Doorify Real Estate Podcast

UNC x Doorify Quarterly Roundtable Discussion: The Real Barriers to Affordability in Today’s Market

• Doorify MLS • Episode 87

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Home prices aren’t falling, but affordability is. Despite rising inventory, the Triangle market remains tight and the pressure on homebuyers keeps climbing.

For this quarter’s roundtable, I brought together some of the sharpest minds from UNC Kenan-Flagler to unpack what’s going on beneath the surface of our local housing market. Jacob Sagi, Roberto Quercia, Jim Spaeth, and Eric Maribojoc joined me, along with board members John Wood and Matty Brown, to dig into the numbers and the bigger story. 

From aging buyers and shrinking school enrollments to the real impact of land use and infrastructure gaps, we covered the challenges no one’s really solved yet. We also looked at what markets like Houston are doing differently and what North Carolina might want to pay attention to. 

Listen in to hear what the data’s telling us and what we might actually do about it.

Specifically, this episode highlights the following themes: 

  • How housing affordability has changed across the Triangle since 2020
  • The shrinking school-aged population and what it signals
  • Why zoning reform and infrastructure investment are key to long-term solutions

Links from this episode:

1ae5b43598204883b524f061d4880e6d10fca88c (for podfollow.com)

John Wood [00:00:00]:
So far, we have sustained in the Triangle area with no real price reductions. We're floating right around par for each of the last three years. A little bit of growth in some areas, but that'll be the telltale sign in the future, is if rates do not find a way to normalize or if incomes do not go up, which is also what drives that affordability. It's been an interesting ride. I don't know what we have for the future. Obviously, the early slide about interest rates not coming down is not ideal for the future of growth. Growth in real estate right now.

Matt Fowler [00:00:40]:
Hey, everybody, it's Matt Fowler again. I am CEO of Doorify MLS here in North Carolina, and this is our quarterly roundtable discussion about housing with our friends over at UNC Keenan Flagler Business School. Jacob, tell us who we have on the call today.

Jacob Sagi [00:00:59]:
I guess I'll start by introducing myself. I'm Jacob Sagi. I'm a professor of finance and real estate at the Kenan Flagler Business School at UNC Chapel Hill. I'm also the faculty director of our curriculum at the real estate programs that we oversee here at the business school. And with us today, we have Jim Spaeth, Eric Maribojoc, and Roberto Quercia. I will let my colleagues introduce themselves.

Jim Spaeth [00:01:26]:
Well, I guess I'll go first, since you mentioned me first. My name is Jim Spaeth. I'm a professor of the practice in real estate finance here at UNC Kenan Flagler Business School.

Eric Murray BoJack [00:01:35]:
Hi. This is Eric Murray. BoJack. I'm also a professor of the practice of real estate finance and concurrently the head of the Housing Affordability Initiative at the Wood center for Real Estate.

Roberto Garcia [00:01:49]:
Roberto Garcia, professor in City and Regional Planning. I do research and teach on the economics and financing of affordable housing.

John Wood [00:01:59]:
And I'm John Wood. I'm the chair of the DORFI MLS Board of Directors. And I'm also the broker owner of ReMax United in the Triangle area.

Matty Brown [00:02:08]:
And I'm Matty Brown. I'm on the board as well with John. I'm the co chair. I'm with Long and Foster and part of a large team called Triangle Specialist team, But we're under Long and Foster.

Matt Fowler [00:02:19]:
Thanks, everybody. And John and Eddie, I know you guys have been in the business for a long time. Both of us. All of us have a little gray on us, so I won't ask you for the date, but we've got some real experts on the call with us today, and Jacob and his team always produce the deck for us. So I'm driving Today, but I'm going to let Jacob tell us what we see. And Eric, I think had a big hand in producing the document as well. So you guys just chime in and tell me when you need the next slide and we'll get started. Really exciting start of the year so far.

Matt Fowler [00:02:51]:
I'll chime in with some Doorify statistics as we move along. We're closing in on $7 billion in sales should happen in the next few days, which is tracking, believe it or not, a little behind the already slow 2024. Take it away, Jacob.

Jacob Sagi [00:03:06]:
All right, very good. So if we can go to the next slide. It's my one and only slide. When someone says mortgages, I guess that's my cue. And after that we'll let my colleagues take it away. So I just wanted to call some attention to what's happening in mortgage markets. I think we've all felt it in the last few months. Mortgage rates have, you know, threw us a little bit of a, of a, of a teaser coming down a little bit after January, but then popping back up.

Jacob Sagi [00:03:36]:
And you can probably correlate that with concerns over largely inflation coming from things like folks worried about prices, maybe the consequences of tariffs, maybe consequences of fiscal bloat in the budget in the future. And you can see some of this sort of panning out with the consensus forecast as we're seeing it from various quantitative sources. If you were to ask market participants who bet on these sorts of things, what they are telling us according to these bets is that mortgage rates are gonna stay relatively high and maybe tick up a little bit closer to just a little north of 7%. That's not necessarily great news for home buyers. At the same time, I do believe we've had recent news of more inventory coming into the market and perhaps more afford construction of new homes. And so we are seeing people adjusting to this reality of a higher mortgage rates and some of the builders producing homes that are a little bit more affordable and also finding creative ways for home buyers to come in and buy those properties. And I think that's going to wrap it up for me. I'll hand it off to one of my colleagues for the next slide.

Roberto Garcia [00:04:49]:
I think I'm next. I'd like to just piggyback on Jacob's comments and before I go into the demographic slides, I do think that this year will be complicated or difficult year for housing. Really, that's an understatement. And on the bright side, if you look at national trends and that interest rate curve that was shown, there are Geographic differences. And the Saudi seem to be kind of the shining star in a lot of negative data. So they headwinds on that obviously stuff that Jacob mentioned, budget tariffs. He also didn't mention immigration. That also expected to have an impact on labor cost and housing going forward.

Roberto Garcia [00:05:37]:
If you look at the statistics on new starts, I think it has gone down. And so again I see a lot of turmoil over the next few months and the rest of the year. The talk in Washington is that probably Fannie and Freddie will be privatize or at least they attempt to next year. So that would create another wave of uncertainty in the market as a transition from government conservatorship to the private sector. What's really fascinating with this report from the NAR and the demographic changes about the market and the fact that given the age, we expect millennials to be kind of the one pulling the market with new home buying and forming families and all this stuff. And we don't see that much of the market seem to be driven by older people, like all of us. In a way it's not surprising. If you look at the age of home buyers in this slide, about half of them are or close to half of young boomers and older.

