Like many cities in the country, Charlotte’s single-family housing market is suffering from a lack of inventory. But the local shortage is worse than it looks, compounded by economic and demographic conditions that rut an arduous path for prospective buyers.
Pickings are already slim: The Charlotte Regional Realtor Association in March reported inventory to be at a 3.9 month’s supply, well below the six-month supply economists consider to be a healthy market.
Meanwhile, the supply of homes priced at less than $250,000 in the Charlotte area has dropped disproportionately when compared with higher-end properties. Those seeking affordability won’t find refuge in new-home construction, either—rising costs have caused developers to target the wealthier customer base.
Slow road to recovery
Real estate continues to recover from a housing crash that triggered the 2008 financial crisis and dragged down prices through 2012. But the sluggish pace of the recovery has prevented incomes from rising significantly, sidelining potential sellers grappling to cover moving expenses, service fees, a down payment and inspection costs.
Moreover, prices keep going up. The cost of an existing Charlotte home increased more in February from January than in all but two of the 20 cities tracked by the S&P/Case-Shiller Home Price Indices. Charlotte’s monthly home-price increase was 0.9 percent in February. Appreciation was higher in only Denver and San Francisco.
Annual resale appreciation for homes in the Queen City increased 5.4 percent in February compared with a national average of 4.2 percent and a 20-city average of 5.0 percent.
In addition, many potential sellers who bought properties at the height of the market are still underwater on their mortgages, meaning that they owe more than their home could fetch in a sale. Waiting for home prices to rise further restricts the number of listings.
Redfin Realtor Julie McGee Sharpe, who covers the 18-county Charlotte area, says the local market is unrecognizable from just a few years ago.
The population is growing as a result of a large influx of new residents, while those who already live here tend to stay put, she said. Charlotte is projected to be one of the nation’s fastest-growing cities in the next couple of decades, according to reports by the United Nations, Forbes magazine and others. Between 2010 and 2030, the Charlotte area’s population is expected to increase by 47 percent to 2.74 million.
One of the lures is the recent addition of well-paying employment. In fact, between 35,000 and 40,000 new jobs are expected to be created here in 2015, drawing 50,000 to 60,000 new residents vying for a roof over their heads, Mark Vitner, Charlotte-based managing director and senior economist at Wells Fargo, said last month.
Many millennials, as well as empty nesters, are seeking apartment homes, leading to the largest apartment construction boom the city has seen. But as rents rise, mortgage rates stay at historic lows, lending practices loosen and economic conditions improve, others are looking to buy a home.
Although it’s a seller’s market, those who want to sell aren’t finding sufficient inventory to choose from, McGee said, causing many to opt for renovations instead.
“It’s a vicious cycle,” McGee said.
Those who do put their properties on the market can barter a king’s ransom for their fiefdom.
“Good homes priced correctly are going so fast that a seller can expect multiple offers in a day,” McGee said.
The situation has sent homebuyers scrambling.
“It’s complete desperation,” she said. “Almost every single house is in a bidding war. There are desperate buyers willing to overpay.”
McGee’s advice to house hunters: It’s better to rent if you don’t plan on staying in a house for at least five years, the time needed to build up equity.
In the 18-county Charlotte region, low supply and high demand pushed up the average sales price in March 9.1 percent to $234,351 from $213,025 in March 2014. The median sales price last month grew 9.9 percent to $189,040 from a year earlier, according to the Charlotte Regional Realtor Association, which includes some new construction in its data.
Meanwhile, inventory plummeted 19.7 percent, with the biggest declines in lower-end homes. The stock of single-family homes tagged between $150,001 and $190,000 dropped 35.4 percent to 975 in March from 1,509 a year earlier. The supply of those priced a bit higher, between $190,001 and $250,000, fell 27.5 percent.
On the higher side, however, the supply of homes priced $250,001 to $999,999 fell in single-digit rates.
Maren Brisson-Kuester, president of the CRRA, attributes the relative dearth of lower-end inventory to increased sales in that range. She says Charlotte’s entry-level price point is lower than other areas of the country, and millennials are finding it easier to purchase, aided by lending standards that have eased from the immediate aftermath of the housing crisis.
The CRRA said the number of first-quarter closings on single-family properties in the $190,001 to $250,000 range rose 26.7 percent compared with a year ago, and 21.4 percent for those between $150,001 and $190,000.
“We’re in a healthy market, with prices going up conservatively,” she said.
Sales of homes in the higher range, however, have increased even more. Although the number of pricier properties sold is fewer by far, those priced above $250,001 and less than $1 million rose between 28.6 percent and 38.6 percent in the same period, according to data from the CRRA.
New homes priced higher
New-home construction is largely unaffordable for those earning the median household income in the Charlotte area, which is $52,000 annually. According to Metrostudy, the median price of new homes sold locally last year was $267,000.
The generally accepted guideline for mortgage payments is that they should not exceed 28 percent of an applicant’s gross monthly income, putting the most the median-income earner should pay monthly at $1,213.33. Assuming the applicant came up with $53,400 for a 20 percent down payment, his monthly mortgage payment on a 30-year fixed loan with a 4 percent interest rate would be $1,019.76 – leaving less than $194 per month, or $2,323 per year, for property taxes and insurance.
Developers target higher-income earners for several reasons, says Jay Colvin IV, regional director of the Carolinas for Metrostudy. More builders want to be in higher-demand areas, where land prices are more expensive. In addition, costs associated with developing have gone up, in part due to a shortage of construction workers. Consumer preferences for amenities come at a premium, Colvin says, while confidence in the entry-level market has not returned.
New-home prices rose around 5 percent between 2013 and 2014, Colvin says, citing lot prices as the biggest fixed cost.
“The builder can’t build for free,” he said.
In the fourth quarter of 2014, Metrostudy says, local groundbreakings on new homes priced below $200,000 fell 7 percent compared with a year earlier, while starts on homes priced between $300,000 and $399,000 rose 18.6 percent. The number of new-home starts on inventory priced above $500,000 grew 16 percent in the same period.
New homes priced between $150,000 and $249,999, which represent 38 percent of the market, continued to be in the shortest supply, at five months.