A steep ascent: Residential permits climbing back from recessionary low

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Like nails out of its own coffin, the Charlotte region’s residential construction industry pulled nearly 9,500 building permits in 2013, rising from the ashes like a phoenix with a tool belt and hammering out its best year since the housing market plunged like Icarus in a hardhat in 2007.

But this is neither myth nor mixed metaphor: The 70 percent jump in permits from the two years between January 2010-December 2011 to the period January 2012-December 2013 appears to signal a real, sustained and steady recovery, according to a Mecklenburg Times analysis.

That’s the best two-year run-up in permit percentages going back 20 years, way better than the supercharged 24-month prelude to the crash, when permits rose only 14 percent between 2004 and ’06.

In numerical terms, the measuring tape still puts the market miles below those whoopee-time levels of 2006, when the homebuilders in the region were awarded a record 22,314 detached single-family residential permits – the benchmark of the industry – as they stepped unawares to the edge of the abyss.

Some analysts looking at the Charlotte market caution that builders should remain wary of rising mortgage rates and falling loan-qualification rates among the next wave of potential buyers. And they cite fierce competition for the new-home market with the fast-expanding apartment and home-rental markets.

And they warn that as new development increasingly pushes beyond  Mecklenburg County, homebuilders could soon see land grow scarce in areas just outside the city that have the easy access to Interstate 485 that consumers want. A lack of easily accessible land with the needed infrastructure – thoroughfares, sewer and water lines – could throttle a recovery.

But the Mecklenburg Times analysis of two decades’ worth of detached SFR permit data, amassed by the U.S. Census Bureau and the Mecklenburg County Code Enforcement agency, turned up nothing but positive results for the Mecklenburg and the seven contiguous counties.

Including this: With 2013’s 21 percent increase over the previous year, detached SFR permits pulled in the market have doubled since the market hit bottom in 2009 before stalling in a two-year doldrums of anemic, single-digit annualized growth, and finally turning the corner in 2012.

Bill Saint, newly installed 2014 president of the Home Builders Association of Charlotte, said the market’s steady climb is real, the market will likely continue to grow to a plateau of about 15,000 permits per year, and homebuilders have no business trying to get back to the market’s precarious 2006 peak anyway.

“I like to think of it as Mount Everest and there are four base camps, one for every 5,000 permits,” said Saint, whose Classica Homes specializes in building custom single-family residences, mostly in the Lake Norman area and south of Charlotte.

“The peak was at. . .20,000 permits, and we fell all the way to. . .the first base camp. Now we’re approaching Base Camp 2 on our way to 3. But do I or anyone else want to get back to that 20,000 peak? No. It’s not sustainable, even it were possible. There’s just not enough oxygen to survive up there – as we found out.”

Possible roadblocks ahead

The Meck Times review’s results sync with general market trends tracked by national analytics firms such as Metrostudy, Hanley Wood, CoreLogic, Case-Shiller and RealtyTrac, as well as by the Rocky Mount-based Market Opportunity Research Enterprises.

Although The Meck Times’ numbers are slightly lower than Market Opportunity Research Enterprises’ count of housing starts, the two-year, 2011-13 growth curves produced by both analyses are almost identical.

“Our study is not as granular as yours, but we’re seeing almost exactly the same thing,” said Bernard Helm, principal owner of Market Opportunity.

Helm said the sustained growth of the past two years, confirmed by multiple independent studies using different raw numbers and methodologies, is impressive.

But, Helm said he was less than certain that the momentum of the past two years would keep the market on an upward swing in the near future.

“On the homebuyer side, there’s still uncertainty in the economy when the consumer can’t figure out whether he’s going to have a job in six months, what his income and expenses will be, and he’s understandably nervous about making a new-home purchase,” Helm said. “There are new, restrictive mortgage-qualification rules as a result of (the 2011) Dodd-Frank (Act). And interest rates are heading up.

“On the builder side, I still hear complaints continually about appraisals (coming in lower than costs) and I hear about shortages in the supply chain for materials, labor and land.”

Saint said he agreed that easily accessible land with nearby infrastructure is becoming increasing hard to come by – even in areas just outside the Meck – and that finding construction workers “can be a challenge, especially in pockets of the market, but I don’t think we have exceeded capacity.”

But Saint disagreed with Helm by saying that Charlotte’s steady job-growth and the other economic fundamentals in the region are largely driving the market, with ready buyers helping keep inventory low and demand high.

And he said that while mortgage rates are ticking upward, he believes they will continue to be at or near historic lows into the foreseeable future.

The continuing lack of volatility in Charlotte’s new-home prices, Saint said, is one of the most important factors in the burgeoning recovery.

“It’s consistent, steady growth compared to the other 20 cities in the Case-Shiller index,” Saint said.