Roberto Garcia [00:06:35]:
So we are looking at 60 and older. And if you look at the next slide at the age of sellers, it's also similar than most other activities at the high end of the age distribution. Many of these are probably people that are retiring, moving either up or moving to other areas using the equity in their homes. Younger people, especially millennials, are still loaded with student debt. They got a break during the post Covid years. But I think things are changing now, which makes I believe younger people much more cautious about their purchasing a home. And as we can see here by the people who finance their much higher levels at the younger age than as you get older, you pay more cash, which makes the market that is predominantly older is much less sensitive to interest rate changes than maybe we expected to be. Given Jacob's chart, there is a trade off to that.

Roberto Garcia [00:07:42]:
As we all know in the past, as interest rates go up, sellers typically lower their asking price. I don't see that happening given the amount of cash buyers in the market. So we may see both a continuing increase in interest rates, as Jacob mentioned, but also even maybe slowing down, but not a negative will be positive growth in prices in houses. The way I see it, and the last slide of my deck is really a fascinating one to me that is about the kind of the different generations and what marks their main characteristics the one about generation C, the youngest people, is that almost half of the buyers are single. We used to buy homes when we formed families or want to start having children. Now it seems that a lot of younger people are doing that again. You know, they hire a large part of the world combined market. But to me it was a striking statistic.

Roberto Garcia [00:08:45]:
Younger millennials produce the most first time home buyers, about three quarters of them. I think there's something about the. Although they may not be the dominant force in the market, they're still part of that market. All the millennials are. A quarter of them are non white. So this is where we have more diversity of home buyers. And it suggests to me that maybe for people of color that may be saddled with more student debt or other issues, they may have to wait longer to purchase than their work counterpart. Generation X got my attention.

Roberto Garcia [00:09:20]:
I cannot explain this about the multi generational housing. There are one in five are likely to buy homes with extended family. And others younger boomers, 16% do so for retirement when they trade, buy or sell. 51% of older boomers are paying cash. And it also surprised me to see that silent people in their old age still buying homes, a third of those being veterans. So to me suggests something about where the market is going in terms of what the stock should look like going forward. And I'm wondering whether the developers are actually looking at these kind of statistics in terms of developing products. I think Jacob mentioned building smaller homes and cheaper homes.

Roberto Garcia [00:10:07]:
But there is a lot more complexity here, I think. I was really surprised how insightful this report by your colleagues were nationally about the demographics driving the market. And I think this piggyback well into Jim's part of our local demographics and children. Jim?

Jim Spaeth [00:10:28]:
Yeah, sure. Thanks, Roberto. Yeah, so if you want to click through there, Matt, I've got two slides I'd just like to speak to briefly. Click one more. So I took a look at seven local school districts. So six counties. But here in Orange county we have not just Orange county schools, we also have the Chapel Hill Carr City schools. So I used DORFI data for each of those school district boundaries.

Jim Spaeth [00:10:56]:
And what you can see on this slide is you can see the. And I looked only at single family residential homes. So this doesn't include towns. These are single family residential multifamily, no towns. It's just single family residential homes. You can see the median single family residential price as of April 2025. In the next column you can see the median home price as of 2020. So this is over the last five years.

Jim Spaeth [00:11:21]:
So think of April 2020 as the start of COVID Right? We didn't have Covid pricing in that yet. And then April 2025 is the latest day that you can see today. And if you just glance at those first two columns, you notice a couple things. One is housing prices have gone crazy over the last five years. That's not surprising to anybody probably listening to this podcast, right? And you can see even in the lowest cost counties, let's take Alamance in that first row. In 2020, the median home price was 202. Today it's 334 significant increase. Now look at just at the first column.

Jim Spaeth [00:11:53]:
Alamance county is still significantly below most of the other counties and then Chapel Hill, Carrboro for sure in our region. So quick takeaway here is everybody's seen a large amount of price appreciation over the last five years. And there's still a kind of a stratification, if you will, between the counties where you can buy a lower price home, say Johnston County, Alamance county, and then places like Chapel Hill, Carrborough or Chatham county, where those homes are going to cost effectively double which the median home would cost in Alamance or Johnston. So, all right, that's probably not surprising anybody. What may be a little bit surprising is what effect that's had on the local school systems. So I want to take you to the columns 3 and columns 4 for a second. So same period of time, April 2025 in the third column, April 2020 in the fourth column. And now we're looking at home affordability, and this is defined by the DORFI statistics is essentially what percentage is the median income in that area? What percentage is that of the median home price? So in other words, if this number home affordability was 100, that means the median income in that community was equal to the amount that one would need annually to purchase a median price home, given pricing and also financing considerations.

Jim Spaeth [00:13:14]:
So obviously, in addition to the increases in price, we've also seen an increase in the cost of financing. So if we look at the fourth column back in 2020, again, think very start of COVID All of the counties, all of the areas on this slide had a home affordability index of 100 or better. The lowest number there is Chatham at 111. The highest is Orange at 198. Which meant in 2020, the median income in Orange county was almost twice the amount needed to qualify for the median house in that area. Right. So we were looking good in 2020. Then let's look at the third column, 2025.

Jim Spaeth [00:13:52]:
You can see we've had massive reductions in our ability to purchase homes. So home median incomes have gone up, but prices and financing costs have gone up faster.

John Wood [00:14:04]:
Correct.

Jim Spaeth [00:14:04]:
So Orange county went from a home affordability index of close to 200 to about 75. That's the biggest reduction in affordability in all these areas over the past five years. But everybody has seen a reduction in effectively at least 50%. All right, so homes are 50% less affordable today than they were five years ago. Combination of price appreciation and financing conditions. Again, probably these numbers, while they're striking, probably are things that everybody on this call has heard before. But let's look now at what that's done to the local school populations. So if you click to the next slide, Matt, I've plotted here on the y axis the 5 year change in K12 student population.

