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The Charlotte Real Estate Market- 2008 and Beyond-More Good Years Ahead

July 21st, 2008 Listed Under: Everything Else

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A Great Time To Buy Charlotte Real Estate

I know I’m committing CWH, Conventional Wisdom Heresy,  you’ve heard the talking head “experts”on CNN, CNBC, and NBC, they all say something like “the national Housing Market is a Disaster” or “only a fool would buy now unless they get the house for 30 or 40% off.” I’m going to make the case that the CW is at best a simplified half-truth- as in partly true in parts of the country- and holds almost no truth if yo are talking about Charlotte, NC. — I’m sure the worshipers of CW won’t bother to read or listen before convicting and sentencing me to death by flame – after all I am a working Realtor-but if you like your opinions to be informed by facts then grab a cup of coffee, and lets get started.

Here’s an outline of the facts of the case for Charlotte real estate, and why careful buying now makes great financial sense:

  • Charlotte’s Ultra Low PMI Risk (Home Prices have less than 1% chance of being lower in 2 years)
  • Case-Shiller Appreciation Reports Charlotte Top in 2007,and the only positive market in 1st Quarter 2008,
  • Wachovia’s new hire, Robert “Ironman” Steel, a NC native means Wachovia IS STAYING RIGHT HERE,
  • and a strong local economy projected to grow at 2.2% this year…
  • All Add up To More Good Years for Charlotte NCmoney house in charlotte

I hear the voice of fear in the client-questions I am responding to– “How bad is the housing market in Charlotte?” or “Has “the Bubble” caught up with Charlotte? Have prices hit bottom?” Occasionally I see it in our local headlines or hear the fear seeping into local voices, agents, and others involved in the real estate industry.

This fear has a reality-based component that has been dumbed down by the national media then doused with gasoline based on a media bias: the love of a good disaster story.

First the economic realities- there is a real crisis in the US housing sector, real estate prices are truly in free fall in 55 markets, or Metropolitan Statistical Areas, as measured by the PMI Index of 381 US cities cited below; for these folks, real estate is grim today, and the falling prices are accelerating. The euphoria of double digit home price increases and easy financing have long since been replaced by the siren calls of double digit home value losses and rising rates of foreclosure– there are 55 markets where price declines are increasing, and 50 of the 55, 90% of these markets reside in just 4 states: California, Nevada, Arizona and Florida. The same states account for 84% of the prime ARM foreclosures and 93% of the sub-prime foreclosures in 2008, “the prime drivers of the rise in risk scores.” You can see the full 1st Quarter report of 381 MSA’s US Market Risk Index by PMI.

And the broad declines affect the majority of innocent hardworking types in these states who did nothing wrong, along with the speculators who took out junk loans that pushed up prices and many of whom are walking away.

Equally disturbing are the seemingly daily shocks to the system- a 30 Billion dollar bailout of Bear Stern’s, the fall of IndyMac (and immediate resurrection thanks to the FDIC) and the troubles of Freddie and Fannie Mae being the latest… but thats not all, we have $4.00+ per gallon for gas, a national economy that is sluggish at best, in a recession at worst, and oh-by-the-way inflation is rising, the highest in nearly 20 years last month, putting pressure on the Federal Reserve to raise interest rates (not typically good for a slow economy or home buying) and there is not a lot of confidence in our governmental institutions. Many of the first wave of hardest hit housing markets dovetail with the sites of largest job losses in Detroit and Cleveland increasing the fear and uncertainty- Cleveland is where Deutsch Bank has become through foreclosure the largest real estate owner in Cleveland.

So, if you are living in one of these declining markets, your real estate outlook could not be much worse… and in truth, I don’t have the answers for these markets other than to let them settle out, start over, and I believe there is a role for government here. However, the main stream media (MSM) has taken this complex problem, and dumbed it way down to a 3-5 minute interview with simple “expert” talking points, “The housing market is BAD, no really BAD” and the 5 second trailer are worse, “More Bad News for the nations’ housing market when we come back…” you hear as you go to pour yourself another cup of coffee in the morning.

It is not hard to get the viewers attentions when you are talking about home price losses- after all, for most families, it is their largest financial investment.

The voice of the real estate industry, the National Association of Realtors, would be expected to push back- but it is undeniably compromised by the “Band-played-on” character of press releases from 2006- 2007 as many of the first markets began sinking like the Titanic. Nuance has been replaced by the daily reinforcement of broad brush characterizations which instill fear, but little understanding.

