National study finds Asheville housing market unsustainable
Housing prices are rising much more quickly than wages in the Asheville metro area. Experts agree this is negative, but they don't know what the ultimate consequences will be.
ASHEVILLE - Many residents already have experienced it. Perhaps more have feared it.
Now, a national report has added to worries the Asheville metro area's housing market has reached unsustainable levels. Economists at Nationwide, the insurance and financial-planning company based in Ohio, have ranked the metro-area market as the nation's sixth-unhealthiest.
The April study fits the Asheville region's performance within a national context, though critics say it doesn't take in all housing market factors unique to the city. But primarily, the study found, wages in the metro area haven't kept pace with housing costs.
“House-price gains relative to income have become increasingly unaffordable,” said David Berson, Nationwide senior vice president and chief economist who is the report’s primary author.
Average annual wages in the Asheville metro area — which comprises Buncombe, Haywood, Henderson and Madison counties — were $37,289 during the third quarter of last year, according to the most recent data available from the U.S. Bureau of Labor Statistics.
The Labor Bureau's data for Buncombe County show weekly wages are growing — just not as quickly as home prices.
Wages rose to $760 a week across all county industries during the third quarter of 2015, up from $730 a week in the third quarter of the year before.
But the county housing market set new records during the first quarter of this year for both average and median home-asking and median selling prices, said Don Davies, founder of Asheville-based Realsearch, a company that analyzes real estate trends.
The median asking price was $379,450, while the median selling price was $235,000.
Combined with low inventory levels not seen in a decade for houses selling for less than $300,000 in Buncombe County, Davies said, it’s no wonder Asheville sits just below Austin, Texas, in Nationwide’s rankings.
The report released last month also listed the Asheville metro as eighth-worst in the country in terms of housing-market health decline during 2015 — ranking just above Boulder, Colorado, and Santa Fe, New Mexico.
Austin, Boulder and Santa Fe all are cities often named by longtime area residents as places they hope Asheville never resembles, particularly because only the affluent may afford to live there.
Too high for people here now?
Davies said that’s already happened.
“Local people are priced out of the market,” he said. “The average sales price requires more income than (people) can afford.”
The situation is set to worsen, too, unless area baby-boomer business owners consciously transfer their companies when they retire during the upcoming years, said Franzi Charen.
She co-owns Hip Replacements, a downtown clothing store, and is director of the Asheville Grown Business Alliance, a network of independent businesses that provides resources and support to local merchants.
“The so-called silver tsunami of baby boomers is set to retire and 70 percent of privately held businesses will go through an ownership transition in the next five to 20 years,’” said Charen, citing a national report published earlier this year that advocates democratizing ownership of the workplace.
Three nonprofits collaborated to produce the report: the Massachusetts-based Cooperative Fund of New England, the California-based Project Equity and the California-based Democracy at Work Institute.
Ownership of “85 percent (of those businesses) will not be passed down to the next generation and face the possibility of being sold to an outside firm or, with no clear succession plan, shutting their doors,” Charen said.
“If we were to encourage even a fraction of these businesses to become employee-owned, not only do we retain the jobs in these industries, we democratize wealth and ownership, provide greater economic mobility and overcome inequality of opportunity,” she said.
Compounding the conundrum for Asheville-area residents is that so few new houses are being built.
As of May 4, 154 newly constructed homes were on the market in Buncombe County, Davies said. “And there’s not much inventory of homes selling in the $200,000 range,” he said.
In Buncombe County at the beginning of the month 169 homes were available for under $200,000.
Weak growth in wages alongside higher housing costs are dangerous for a city like Asheville, which has become attractive because of its large and active artistic population, he said.
“That’s part of the uniqueness of the Asheville,” Davies said.
If the only people who have enough money to buy houses here come from other cities, the aspects that make Asheville appealing become endangered, he said, citing street musicians and the weekly Friday night downtown drum circle as examples.
“If we don’t start putting inventory in the normal market, but keep putting it into the luxury market, people will begin to think only the Vanderbilts can live here,” Davies said. “That can turn off some people.”
Finding balance
Mike Figura, owner and broker of Community Lifestyle Mosaic Realty in Asheville, called the dynamic “not healthy for the community. House prices are rising faster than wages. The two are out of sync.”
But while Figura has expressed and continues to voice concerns about housing affordability, he also had problems with the Nationwide report.
For example, Figura pointed out, the report described the Asheville metro area housing market as healthy during the first quarter of last year.
“We know that the dynamics between our housing market then and now are similar,” he said.
Nationwide’s analysis of the Asheville metro market during 2007’s fourth quarter also flummoxed Figura.
“When our market was at its most heated, the report categorized us as ‘neutral,’” he said.
But today, “the fundamentals of our housing market are much stronger,” Figura said.
That’s because it’s cheaper today to own a house than to rent.
“In 2007, you could rent a house cheaper than you could own it,” Figura said.
U.S. Census data show Buncombe County’s median rent in 2007 was $680. By 2014, that figure had climbed to $847, or 25 percent more, a development Figura called “shocking.”
The county median housing price rose less than 1 percent, however, from 2007 to 2015 — to $230,000 from $228,000, according to the Multiple Listing Service, Figura said. The MLS is the official list containing properties for sale that most people and organizations use to buy and sell real estate
For all these reasons, Figura said he doesn’t believe the Asheville metro is one of the country’s unhealthiest housing markets, he said.
Asheville home prices are not overly inflated, Figura said.
“We’re not going to see a crash,” he said. “Yes, (home prices) are out of reach for a lot of people, but true demand and low inventory are causing prices to be high.”
Within the city of Asheville, the competition to buy the limited number of available houses has caused the price range that is a seller’s market to balloon, Figura said.
“Last year, during the first quarter, it was a seller’s market for homes up to $450,000,” he said. “This year, (during the first quarter), that’s shifted to $600,000. That’s unprecedented. You’re going to need a lot of money to buy that house.”
During a visit to Asheville last month, Berson emphasized in an interview that an analysis of a geographic region the size of a metro area will miss key differences that exist within that area. Local real estate experts would be able to provide the granular data that his evaluation lacks, he said.
Remarkably, the dynamics occurring in Asheville mirror those in the New York City housing market, said Jonathan Miller.
He is the co-founder of New York-based Miller Samuel, a residential real estate appraisal company, and the commercial valuation firm Miller Cicero.
Like Asheville, New York is experiencing record job growth, Miller said.
“But the pay from the jobs created don’t match the cost of the housing being built,” he said. Miller echoed Figura: “There’s a mismatch between what’s being built and what’s affordable.”
And, Miller added, the affordable-housing crunch plaguing Asheville has become endemic in many U.S. communities.
“It’s now a classic problem in many cities — the supply is inelastic,” Miller said. “Some sort of affordable threshold eventually will have to be reached. I don’t see Asheville as being any different.”
How that threshold manifests itself, however, remains the question.
The best-case scenario would be housing prices stabilizing while wages ultimately catch up, said Nationwide’s Berson.
That’s what Miller predicts.
“I see it as a steady grind, almost boring to follow, not volatile,” he said. “The consensus is we wouldn’t enter a recession, but the numbers suggest a moving-sideways, long grind.”
Still, what actually could occur might be much more disruptive: A sudden plunge in house prices and home values due to a dive in demand "while the market is seriously overvalued," Berson said, for example.
“We simply don’t know,” Berson said.