Jim Spaeth [00:14:47]:
All right, so every school system does what they call a 10 day count at the beginning of the year. That's the number they use for their attendance, official attendance with the state of North Carolina when they request funding and report their numbers. And so every year schools have to take a 10 day count, report that the state. So what you're seeing plotted on the Y axis is what's the change in that 5 year population at that 10 year count. And this is the K12 population in each one of those districts. So you'll see one district, Johnston, had a slight increase in K12 student population. The worst performing district, Chapel Hill Carrboro City schools, had a 10% decrease in its school age population. Now let me pause here before I get to kind of the relationship with housing.

Jim Spaeth [00:15:28]:
A couple things could be going on there in addition to what I'm going to posit that the housing stock is doing. One is Covid was a major disruption to K12 education. So there may be some students that left the system and became homeschooled and never came back into the system. The other thing that could be, although you see, sorry, when you see, look at the data, most school systems saw a decrease in 2021, 2022, and then an increase back in 2023, 2024 into this year. Right. The other thing that could be happening is you could see a transfer of students out of the public schools into private schools. And so there has been movement at the state level to provide additional tools to families who wish to take their kids from public schools into private schools and make that more affordable for them. So there's probably some effects there going on.

Jim Spaeth [00:16:13]:
But what's striking here is that with the except of chccs. And we'll come back to that in a moment. There's a pretty clear kind of correlation between the amount of student population, the jurisdiction lost and the change in home affordability over those five years. Right. So remember I told you Orange had the worst change. Look at orange. A negative 62% change in home affordability went from 198 to 76. It's a 62% decline there.

Jim Spaeth [00:16:40]:
Right. 62% reduction in home affordability. About a 6% decrease in the number of students in that district today than there was in April of 2020. And on the other end of the spectrum, Johnson and Durham, while still seeing dramatic decreases in home affordability, both over 45% reduction, home affordability are essentially about the same as they were in 2020. Now to Roberto's comments, some of that's because we have a changing demographic in the United States, a changing demographic in the state. We older, there's less kids. Right. So that could be a part of it.

Jim Spaeth [00:17:20]:
But my argument is looking at this data, that it could be people are choosing locations based on more affordable homes. Right. And I see this here in Chapel Hill. I'll come back to it here. 10% reduction in student population. So Chapel Hill has approximately in 2020, about 12,000 students in 2020. Today that district has like about 10,700 students somewhere in that range. Right.

Jim Spaeth [00:17:46]:
That's an entire two elementary schools that don't exist anymore of kids, just to put that in perspective. Right. Those are two. If you took all those kids out of those elementary schools, you have two vacant buildings that you're still own and you have to operate. So there's serious questions for the districts. There's also serious questions for the people that live in a place like Chapel Hill. What Roberto was sharing is that we have a lot of people that are age 50 or higher that are selling and they had grown up in Chapel Hill with students. I think what this is telling us in some way is that those people are not being replaced by a younger family that have students coming into the district.

Jim Spaeth [00:18:21]:
Those people are probably being replaced by an older couple. Right. Those are the buyers without kids, especially in a high cost district like Chapel Hill. So it will be interesting to see how this goes forward. By the way, if you take CHCCs out of this and my posit I'm. My theory on ChCCs is that's a very high income community. Probably some of those kids have chosen to go to private school. But I also think the community has kind of priced itself out of younger families.

Jim Spaeth [00:18:48]:
And we're just not seeing them come in the community. And that has a lot of, you know, I think repercussions for us in terms of the types of housing stock that older buyers are going to want compared to what we've had here in Chapel Hill for the last 60 years. I'll just end and we can talk about Jacob's comments, my comments, Roberto's comments before we get to Eric's if we want. But I think we have to keep a very close eye on this because it has some serious ramifications for local school districts, for the communities around them, the types of people that are moving here on the housing stock they're going to want.

Matt Fowler [00:19:19]:
Let me ask a question, if I may, Jim, before we get to Eric's slides, John or Eddie, in your practice, have you seen indications of some of those demographic trends that we were just talking about, the older buyers replacing young families? One of the suggestions I just made.

John Wood [00:19:36]:
What I feel we've been seeing and certainly the again price has got some of that effect on it, is that those with younger children and school age children are moving less right now. And obviously all the statistics show that. And part of that is they're sitting there with a three, three and a half percent mortgage. So they might not have had a life event that causes them that pain to want to move. Life event being kids have gone off to college or they've added more kids or I think divorce is one of the things that has caused some movement in that demographics a little bit. But we have not seen the typical move up buyer continue through in the same rate we have in the past. And I think mortgage rates have a lot to do with that affordability and appreciation for those already in the market. They've gotten some good appreciation unless they bought at the peak of the market a couple years ago.

John Wood [00:20:30]:
So they've got some, some equity. They just don't have that ability to want to move and go through the school change threat from where they sit today.

Matt Fowler [00:20:40]:
So you are, you are kind of seeing that out there.

Matty Brown [00:20:43]:
I'm also seeing that it seems like the younger millennials that say 28 to 32 year range, I would say that they are, their mindset is changing about how they want to live. A lot of them are getting away from wanting to be in that downtown urban area. They're wanting to get out where they've got a little bit more room to spread out and have a little bit more acreage and those type of things. So I'm seeing that I Live in southern Granville County. And we've got six new subdivisions going up within about five miles of where I live. And all of them are going to be what I say, affordably priced. Of course we're in Granville county, but we're just right across the Wake county border. And so I think that's going to push a lot of those people that would have bought in Wake county into southern Granville county to buy where they can get an acre of land, a little bit more footage, that type of thing.

Matt Fowler [00:21:42]:
Yeah, we talked about this at the last quarterly meeting where the mortgage guys say you drive to you qualify. That means Granville County, Alamance County, Harnett county, where we see a lot of growth. We published a chart earlier in the year that overlays new builds versus resales. As you said at the beginning, Jacob, the home builders are recognizing that like 300, 375 price point as the, you know, high demand, lower middle of the market. And we're starting to see a lot of that inventory in that price range. You still see a lot of the 5 and 600 new builds and up. But out in these new developments we're seeing a bunch of new builds in that 300, 400 price range.

