The housing cycle: Is Raleigh approaching its peak?

Those who keep track of estate markets know that they run in cycles of good times, not-so-good times and sometimes downright depressing times, like what the markets experienced following the 2008 economic recession.

But the Triangle housing market has been in a pretty strong recovery mode for a few years now. Is it time to start preparing for the market’s peak and impending downturn cycle?

Well, not quite yet, according to a research note by the John Burns Real Estate Consulting firm. Its report, released Thursday, shows a bell curve chart of the 20 largest new home volume markets in the U.S. with the Raleigh market falling somewhere in about the fifth inning of a nine-inning game, to use the baseball game analogy.

Poll: Is Raleigh approaching the peak of its housing cycle?

“Raleigh is one of the Southeast markets that a lot of builders entered and scaled up on during this recovery, which is why we have it a bit higher than Charlotte and much higher than Atlanta,” says Rick Palacios Jr., director of research at John Burns Real Estate Consulting.

Home values in Raleigh, he says, are already 13 percent above their prior peak, whereas in Atlanta home values are still about 1 percent below its market peak. Charlotte home values are about 8 percent above market peak, whereas the new home market in Nashville, Tennessee, has been “growing gangbusters” with home values 28 percent above prior peak, Palacios says.

The report shows that about a dozen of the largest new home markets, including all that were mentioned above, are in what Palacios describes as “phase 2” or expansion phase of a five-phase housing cycle: Capital investment is picking up, homes sales and prices are rising, there’s good affordability and moderate construction.

“Many of our clients today are laser-focused on these geographies, continuously adding to their investments in these markets,” Palacious wrote, noting also that investment risk remains fairly muted. “Job growth has come back nicely, with the lion’s share of expansion markets recovering all of the jobs lost during the Great Recession.”

Phase 3, or the “exuberance” phase, is next, which includes markets like Austin, Dallas, the San Francisco bay area and Seattle, where home values are up 20 to 50 percent, affordability is getting tougher and markets are beginning to see signs that resemble the prior boom and bust cycles.

Only Houston, Palacious writes, has reached the Phase 4 contraction and early downturn phase where construction activity has started to pull back. “We believe Houston will remain in Phase 4 through 2017 and will most likely avoid the full-fledged downturn/recession association with Phase 5,” he writes. Phase 5 is full downturn and recession with capital losses becoming the norm.

So it looks like Raleigh and the Triangle housing market still has some room to grow before builders have to really start getting concerned about another downturn coming our way.

Amanda Hoyle covers commercial and residential real estate. Follow her on Twitter @TBJrealestate

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