Emerging Real Estate Trends for Raleigh-Durham in 2021

Growth in the Triangle

Homeowner and renter dynamics are evolving. The Triangle region, in particular, continues to outpace most of the country, scoring the #1 spot in the top 10 real estate markets for 2021.

Not surprisingly, the out-migration from larger cities (NYC, Boston, LA) and in-migration to Sun Belt states and cities (Raleigh-Durham, Charlotte, Austin, Atlanta, Miami) continues to grow, as young professionals seek affordability, job prospects, and increasingly balanced lifestyles.

There's no denying the fact that Raleigh-Durham is growing, but applying a more quantitative look might sway more onlookers are these trends continue to evolve.

Raleigh-Durham is both the #1 prospect for real estate, in addition to the #1 market for homebuilding prospects. If you've been around the Triangle (Raleigh, Durham, Chapel Hill) lately, it's easy to see why.

Families and young professionals from all walks of life seek the lifestyle that Raleigh-Durham affords - relatively affordable, great job markets, schools, access to nature, diversity, and more.

Furthermore, average homes in the area are quite sizable compared to homes in larger cities, and frankly, your money can go a lot further in the south than in markets like Boston, Seattle, SF, and Chicago.

Investors Flock to the Triangle

For homeowner-investors, why does Raleigh-Durham seem like a good place to park their money?

1. Relatively affordable real estate - All things relative, the Triangle remains unsaturated like other high-tech areas around the country. Rent prices haven't caught up to home prices in the same way that Silicon Valley has. It will be a few more years before the word "unaffordable" is thrown around more.

2. Focus on appreciation over cashflow - Because rental prices haven't caught up with home prices (check out the 1% rule on this; RDU hovers around 0.7% for most investments), the market is looked at from an appreciation perspective - 12% in Durham in one year could be the trend for a few more years.

3. Short-term rentals and multi-family policies are evolving - Policies around short-term rentals in Raleigh, in addition to multi-family zoning changes, are making Raleigh-Durham a more clear investment vehicle for rentals.

Imbalance of Supply and Demand

...in Durham, median list price has increased by 14.5 percent and active listings are down 60.4 percent

However, the Raleigh-Durham area is at the precipice of an economic imbalance. Builders have years long waitlists, apartments aren't being built fast enough, and more.

With the imbalance of supply and demand, home prices have shot up an astounding amount, with Durham seeing a 12% appreciation bump in just 2020 alone.

Now, as people relocate to the area, we see an already tight market start to squeeze more first-time homebuyers out of the equation. When wealthier homeowners leave states like New York and California in search of greener (and cheaper) pastures, North Carolina seems to be the solution.

Wealthy cash buyers continue to flood the RDU market. They often bid 20% or more above listed prices (in all cash too, which to them, is the same as a down payment where they're coming from), which pushes first-time homebuyers to wait it out and rent. According to Redfin, over 63% of homes are being sold over list price, an astounding 45% increase year-over-year.

The first-time homebuyers who are pushed out of purchasing turn to rentals, which begets another cycle of driving prices up and causing a supply imbalance for these rentals. This also exists in the rental market due to a few reasons.

A common reason given is that there are not enough multi-family rentals in the Triangle (Raleigh didn't zone for enough duplexes and triplexes, Durham is mostly single-family homes, etc.), which causes the main rental supply, single family homes, to get rented within days. While this is great for homeowner-investors, renters are finding it hard to cope with.

This imbalance pushes younger people to the edge of affordability because they can't rent single family homes and there aren't enough apartments to go around. The good news is that builders from all over has started to speed up the pace of construction. The bad news is that these units are typically built for wealthier clientele, as seen in the new luxury apartments cropping up all over downtown Durham.

Ok, so by now we should understand the push and pull of the Raleigh-Durham real estate market. These same dynamics aren't just happening here, they are happening everywhere in the US.

Regardless, the economics are simply not working for most renters when waves of cash buyers flood the market. It creates a cycle where renters foot the bill, institutional investors own most of the market, and we begin to see the "Old North State" look a little more like Silicon Valley.

New Trends Emerge

The largest trend we're seeing is the move from traditional renting towards coliving. While families have been the focus as renters for decades, it's time to bring efficiency and flexibility to the rental space in the form of coliving.

We believe coliving, and Alcove's platform, are the next-gen solution to such a tight real estate market. For investor-homeowners, this means generating higher rental income through per-bedroom leasing. For renters, this means flexibility, cost savings, and ease of renting with technology to facilitate the interactions and leasing.

Essentially, by productizing homes into more "consumable" units, we free up a ton of home supply, resulting in greater efficiency in the market. With Alcove, Raleigh-Durham and other cities will begin to transform for the benefit of everyone, not just the few.

And that's an emerging trend we'll stand behind.

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