John Wood [00:22:27]:
So you know, when the comments came up about the surprise of how many multi generational buyers home sales we're seeing, I think that's a direct reflection as well as to the cost of care for our seniors and our parents. And as that cost has continued to rise so much for them to move into retirement villages or assisted care, we're seeing a lot of families re look at where do they want, you know, what else could they do with that money and housing often can be that. And we're seeing sometimes that parent bring their equity into the scenario with their child and co buy a home or do an addition to a home to provide a place for them to live. We're also watching more grandparents, as I'll call them, who are splitting time in different parts of the country with different of their children. And in many cases they're having at least some sort of in law suite in each of those locations. And that allows them to live comfortably and not disrupt the family life of the the younger family, younger children, but allows the grandparents a more reasonably priced way to travel between their grandkids.

Matt Fowler [00:23:36]:
What an affirming trend. I think looking at the ages of people on the call, I think several of us are probably dealing with parents in that stage of life. And I live in Durham where the regulations are very friendly to adus like the Detached mother in law suite in the backyard as they used to be called. I think that's the example, one of the examples of the smart land use policy that Doraphi really tries to advocate for. If you look across the 16 county coverage area, I don't know how many municipalities and different zoning patchwork of zoning regulations that is, but it's a lot. And we talk a lot about the work that the Urban Land Institute is doing, the Realtor Land Institute, the other organizations around that are trying to advocate for a smart North Carolina. I think we've all driven through cities, I won't shame anyone out there. Driven through cities that we don't want to live in because of the way they did growth.

Matt Fowler [00:24:31]:
We have patchworks where it's going to be better to live in some places than others. And I think we could do better looking at the way we integrate transportation and utilities and other things. And we just try to hope that the policymakers out there as well as our subscribers understand that we do have a ton of data. We're about to talk about land that you can use to make more data driven decisions hopefully.

Roberto Garcia [00:24:58]:
I wanted to just take a point John made just about the lock in effects of low interest rates, people not wanting to move. I read a note recently that said that rates got to get closer to 5% to open that supply. So based on Jacob's graph, the foreseeable future is not there yet.

Matt Fowler [00:25:20]:
Yeah, I've seen several predictions. Dr. Lawrence Yun from NAR was at a conference that I attended recently and he has a similar projection. Not much improvement generally speaking. And retail mortgage there are, as you indicated earlier Jacob, all sorts of creative ways because of the situation to lower the, you know, the height of that first rung on the ladder through fractional or non traditional mortgage financial instruments.

Roberto Garcia [00:25:50]:
I see a dark cloud in there as well. Sorry to be a rainmaker here today. I think the higher cost of construction and labor due to immigration policies studies and others would make developers less likely to offer concessions whether it is reduced rates or add ons. Add ons. I think the first place we are going to cut would be in their concessions. So I'm not sure how long those will last if we cut them at the moment.

John Wood [00:26:22]:
I hear you in that. I also feel like the building companies that are especially are Wall street related companies. They have to find a way to move inventory and make things happen. And what we're watching them do is pile a lot of money into those incentives and sometimes into the mortgage rate. And we have seen permanent 30 year fixed mortgages drop a point, a point and a half, you know, below where the street rate is. And you know, not just a 2:1 buy down, but we've seen a permanent buy down of some of these and that has driven buyers into neighborhoods. They might. They make some concessions to live there because it's more affordable or better.

John Wood [00:27:03]:
You know, it comes together. So each builder is taking a little different avenue to this. It's the non Wall street builders that are kind of going to certainly pull back on their concessions because they're not trying to drive a stock price with their decisions, they're trying to drive just a small business profit or not.

Roberto Garcia [00:27:21]:
Good point.

Matt Fowler [00:27:22]:
They're getting squeezed though. Yeah. By those rates. So we'll see how that plays out. That's super interesting. I've been tracking new construction really carefully. It's the way that the housing shortage is getting solved now. So Eric, I think you had some slides about land and before we dive into land, when we were looking at the deck before the call started, our visibility at the MLS is less clear into land because of the.

Matt Fowler [00:27:50]:
A lot of big tracts, industrial and large home buyers or builders buy land that was never listed on the mls. It's more of a commercial sort of thing. We have some information and we have access to others. So we're really interested to see your thoughts on it.

Eric Murray BoJack [00:28:06]:
Right. Yeah. I wanted to touch on this topic as a follow up to the previous topic. We talked about why we're not seeing starter homes anymore as we traditionally used to. And stepping back further, part of that may be because of what's happening to residential land and lot development. And there were a couple of reports that came out late last year and in the first quarter of this year that I wanted to highlight that may help us think about, you know, the land issue. And if you go to the next slide, I did start off by looking at Doorify data. It is true that land markets are difficult to find information on.

Eric Murray BoJack [00:28:51]:
A lot of the transactions are private transactions. A lot of the larger transactions do fall into the commercial real estate space. But I wanted to see whether the Doorify data, historically at least provides a proxy for what's happening to land markets in our area in the Triangle area. So I was curious. So I plotted all of the data for April, starting with April 2025 and going back to April 2010 of how many listings there were for residential land for sale, just to see if there was a trend line that we could use as a proxy. And when I charted it, there was a pretty clear trend that there's less land available for sale on the MLS and for the last couple of years, where house prices have really spiked in the last five years, it's standing at about 25% of the number of listings that there were in 2010, 2011, where we had more land available. And so I was curious to see what that did to prices, given that we have less land now listed at least as a proxy on the Dora mls. So if you go to the next slide, these are median sales price per acre.

Eric Murray BoJack [00:30:13]:
And it's a little bit choppier than the trend we see in number of listings. But so I tried to do what were the average median sales prices from 2010 to 2019, which is about $19,000. And what are the median sales prices when there's a lot less land available for sale on the MLS and it's about double transaction prices are now about 38,000, which is probably a good proxy for what's happening to the land market in general for residential. So I started with that observation and, you know, got into some of the reports that I've been looking at for the last quarter about what's happening to residential land and how that's affecting the pricing for new construction. So if you go to the next slide, this is reports from the national association of Home Builders. This came out last quarter. They survey about 4,000 of their members. In this case, they took as the.

Eric Murray BoJack [00:31:16]:
What was the average sales price they built to. This also gives us an idea of average lot size and what the average house size was. So you see there on the top right hand corner, the average lot size, almost 21,000 square feet, which a little less than half an acre. And the average house size is about 2,600 square feet, which is a fairly large house. And not surprising, that house is $665,000 on average. But they also tell us what their land cost is, which is that first number, which the average land cost to a home builder right now is $91,000, which is about 14% of the cost of the house. And this is a survey of 4,000 home builders. So if you go to the next slide, it's typically different than what we get from the Bureau of Statistics, which is a much larger survey, not just of home builders, but, you know, custom builders, self builders and so forth.

