Charlotte Housing Market Aims to Reach New Normal

Though Charlotte’s housing market continues to improve, it may never be able to return to its booming days back in 2006. A fair comparison of the market’s current situation is the construction activity that took place from 1998 to 2003 where the region had an average of 15,000 single-family permits yearly. Last year, Charlotte issued 8,800 permits or almost 60% of the average and 41% of the boom-time average.

“I don’t think we’ll ever return to the numbers we had then. If we got to 18,000 new-home permits, that would be very high cotton,” says real estate analyst at Newton Graham Consultants.

Charlotte’s current market is only solid in areas with active-adults and those with expensive infill projects, however the market remains fragile when it comes to huge developments in remote areas, move up homes, and the first-time homebuyer’s market.

“It’s a hit-or-miss market,” says Wells Fargo Securities Senior Economist Mark Vitner. “What’s been missing is large-tract development. The large tracts of land ready to be built on are way out in the ‘burbs, and demand hasn’t strengthened enough to justify construction that far out.”

In 2011, the housing market was at its lowest point with only 4.505 new homes sold, but numbers are creeping back up. Last year, builders were also disappointed when only 8,135 properties were closed, which hardly was an improvement from 2013’s statistics.

Jay Colvin, Director at real estate analysis firm Metrostudy believes one reason behind such occurrence is the problem in supply. Homebuilders have been reporting a shortage in suitable lots in places near the heart of the employment, shopping and uptown areas. Though the pace of development continues to increase, the time consumed to develop a lot and build a home could probably lead to a breakout in 2016 than this year.

Aside from this, another challenge that the housing market needs to deal with is the shortage of buyers willing to purchase new homes priced below $200,000. This commonly happens in a first-type-homebuyer’s market, which holds almost a third of the new-home sales.

“In Charlotte, year-over-year starts of new homes priced below $200,000 are down 7%,” Colvin says. “But look above that number and home starts above $200,000 are up 5%. You’ve had this rebound, but it’s all been driven by higher price points. Builders are leaving the entry-level housing market.”

Vitner believes first-time homebuyers potentially are having a hard time qualifying for a home loan because of their debts. Furthermore, majority of this age group are Hispanics and African-Americans, which nationally have been noted for their low homeownership rates.

The housing market continues not to feel the impact brought about by at least 80 million millennials, aged 18 to 33, because majority of them are still in school, living at home or renting an apartment.

“There’s lots of discussion that millennials may never buy a house,” says Graham. “I don’t think that’s the long-term direction, but it’s certainly the short-term direction.”

On the other hand, the strongest section of the market is brought about by homes that attract baby boomers since they are currently relocating to Charlotte or are downsizing.

“If it’s a product we can sell to a baby boomer, we can sell it,” co-owner of Evans Coghill Homes Alan Banks said. Two years ago, Banks’ company started constructing homes in Riverwalk believing that these would attract young families with school-aged kids. “We tried to make that work until about the second quarter of 2014. Showing up at our door were baby boomers who were downsizing,” says Banks.

The improving number of employment opportunities along with population growth is expected to start the building market. Graham predicts that in 2015, new-home sales will increase 10%. As for Vitner from Wells Fargo, the rise will be at 20%.

Meanwhile, from 2013 to 2014, prices of new homes have increased by 7%, which is actually a rise of 12% over the previous peak way back in 2008.

According to Terrence Llewellyn, president of the Charlotte Home Builders Association, the increase in both demand and values are good news for homebuilders within the region. “We had an 80% reduction in home-building permits from 2006 to 2010,” says Llewellyn. “We are renormalizing, and we are certainly nowhere near overheating.”

With the improving home building market, Llewellyn believes that this will have a domino effect in the local economy since homebuyers will eventually need to buy appliances and furnishings.

Llewellyn says home builders are optimistic especially with the growing Charlotte population and job opportunities, which is definitely better than any region across the nation. This remains true even though lots for home construction remain to be rare in high-demand areas and even with the rising cost of home construction.