Building momentum

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CHARLOTTE — It’s official: Homebuilding is finally on the upswing in Charlotte, with activity rising significantly last year for the first time since the market bottomed out in 2009 and went into a two-year doldrums.

The number of building permits awarded in 2012 by Mecklenburg County for the benchmark single-family home rose to 2,752, up 32 percent over 2011 — and almost to the same number of permits in 2008.

That’s the first really palpable annual increase in permits since right before the housing bubble burst in 2007.

But don’t empty the petty-cash drawer to buy that magnum of champagne quite yet. To be cautious, you can’t really call it a recovery in residential construction until the area sees two or three years of such increases.

That is far from certain, as the economy and job market stubbornly refuse to cooperate, homebuilders still can’t find financing to start and complete projects and desirable developed lots remain hard to find — as is the cash to develop raw land into more desirable lots.

All of which means that reaching the height of the good times in 2006 anytime in the foreseeable future is a dim prospect: The county issued more than 8,000 single-family building permits worth a daunting $1.6 billion that year.

At least in Mecklenburg County, attaining that number again is like thinking a pack-a-day smoker could climb Mount Everest; it could happen, but many in the homebuilding industry think it’s unlikely.

Experts and homebuilders agree that besides Huntersville and other parts of north Meck, much of the building and developing in 2013 will be in areas of Cabarrus, Union and Lancaster counties just outside Charlotte city limits and Iredell, Gaston and York counties just over the Mecklenburg line.

“The bottom, for us, was the third quarter of 2011, but we definitely started bouncing back in the fourth quarter of 2011 and all of 2012,” said Tamara Lynch, vice president of sales and marketing for M/I Homes’ Charlotte division.

Lynch and her crew have much to celebrate. The Charlotte division of the Columbus, Ohio-based homebuilding giant built more homes in Mecklenburg in 2012 than any other builder, pulling 243 permits worth $38.4 million for single-family detached homes.

Those figures for M/I are up only 13 percent over 2011. But those figures are for Mecklenburg County alone. Throughout the Charlotte metro area, M/I did far better in 2012, with the number of homes built up nearly 40 percent over the previous year.

“We actually closed 354 homes last year, compared with 255 in 2011,” Lynch said. “That’s huge. Massive. The biggest thing that has prompted it is a lack of supply of resale homes.

“At the peak of the listings, there were 24,000 active houses. Now there are 9,000, and they’re, frankly, overpriced and picked over. Equilibrium is about 14,000. What we’re seeing is a lack of supply that has to be fulfilled with new homes.”

Other top homebuilders in 2012 in Mecklenburg included D.R. Horton, Regent Homes, Pulte Homes, True Homes and Ryan Homes.

Permits pick up

The value of single-family home permits issued in 2012 in Mecklenburg County was $443 million, up 35 percent over 2011.

A gain like that grows in significance when compared with 2009-11, after the market bottomed out. There was a net rise of less than 10 percent in single-family permits over those two years — or an average of 5 percent a year — after the number of permits plummeted 77 percent between the top of the market in 2006 and the bottom in 2009.

Also of significance is the fact that the value of single-family permits issued by the county in 2012 has not kept pace with the number of permits issued.

The 2,752 permits issued last year were worth $443 million, contrasted with the 2,755 permits issued in 2008 and worth $601 million. That means the average permit value has fallen by 26 percent — or $56,812 — in that four-year period, from $217,785 to $160,973.

That probably stems from various factors, Lynch and Charlotte housing analyst Bill Miley said — but the leading one is jobs.

More people live in the Charlotte area than ever before, but more of them are unemployed or underemployed, and more of them are living in apartments. So homebuilders are building more affordable homes to get the customer back in the ownership market.

“Buyers have been whittling away at inventory, but it could be better if the jobs were being created,” said Miley, an analyst with the Charlotte office of Metrostudy, a Houston-based housing-industry research firm.

Lynch said that’s exactly what her market research shows.

“There’s been no major job growth here, but Charlotte has always had this in-migration,” Lynch said. “People say, ‘If I’m unemployed, I might as well be unemployed in Charlotte.’ The bottom line is that the workforce has grown, by 20,000 people, but only 12,000 of those people had jobs.”

But now there are indicators that new-home prices will start to tick upward because of a lack of supply, both of houses and developed lots.

“Sales have increased and stock has not kept up,” Miley said. “We need to start more homes.

“The same is true of the acquisition and development of land; there’s not a lot of inventory.”

That shortage could mean higher prices, at least for M/I, Lynch said.

“The bigger issue is desirable lots, the lots where people want to live,” Lynch said. “We’ve got to start going outside of Meck even to develop. With this lack of supply, we’re going to see price appreciation. Just to regulate or slow down sales, we going to have to raise prices.”

Which, Lynch says, is good for the market, and good for existing homeowners, who could see the value of their properties rise for the first time in years.

Lending still elusive

The number of permits pulled by homebuilders in the first two weeks of 2013 suggests that it, too, could be another banner year for residential construction.

But there is still the problem of financing.

Banks, burned by the mortgage crisis and under the regulatory scrutiny of the federal government, are still afraid to loan to small and midsize builders.

And because the banks are even more afraid to get near the land-development business, which is riskier and longer-term, builders might struggle to find ground to build on, Miley and Lynch said.

Miley identified the future high-growth spots in the Charlotte region as Huntersville and other north Mecklenburg County areas, “the racetrack area of Cabarrus,” “close-in Gaston (County)” and Mooresville in Iredell County.

In fact, Lynch said, M/I will turn much of its attention more toward land development this year, some of it in Mecklenburg but much of it outside the county.

“We’re going to become more of a developer,” Lynch said. “2013 will be the year of new developments for us, in Union County, in Harrisburg in Cabarrus. There’s just a lack of supply in Meck,” she said. “We’re short of lots. We oversold lots.”

But before she gears up for the challenges of the coming year, Lynch said she’s going to take at least a few more moments to savor 2012.

“I’m looking forward to this year’s bonus, let’s just put it that way.”

BROWN can be reached at (704) 247-2912, [email protected] or on Twitter at @tonymecktimes.

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