Eric Murray BoJack [00:32:22]:
So their house prices are a little bit lower than this NAHB survey, But the trend is the same. The trend is for higher house prices and therefore most likely much higher land prices over time. And if you go to the next slide it then shows us the average size of a lot. The blue line is the Bureau of Statistics. And even they report that the average square footage of a lot, while not as high as the home builder survey, is about 15,000 square feet. It's about a third of an acre. And so there is always a correlation between the size of the lot that you're building on correlated with the cost of the house that's built on it, primarily because the larger the lot, primarily the larger the size of the house that gets built on it. So there's that correlation, and maybe a reason why we're not seeing our traditional starter homes is because we just don't see enough of the smaller lots.

Eric Murray BoJack [00:33:28]:
And we'll kind of get into that later on. So if you go to the next slide, I tried to find a couple of sources of how to think about what are the trends in pricing and supply of finished residential lots that's kind of affecting how we build new construction and the price at which we build new construction. So there's a couple of studies that kind of give us an insight to that. It's very expensive to tap actual land data. So fortunately, there are some publicly available indices. So first, Indies that I like to use is produced by a company called Zonda. They not only survey land developers, but they use satellite imagery to confirm the status of residential lot development. They have an index that basically says, is the United States producing enough lots, finished lots, so that we can build enough houses and make our housing markets in an equilibrium? By definition, on equilibrium is there's enough houses for demand, and therefore affordability is manageable.

Eric Murray BoJack [00:34:45]:
100 is perfect equilibrium. 85 is still okay. 75 to 85, you're slightly below equilibrium. You have a shortage of lots, but a slight shortage. Below 75, you're severely undersupplied. And the lower you are from 75, the more severe the undersupply. So this is a national chart. It shows you that as a country, we became severely undersupplied.

Eric Murray BoJack [00:35:14]:
Starting in about 2017, we started slipping below 75. And then that really accelerated right before COVID and during COVID into 2022, where we slipped into the 30s that since recovered, and we're now hovering around 60. So as a country, we are still severely undersupplied for finished residential lots. And that's keeping some constraint on supply, but also some pricing pressure on what a new house costs. Fortunately, if you go to the next slide, Zonda also does this by metro area, and there's some metro areas that are actually Doing well. They are balanced. Austin, Atlanta and Dallas were balanced. These are all end of 2024 numbers.

Eric Murray BoJack [00:36:10]:
San Antonio, another Texas market, is a little bit undersupplied, but most of the country is severely undersupplied. And if you look at Charlotte and Raleigh, Charlotte is at 60 and Raleigh is about 48.5. So by Zonda's definitions, our area is severely undersupplied with lots to a point where we cannot get to a balanced market. And we need more lot supply, we need more new construction in order to get us there. So that's one way, you know, one way that we can use to. This index comes out quarterly. So that's one way we can use to think about where we are in terms of do we have enough land ready to build houses and impact our affordability issue.

Matt Fowler [00:37:10]:
Wow, Eric, does that work the same way as the affordability index? So 48 means there's half as many lots as we need.

Eric Murray BoJack [00:37:19]:
I think the algorithm is different. I don't have the actual algorithm other than the external explanation that I overlaid here in this slide, but they, you know, I was trying to get their definition of equilibrium, which is. Which is interesting. Right. And it. I don't think it's quite the same as just income and the median house price. So I unfortunately don't have that exact.

Matt Fowler [00:37:44]:
I'm sure it's a different. A different formula, but expressed as an index.

Eric Murray BoJack [00:37:48]:
Yeah. It's basically the same concept that 100 means that your housing market is at equilibrium where affordability is manageable. You know, affordability is not out of whack, but it's the same concept. You're correct with the affordability.

Matt Fowler [00:38:03]:
Yeah. So either way, we're very low in terms of lot supply, which has got to have a significant impact on.

Eric Murray BoJack [00:38:11]:
So if you go to the next slide, I tried to look for another way to look at trends. And this is from the Bureau of Labor Statistics, basically saying how many man hours are allocated to this particular. In this case, this is residential building construction and it's a proxy for production. So you can see these are people building houses. So we had a big drop, of course, where during the Great Recession and now there's more people working in the residence construction. And yes, we are almost back to the numbers where we were in residential home building. But if you go to the next slide, which is lot subdivision, you can see that the number of hours that the BLS tracks for people working in the land subdivision business, land acquisition, land entitlement, and preparation of subdivisions for construction has not recovered. Jim and I were actually talking about this yesterday.

Eric Murray BoJack [00:39:13]:
We used to have a lot more of our graduates going to the home building industry, and we no longer see that. And I was thinking to myself, this might be indicative of why that is. There just hasn't been a recovery of manpower dedicated to this particular economic endeavor. And maybe it behooves us as people who are working on the talent pipeline, that maybe this is a part of the real estate development industry that kind of needs more talent and skill to recover to what it used to be. Productivity helps, maybe they're more productive, but real estate in general doesn't have high gains of productivity. So this would probably tell me that we just don't have as much people working on lot production as we used to back in the 90s and 2000s. And that probably reflects a lot on the state of house of lot supply in the country. And then in.

Eric Murray BoJack [00:40:23]:
And then the third, you know, if you go to the next slide, the third way is these are surveys of the builders themselves. NAHB has a periodic survey that asks the builders, do you feel like you have low supply of lots or extremely low supply of lots? Those are the brown bars that are measured by the vertical axis on the right. It's superimposed on the blue chart. We're just housing starts. So this survey asks the builders. So as you can see, in the 90s and the 2000s, we were building a lot of houses over 1.5, as much as 2 million units a year. And about 50% of the builders were complaining that they have low supply of lots in their markets. Of course, the recession happened.