“I like to say that Charlotte is the ‘Sunday drive.’ If you graph it out over time, you don’t see huge price fluctuation here, up 7 percent, down 5 to 10, instead of the 20 to 30 percent we’ve seen in some West Coast markets, for example. Relatively stable pricing is good for consumers and good for the market.”

Gaston lags behind

Some Charlotte submarkets are doing better than others, but parsing the Census Bureau and Code Enforcement data geographically found that only one of eight counties in the metro area did not record double- and even triple-digit permit increases for the past 12- and 24-month periods.

As usual, Mecklenburg County accounted for more of the permits issued in 2013 than any other submarket, 3,345, jumping 21 percent from 2012 and 60 percent over 2011.

But the highest growth areas are just outside Meck, especially in the southwestern crescent formed by the counties of Union and Lancaster, S.C.

With 1,203 detached SFR permits in 2013, Union leapt by 156 percent over 2011.

And while the percentages are somewhat skewed by lower raw numbers and the fact that the Census Bureau measures only unincorporated areas in the county, Lancaster permits skyrocketed 382 percent last year compared with 2012 and 408 percent over 24 months, to 569.

“They’re slightly skewed in Lancaster, but they’re real,” Saint said, with the highest growth in unincorporated Indian Land, just over the state line from incorporated Charlotte.

Saint and Helm both attributed much of Lancaster’s growth to the success of the gigantic, 1,512-acre Sun City Carolina Lakes in Indian Land, an “active older adult” subdivision developed and being built out by the Greater Detroit-based PulteGroup’s Del Webb division.

“That’s the most popular Sun City development Pulte has in the country, and it’s a great example of the huge drive nationwide (behind) Charlotte being the place where people want to live,” Saint said.

Other developers and builders are getting in on the action in Lancaster, too, according to Helm.

“Lancaster County has been invaded by the production builders,” Helm said. “Pulte has been there with Del Webb product for some time, but now all the other builders are there.”

The rooftops going up in Lancaster have begun to spur nearby retail development, as it has in many areas around Charlotte’s perimeter. One of the first two Publix grocery stores in the Charlotte market opened in 2012 on Lancaster Highway, also known as U.S. 521, just up from Sun City.

Helm and Saint both attributed the push beyond Mecklenburg to the growing scarcity of developed lots and developable land in the county, as well as tightening restrictions in Meck’s seven municipalities on development as current residents in increasing numbers form anti-growth protests.

“The move into other counties is absolutely land-driven,” Saint said. “There’s not a lot of opportunity for lots inside the Interstate 485 perimeter.”

Those pressures, along with shifts in demography and consumer preferences, are affecting not only the geographic location of subdivisions, but what they look like, according to Helm.

“When land gets scarce, builders look for density,” Helm said. “In town, we’re seeing more town houses, and builders are going to the periphery for detached single-family residential, which is also trending denser.”

To the north-northwest, Iredell and Cabarrus counties also show high growth.

In Cabarrus, site of several new and planned developments by the big national builders – including those by market-leaders D.R. Horton of Fort Worth, Texas, and Columbus, Ohio-based M/I Homes – officials in 2013 issued 1,105 permits, up 36 percent from the previous year and 71 percent from 2011’s count.

Builders in Iredell pulled 636 permits last year, up 32 percent over 2012 and 96 percent over 2011.

The Meck Times analysis of detached SFR permits also found that:

n York County, S.C., site of more previous and current building activity than Lancaster, continues to benefit from the push out of Meck, but at a slower pace than its sister South Carolina county, recording 1,577 permits last year, up 29 percent from 2012 and 33 percent from 2011.

n Lincoln County’s numbers remain relatively low but are growing, ending 2013 at 174 permits, up 11 percent on the year and 43 percent on the past two.

n And Gaston County lags behind the rest of the field; 2013’s 386 permits were actually down 11 percent from the previous year, but thanks to a bump in 2012, the count grew by 6 percent over the past 24 months.

Easier selling spurs buying

Saint said the underlying economic fundamentals, the growing health of existing-home sales and a relatively low inventory of both new and used homes make him bullish about Charlotte’s residential construction sector in 2014 and beyond.

“Those who move here on a relo basis, we’re hearing they’re not having as much trouble selling back home, so they’re more likely to buy here,” Saint said. “Locally, we’re hearing it going from, ‘Oh, no, I can’t sell my old house’ to ‘I sold my old house even before I got it on the market.’”

“It’s a circular thing; buyers are able to sell, so they can buy. That’s another result of the improving economy nationwide and here in a very healthy Charlotte, North Carolina. And we have so much more capacity to grow.”

Coming Friday: The Mecklenburg Times names the top permit-pulling homebuilders in Mecklenburg County for 2013.