Middle class morass

Listen to this article

CHARLOTTE – While the Charlotte real estate market remains affordable relative to many other U.S. markets, there is growing evidence that many middle class, professional families cannot afford to buy a home.

In fact, a new National Association of Realtors assessment blamed a decline in home sales in September on rising prices.

“Affordability has fallen to a five-year low as home price increases easily outpaced income growth,” said NAR chief economist Lawrence Yun in a release.

Julie Porter, president of the Charlotte-Mecklenburg Housing Partnership, said there are two factors at play in the Charlotte market hurting middle class people looking to buy a home: lack of inventory for homes ranging from $125,000 to $250,000 and escalating prices.

Porter noted that investors are scooping up homes in the range that is affordable to middle class homeowners in order to rent them out. “So middle income families are having a hard time finding good product,” said Porter.

And while prices for homes are rebounding since the housing bubble burst, workers’ incomes are not keeping up.

Compound those factors with the housing market being a seller’s market, and a property just got more out of reach to a middle class buyer in Charlotte.

When we think of people not being able to afford their own homes, we assume they are in low-paying jobs like retail or in the service industry.  Porter said that in Charlotte, we’re talking about school teachers, firefighters, policemen, nurses, grocery store managers, professional couples earning $50,000 to $55,000 a year.

“There are a lot of people (in Charlotte) on the edge,” said Porter.

What keeps her up at night? Knowing that homes in the right range for middle class homeowners are being picked up by investors.

“When a homeowner has to compete with an investor with ready cash, that’s a problem,” said Porter.    “We’re creating investor-owned communities, not homeowner-owned communities.”

Housing affordability is one of the reasons that Wells Fargo partnered with the Charlotte-Mecklenburg Housing Partnership and NeighborhoodWorks America to offer a $15,000 grant to be used as a down payment on a mortgage to qualified homebuyers whose median income is less than $78,100.

When the $6.6 million grant by Wells Fargo was announced earlier this month, Charlotte Mayor Patsy Kinsey said, “This program will help Charlotteans by making homeownership more affordable for our families.”

The free housing-grant event is being held at the Convention Center from 10 a.m. to 7 p.m. on Friday and Saturday, and prospective buyers are encouraged to register for the event in advance at www.wellsfargo.com/lift.

In a recent report on affordability, Zillow ranked the Charlotte-Gastonia-Rock Hill metropolitan statistical area 148^th out of 390 markets in its affordability index for the second quarter of 2013 ending in June, with 74.1 percent of homes affordable to people of median incomes.

The report also showed that median price for an existing single-family home rose from $185,000 to $212,000 in August 2013.

A National Association of Home Builders/Wells Fargo report released in August noted that nationwide housing affordability slipped from 73.7 percent to 69.3 percent for the first time since late 2008 as interest rates rose.

According to the latest report on sales from the Charlotte Regional Realtor Association, the median sales price for a home in Mecklenburg County was $184,000 in September, with an average sales price of $240,664. And it’s clearly a seller’s market, with 95.5 percent of the list price received and an inventory of 3.7 months.

Median income for the Charlotte area, on other hand, has been falling. The National Association of Home Builders report listed median income for the Charlotte-Gastonia-Rock Hill metropolitan statistical area as $64,100 in the second quarter of this year, down from $68,500 at the end of last year.

Another obstacle middle class homebuyers face is increased competition from investors purchasing homes as rentals. Charlotte is among the top five busiest markets for such investors, according to an analysis by the real estate data company RealtyTrac. The company reported that one in five homes purchased from May to July of this year were bought by large out-of state investors.

Charlotte is not the only housing market where homeownership for the middle class may be reaching a tipping point.  A new Zillow report found that housing affordability declined nationwide in the second quarter of this year, mostly due to higher interest rates.

The report showed that some markets are fast approaching their historically low levels of affordability and are indeed forecast to exceed them. In these markets, sustaining higher home values will be difficult unless income levels rise to meet the cost of housing.

“I’m worried about some areas in California like Los Angeles, San Diego, San Francisco and San Jose are at risk of becoming unaffordable to middle income people,” said Zillow Director of Economic Research Svenja Gudell. “So are places like Eugene, Ore.; Bend, Ore.; Corvallis, Ore.; and Ocean City, N.J.”

If interest rates begin to rise again and income remains the same, we may see displaced middle class residents. Gudell said we are already seeing this phenomenon in San Francisco, where higher-income buyers are snapping up homes.

Dustin Read, assistant professor at UNC Chartotte’s Center for Real Estate, doesn’t believe this is a scenario that will play out in Charlotte.  “Charlotte is not a land-constrained market, which takes the pressure off,” said Read. There is the opportunity to keep developing land outwardly and building new housing communities in Charlotte.

Read sees the housing market moving back to equilibrium.  He does admit that there are some pockets in South Charlotte that may be unaffordable to teachers.

So what are agents seeing on the street?

Keith Thompson of Prudential Carolinas Realty said he’s aware of institutional investors gobbling up properties in Charlotte, but of all the recent sales he’s made, only one involved an institutional investor.

Thompson has seen another trend. He said he was approached by a former client who had received an unsolicited letter from an institutional buyer asking if he were willing to sell his home, and asked Thompson for advice.  Thompson did a market analysis on the property and told the former client that the offer was $12,000 to $15,000 more than his analysis showed and it required no inspections.

Thompson is concerned about will happen to the market when these investors decide to liquidate.

As for affordability, Thompson said that across the board, even with million-dollar homes, prospective buyers can be shut out of the market. He’s seen bidding situations and buyers who wait too long to make a decision, ultimately losing the bid on a property. The housing inventory is low and there are more buyers, and more multiple-offer situations.

Minnie High, a Realtor/broker with ReMax Metro Realty, said she’s seeing extreme competition for homes in the $125,000 to $200,000 price point.

“If the home is priced aggressively, and is in a desirable location, then it is being purchased sometimes before it even hits the MLS,” High wrote in an email.  “Our number of buyers has increased and our inventory has decreased. You know what they say; supply and demand will drive the force.”

Peggy Peterson with Cottingham Chalk Hayes said the biggest obstacle median income buyers face is finding the funds to come up with a down payment, particularly for the highly competitive homes in the $125,000 to $250,000 range.  She’s seen a large number of investors scooping up the more affordable homes.  Said Peterson, “They are paying cash, which makes it difficult for a buyer needing a mortgage to compete.”