Eric Murray BoJack [00:41:18]:
Lot supply creation disappeared. For a few years, we had a large supply of lots that were created. So you can see that the home builders in 2019 and 2010, the ones that were building only 20%, 10% of them thought there was a shortage because there was tons of lots available. But as people kept building, that overhang started to get used without any creation of new ones. So by the time the industry started building again in about 2013, then the builders started complaining again about shortages to a point where about 2014, which is kind of about where house prices started to accelerate, about 60% of builders were complaining they had very low supply. That kind of persisted and spiked. Actually in 2022, which was 75% of builders thought there weren't enough land. And right now it's hovering at about 68.

John Wood [00:42:18]:
Hey, Eric, got a little insight on some of this as well.

Eric Murray BoJack [00:42:22]:
Yeah.

John Wood [00:42:23]:
Coming out of the recession, we watched more of the national and Regional builders control more markets than they did prior to the recession. And with that. So when you look at the number of builders complaining, it has been a very, a much more difficult time for that smaller shop, whether they're building five homes or 25 homes a year to find land. And what they have gone to and what, you know, is not able to be completely tracked in this way, at least in the data we have today, is they've gone to buying older homes, tearing them down and developing their own, their own lots in that way. But, you know, we were on market at one time back in probably pre great recession, that somewhere in the 50, 55% range of the homes being sold were local or small regional builders. And that flipped to probably, you know, 20 or 25% at most, and that could even be lower now.

Eric Murray BoJack [00:43:22]:
You're correct. So the recession did wipe out a lot of these smaller builders, and there's been a lot of consolidation. So the top three public builders, Pulte, NVR and Dr. Horton, I think they build about 20, 25% now of all new homes in the country. And so therefore they have a lot more clout to control land, especially, you know, being publicly, publicly financed. And we just don't have. Yeah, we just don't have the same number of small home builders that used to build a big chunk of our, of our supply. So, yes, that's definitely, definitely a factor here.

Eric Murray BoJack [00:44:06]:
So if you go to the next slide, the same survey asked the builders, what was your biggest issue in 24 and what's the biggest issue you expect in 25? Interest rates and inflation were the top three, but right after that is cost and availability of lots. So it continues to be an issue for builders and therefore a big part of their calculation for cost. So if you go to the next slide, so what typically happens? How do you get more land and more lots of in order to solve this issue? Well, as somebody had mentioned before, yeah, you can go further. You can just drive till you qualify. And though you develop lots further away, that requires local government to facilitate infrastructure. We do a pretty good job with roads, but water and sewer are number one problems. And then we need shorter and simpler entitlement processes to get those lots into play. We can use the same land and build taller high rise.

Eric Murray BoJack [00:45:12]:
So that calls for zoning and up zoning. High rise, which is kind of defined as over seven stories, is expensive to build. So it's typically most suited to places with public transportation, high density, high amenities. So in our area, there'll be like downtown Raleigh and surrounding downtown Raleigh and the third way is infill, using lots that are located already in developed areas or with another use and adding more units to them. Sometimes that's called gentle density zoning. So the whole host of business models missing middle adus, some of those were called for building reform, you know, such as single stair egress, so we can build taller buildings and smaller lots, reusing different types of land, you know, for, you know, office and retail. Now for residential, there was a whole host of legislation proposed in North Carolina this year that addressed all of these, and I think so far none of them had made it through crossover. But we'll see how many of those legislative packages go through the legislation.

Eric Murray BoJack [00:46:38]:
But certainly a lot of the local jurisdictions are kind of experimenting with one or more of these different ways to create more land or use land more efficiently for more units. Next slide, please. The one approach that we can also do, whether we're building further away or building infill, is addressing minimum lot sizes. So that is one way to take land, the same piece of land, and if you reduce the minimum lot size under zoning that you allow on that land, you can create more lots. And with smaller lots, you can also create smaller houses, which by definition would be cheaper than a large house. You know, if your lot is, as we saw in the survey, half an acre with a 2,600 square foot house on it, you know, that will not be affordable to a big part of the market. And that's what we've been overbuilding in many markets is large lot subdivisions. We have a lot of them now, and we have a little bit of an overhang, actually, with new housing supply, because the amount of people that can afford that is getting smaller and smaller.

Eric Murray BoJack [00:48:00]:
Just like we overbuilt luxury apartments, we have the same issue now with large new construction. So in this case, there's two studies that came out, one in 23 and one in late 24, by a colleague of mine actually, from George Mason University that took a look at Houston, Texas, as a case study for what happens when you reduce minimum lot sizes. Houston is interesting because they did it a long time ago. Houston used to have a minimum lot size of 5000 square feet. In 1998, they reduced that close to the inner core to 1400 square feet. And if you were further away from the city core of Houston, they reduced it to 3,500 square feet, which was very aggressive at that time. So you could, by right, build a house on 1400 square feet of land. And what that did to Houston is it exploded.

Eric Murray BoJack [00:49:01]:
The number of houses actually that was produced within the city limits. If you go to the next slide, one thing that happened is it allowed a lot of the missing middle duplex, fourplex, triplex that cities have been trying to do in the last couple of years. The blue here is duplexes. The other colors are triplexes and fourplexes. So as you can see, in 1998, after a few years, the number of these types of properties went up fairly rapidly. In 2013, they made a amendment to the minimum lot size legislation that says now all of Houston can have 1400 square foot lots. That was the amendment done in 2013. And that led to even faster creation of smaller duplexes, smaller unit duplexes and triplexes.

Eric Murray BoJack [00:49:58]:
But these types of properties weren't actually the most number of properties that were built. If you go to the next slide, what was actually built were small detached houses. That was the largest number of houses that were built. What we used to call starter homes, 1400 square foot or below. Houston built a lot of because of the minimum lot size amendments. They also built townhomes, but not to the same degree as they built small lot detached. And so if you go to the next slide and that's persisted to today, these are the percentages of homes that are built on lots below 5,000 square feet. So this goes to 2020.

Eric Murray BoJack [00:50:46]:
In 2020, inside their inner beltway, about 65% of their new construction is on lot below 5,000 square feet. And then outside of their beltway it's about 45%. So it still persists today. And of course, Houston is well known as one of the more affordable cities, even though it's a fast growing city in the U.S. of course, Texas has a lot of other tools that make affordable housing more affordable. It's not just minimum lot sizes. They do a lot of infrastructure spending. They have shorter, they have shorter pre development windows.

