many people are still moving here. Supposedly 15 households a day to Wake County, five households a day to Durham County.”

One could say something similar about other regions of the state, from the mountains to the coast. And a glance at the latest unemployment figures from the U.S. Bureau of Labor Statistics readily reveals one of the main causes.

Here in North Carolina, we’ve been experiencing a worker shortage more than a year. Food service, hospitality, retail, other service industries, manufacturers, logistics — across large swaths of the labor market, companies are having a devil of a time finding people to fill available jobs. It’s not just skilled labor in high demand. Even businesses willing to train folks with little work experience are struggling to find people willing to take them up on it.

Having just returned from a work trip to the mountains and a subsequent family vacation at the beach, I can certainly attest to the effects of this shortage. Restaurants and stores are slammed. Hotels are struggling to clean rooms and staff front desks.

I had a similar experience during an earlier trip to Texas. But believe it or not, not all states have ultralow unemployment rates. For the purposes of this comparison, I’ll use a set of BLS statistics called “alternative measures of labor utilization for states.” Instead of counting only jobless individuals actively looking for work as unemployed, the alternative measure includes workers who’ve given up looking for jobs in the communities where they currently reside as well as those who are working part-time but would rather have a full-time job.

For the most recent 12-month period, this broadest measure of unemployment and underemployment, called the U-6 rate, was 7.8% in North Carolina. That’s lower than the national average of 8.4%. Georgia, Florida, Tennessee, and South Carolina have comparable or even lower U-6 rates than we do.

On the other hand, California (11.5%), New York (10.7%), New Jersey (9.5%), the District of Columbia (9.5%), and Connecticut (9.2%) have much-higher rates. Not coincidentally, these are among the states experiencing the greatest out-flow of residents in the aftermath of the COVID recession.

North Carolina is going to continue to be a key destination for these relocating workers and families. They’ll need homes and apartments. That will keep demand strong and prices up.

John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combine epic fantasy with early American history (FolkloreCycle.com).