Eric Murray BoJack [00:51:27]:
They have faster entitlement processes. But Houston in particular used minimum lot sizes as one of the tools in order to drive affordability in their community. So if you go to the next slide, this is just showing you how many units that they produce. So certainly a tool that they used to keep high levels of production in Houston at more affordable levels.

Matt Fowler [00:51:59]:
Sorry, this is total units, right, Eric?

Eric Murray BoJack [00:52:01]:
Yeah, these are total units per year that they built. Yeah. So on the next slide, I just wanted to end with coming back to.

Matt Fowler [00:52:09]:
Us.

Eric Murray BoJack [00:52:12]:
How do we then look at our land? This is a report that came out late last year from a group called the National Zoning Atlas Project. If you go to their website, They're a very interesting group. They look at a metro area, read the zoning laws of all the jurisdictions in that area, and then try to standardize all of the zoning laws and come up with a snapshot of how we use our land. So they came up with metro Raleigh, 30 jurisdictions in metro Raleigh and metro Durham, 12 jurisdictions. So they read all the zoning codes, residential zoning for residential, and sort of come up with this how we use our land and sort of. I thought it was a good way to end a discussion on on land and housing. So if you go to the lower left, the blue bars, that is how easy we make it to build plexes. The first bar is single family.

Eric Murray BoJack [00:53:22]:
The other bars are duplex, triplex and fourplex. Raleigh has some land zoned by Wright. Durham has a lot more land zoned by Wright for duplexes. But when it comes to triplexes and fourplexes, it's all conditional on public hearing. Interesting to me is the green circle on the right of each chart that is minimum lot sizes. So in Raleigh, for example, we only have 4% of the land in metro Raleigh that has a minimum lot size of 11,000 square feet. The biggest one, the dark green, is two acres or more. In Durham, we even have less land zoned for less than 11,000 square feet.

Eric Murray BoJack [00:54:08]:
And a lot of the land is zoned half an acre or more. And finally, the orange circle is how much of the land allows for an accessory dwelling unit. Both of them have done a pretty good job compared to the rest of the country. Durham area, most of the land has some sort of ad ordinance. Raleigh, a big part of the land. So if people are interested, you can go on their website. They have it for multiple metro areas and it's a good way to think about what kind of policy recommendations or policy can we change in order to come up with better land use and affect home prices.

Matt Fowler [00:54:52]:
That is so interesting, Eric. 99% of the land in Durham has a minimum parking requirement. That is so surprising to me. I've got to unpack this.

Eric Murray BoJack [00:55:02]:
Yeah, the other thing that puts that there, there's information on how much of the land allows for manufactured home paths. 18% in Raleigh and only 1% for Metroderm. So it's very hard to create new manufactured home communities in both. Almost impossible in Durham. Well, metro Durham, not just Durham, Metro Durham, but also pretty difficult in Raleigh, Raleigh, Metro.

Matt Fowler [00:55:34]:
Fascinating data. I saw this when you posted it earlier. Eric, about Durham, that's really fascinating. I hope these guys have an API.

Roberto Garcia [00:55:41]:
As you mentioned, people in our department Actually did this. They are part of that Sony NATLAS project that is nationally. You can get the same all over the country.

Matt Fowler [00:55:53]:
Cool. We're putting together the data sets for North Carolina statewide, and we're interested in adding any kind of, you know, data that would be appropriate to that data set.

Roberto Garcia [00:56:06]:
If you send me an email, I connect you to the faculty in our department.

Matt Fowler [00:56:10]:
Fantastic. Thank you for joining. Well, that's fascinating, Eric. What's what Good data. And this is clearly some huge headwinds to new builds.

John Wood [00:56:18]:
So one of the challenges that we're also running into in the Triangle is that the towns and the municipalities been willing to spend money on infrastructure. As we mentioned in Houston, they maybe are more aggressive about that. But we have, you know, we're talking about lot sizes. Evident on these snapshots is that so much of of Wake county that is undeveloped is outside of any water and sewer. And so the developer has to make the decision of whether is it worth the money to pull that in and at what cost versus just on those larger lots. And we have interesting scenario going on in Harnett county now, which has a countywide water system, which seemed like the answer to Wake County's problems, except for so many of the lines running up and down the roads are too small to accommodate a lot of houses. So they're turning the developers and go, yes, you can build on that hundred acres, but you have to go three miles away and rerun the water line at a larger size and also upsize it for the next for the tract of land next door. And Harnett County's now not promising water rights to anybody, which is creating a whole new set of problems for a county that's going through explosive growth Infrastructure.

Eric Murray BoJack [00:57:37]:
Especially water infrastructure, water and sewer is going to be a constraint to using land for new housing. So it's either the developer spends it and passes it on to the cost, or the municipalities spend it and charge impact and development fees that in some states are a big, big chunk of the cost of housing is these development impact fees. If the county money, they turn around and charge the back.

John Wood [00:58:11]:
Absolutely. And you know, what we find is as our smaller communities, the now Wendell and Holly Springs and Wake Forest that they've gone through this, they have to decide at some point of whether they want to allow you to build up in height. And because that requires new fire trucks and new other things that they don't have. And it's been interesting to watch how each of those towns and their councils have decided at some point where to take that Growth and we're not. And I think we'd have more communities that would have more mid rise buildings if we found a better way to not have so much cost around serving those buildings from the town.

Roberto Garcia [00:58:55]:
Yeah, I think there is a need to overlay this kind of information with the demand analysis. What do consumers want? My guess has always been if I move from New York to here, I don't want to live in high rise. I want to get a nice piece of grass with a house. So the question for Eric is do we see any higher density as we go to places like Chatham county that seems to be growing exponentially with subdivision after subdivision?

Eric Murray BoJack [00:59:28]:
I don't have data on the lot sizes that are being created in North Carolina. I have data on national where lots below 7,000 square feet, they used to be about 30% of the market. You know, before COVID they're now about 40% of the market. So nationally there's more smaller lots being created because of affordability. That's what the developers could sell. I've been trying to track down data for North Carolina. What kind of lots are being created in North Carolina. And that's still a work in progress to get that data and break that down by county.

Eric Murray BoJack [01:00:10]:
You know, what size lots are being created in Chatham, what size lots are being created in Wake or Holly Springs. And that'll tell you how expensive the new houses will be. Because if they're building 10,000, 11,000 square foot lots, you know, those are going to be houses that are going to be, you know, 4, $500,000, 600,000. Interesting to see if there are any, if there are any builders at all in North Carolina that are thinking the same way as Houston. Builders are, you know, as low as, you know, 2000, 30001500 square foot lots. I know of one. When I went to Charlotte, I visited a builder in Mooresville that was doing exactly that. He was building 1200 square foot homes at price points of about $250,000.

Eric Murray BoJack [01:01:07]:
It was a deliberate strategy for him to do that. He needed a waiver from the town for the zoning. He needed a waiver from the town for minimum lot width. So he didn't do it by. Right, unfortunately. And he was only building about 20 homes. So it'd be interesting to see how many builders are actually doing this as a strategy now that we have an oversupply of homes that are large sitting in the market now unsold.

Matt Fowler [01:01:38]:
We've got some of that data, Eric. I'll do some digging and send this group an email when we have the results.

Eric Murray BoJack [01:01:44]:
That would great.

Matt Fowler [01:01:46]:
That was a lot of information. I think. What was it? Ricardo calling us the rainmakers with raining. We have some challenging statistics in front of us regarding housing affordability that has not gotten better as we've been having these quarterly meetings over the last year and a half or so. I think we haven't noted the. I think an astounding fact is that in the North Carolina data that we have that goes back to the early 90s, as that that chart you had originally showed from five years ago, all of those areas were above 100, meaning based on the definition, that those areas were affordable throughout history. They'd never been below 100 until 2022. We didn't see a negative, if you would, affordability index until that recently.

Matt Fowler [01:02:36]:
So most people that have grown up in houses and bought houses and have never experienced a housing market where it was that broadly unaffordable and think the impact of that is still really yet to be. I know my Realtor friends feel it because volume is so down. Volume's actually tracking lower than last year, which was a historically low year. I know there are pockets of production across the network and we're not dramatically down, we're a few percentage points down, but we are tracking a bit behind last year, way behind 2023, Matt.

John Wood [01:03:09]:
And part of that was the perfect storm of coming off the appreciation that we had had of so many homes. And the value is jumping at rates that we had never seen year over year. And then all of a sudden when those interest rates jumped up and they didn't just inch up, obviously we all watched them jump up and that took affordability overnight. And so far we have sustained in the Triangle area with no real price reductions over year. We're floating right around par for each of the last three years. A little bit of growth in some areas, but that'll be the telltale sign in the future is if rates do not find a way to normalize or if incomes do not go up, which is also what drives that affordability. It's been an interesting ride. I don't know what we have for the future.

John Wood [01:03:58]:
Obviously, the early slide about interest rates not coming down is not ideal for the future of growth in real estate right now.

Matt Fowler [01:04:08]:
Yeah, we have inbound migration going for us and scarce availability. Even though inventory is up almost 50% over. Over last year. Matt, Prices have. What was that?

Jim Spaeth [01:04:22]:
Don't you. Back to your comment from a few minutes ago about the historic kind of availability of affordable housing, you know, in the area up until the last five years. Don't you think that we're still kind of living in a bit of denial that, hey, we have a lot of you fly into rdu. Everybody always has this. It's so green around here. There's so much land around here. But Eric's statistics are showing us when you're behind San Francisco a lot, availability, it's not a good thing. Right.

Jim Spaeth [01:04:47]:
And so we may need to have a bit of a mind shift if we're not going to see a reduction in prices. The only way to get that down is to start, as Eric suggests, creating more lots, creating availability. And I feel like we're kind of coasting on historical mindset in North Carolina. There's plenty of land around here. Well, the reality is, given the regulations that we have and the way that we've thought about growth, there's not a lot of land around here. And if we want to, you know, become a high cost housing environment which has, you know, competitive ramifications for us, then we can do nothing. But if we don't want to become a high cost housing environment, we probably need to change something. And that, you know, land would be the first place you would look.

Jacob Sagi [01:05:28]:
If I can just quickly jump in there. It's, it's not just about land use regulation as discussed by several folks here on the call. It's also infrastructure. You know, yes, there's a lot of green space out there, but there's no sewage utilities, and you have to build that. That means that there's got to be a partnership here between the municipalities as well as, you know, as the folks who are bringing in the capital.

Matt Fowler [01:05:51]:
Yeah, for sure. I think that's, that's why I brought up Urban Land Institute earlier in the call. I think that there's going to be intense activity in building these lots over the next five years. And we can do it badly in a way that's not coordinated and is under, you know, under thought. So that's really why we even started our relationship with Kenan Flagler at dorfi. You know, we're a list of houses for sale in the minds of most people. But we also live here and make our, all of us, all 14,000 realtor members of the Dori system, make their lives and send their kids to college and everywhere else based on this industry. And we want to invest back in it.

Matt Fowler [01:06:33]:
We want to share all the data we have that we can get from you guys. And we share data back and forth a lot. We have a great intern that's working on the MLS data to find insights that we can share in podcasts like this one, to hopefully talk to the developers out there who are listening about what segments do have the most demand. We have live demand data now inside our own data lake. That is a summary or a collection of all of the different metrics that we can find across the Internet related to demand. We have how many times somebody's looked at that house on Zillow and other leading platforms like realtor.com, but we also have how many appointments have been scheduled and how many times the lockbox was actually opened. Really critical consumer preference data that lives really nowhere else but inside the mls. So that we can share that with our, our partners in academia, that we can maybe start to learn the direction of the market and share those insights back with our subscribers, with everybody in the community that needs that information to make better housing decisions, we can influence that just a little bit.

Matt Fowler [01:07:40]:
I think we will have done something great. Well, thanks for your time together, everybody, today. That was again, a bunch of information and we'll have a podcast about this coming out soon. It takes them a few days to get that together, but we'll get it released quickly. Jacob, thanks for bringing everybody to the call. And Jim, I think you and I originally set this up back in the day. Thanks for coming out. Ricardo and Eric, John and Eddie, thanks for all the insight.

Matt Fowler [01:08:05]:
I really appreciate all the time you spend on the board and your time with us today. Our pleasure.

Eric Murray BoJack [01:08:10]:
Yes.

Matty Brown [01:08:10]:
Have a great weekend.

Jim Spaeth [01:08:11]:
Thanks, everybody.

Jacob Sagi [01:08:12]:
Thank you, everybody.

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