I’ll use hard numbers to attempt to prove my case for Charlotte real estate that

  1. It will hold its value and make gains in the coming years,
  2. It has an exceptionally low risk of declining prices,
  3. Charlotte real estate in the main is still undervalued, and
  4. If you buy wisely, now is a great time to Buy Charlotte real estate.

Many of the same arguments could be used for Austin TX, Seattle, San Antonio and quite a few other major cities. Adding to Charlotte’s hard numbers is our strong diversified local economy- an economy that earned Charlotte a place the Forbe’s list of 10 recession proof cities in America. The Wachovia hire of Bob Steel sent a signal to the banking world, “we are not here to be taken over and Wachovia is not going anywhere but up.” I’ll point out the soft spots in our market along the way, and I’ll let the reader be the judge.

Man thinking, questionningThere is a fundamental misunderstanding and mis-characterization of the “nationwide housing market” – in fact, drum roll please, THERE IS NO SUCH THING. There is Not one national market for housing, but hundreds of markets. There are hundreds of housing markets, small and large- and economists like to average all these numbers together, and when averaged, you can see broad trends, but it tells little OR NOTHING about what any individual market is doing. Charlotte NC and Miami Florida both are large cities, but there the similarities end. Likewise the real estate. I’ll show that below.

For the purpose of this discussion, I’ll confine my comments to the 381 MSA’ s measured in the broad based PMI Risk Index and the more narrow 20 leading housing markets in the US, recorded and studied for 8 years and known today as the monthly S/P Case-Shiller report.

larger and larger housesI would also be clear on one other key point- that even the Charlotte market is not just one market-but composed of a variety of markets that, when taken together, produce favorable results–but any conclusions drawn are necessarily based on averages– and just like looking at national figures, local averages can hide quite a lot too. For example, suppose each house on the left represented a Charlotte sub-market– the Yellow market decreased in value 2%, each house (sub-market) goes up 2%, so the blue represented 0%, Green +2%, Purple +4% and Red increased 6%… well the average would be the Green +2%, so what did the average tell you about the yellow or red markets? Nothing, or worse than nothing! Some price points are rising in Charlotte, others are falling… so averages don’t show where the housing is hurting or booming, here in Charlotte or nationally.

PMI, the private mortgage giant, calculates the risk that home prices will be lower than todays prices in 381 MSA’s across the country to determine local market risk. Private mortgage insurance rates are based on these risk factors, so they bet their business on these risk calculations. The need to get it right. The index ranges from 1 to 100, 100 equals a 100% chance that prices will be lower, to <1 or less than 1% chance prices will be lower in 2 years. The highest risk MSA? Riverside-San Bernadino California, with a 95.5 rating in the first quarter of 2008. “…Only 55 of the 381 markets increased in risk of decline over the 4th quarter of 2007, and of those 90% (50 0f 55) were in Florida, California, Arizona, and Nevada. ” See the map below for that distribution, also another link to the full report

US <map of Risk OF Lower Home Prices in the US

The map shows clearly the geographic concentration of risk. Yellow, Orange and Red are high risk categories- more than 40% chance of price declines in 2 years. Note their absence from everywhere in the Carolinas except a few coastal MSA’s.

Charlotte is one of 14 MSA’s in the 50 largest MSA’s with less than a 1% Risk of Home prices being lower in 2 years.

But that’s not all– there are more key market trends here–when compared to the weighted averages of this lowest risk category, Charlotte is better, higher or lower, in every important category. The report shows that the volatility in home prices for Charlotte is lower that this “very-low risk” category, and slowing price appreciation much better than the average of this category… all very goood things testifying to the underlying value in Charlotte real estate, and its strenghth even when compared to the other lowest risk cities. (MSA’s)

An important factor to the Risk index, and to us homeowners in Charlotte, is the Affordability Index-this is a proprietary value that PMI uses to measure a city’s relative affordability, based on average home prices and average incomes, compared to values in 1995. So a value less than 100 is less affordable, more than 100 more affordable. It is no accident that all the the same 14 MSAs with extremely low risk factors, also are extremely affordable relative to prices in 1995– in fact all 14 have 100+ values, and Charlotte’s is a healthy 114.

 

Consequently, Charlotte’s Very Low Risk Index, and high Affordability Index, gives Charlotte some of the lowest PMI rates in the nation,and a great outlook. These are strong indicators of Charlotte’s underlying real estate values, and PMI uses the rates to determine PMI premiums, its great news for all Charlotte home buyers who have less than 20% down payment and intend to use PMI.

Case-Shiller. Economist Karl Case has been studying home prices for decades, and his Case-Shiller monthly report is widely regarded as the housing index of record- not unlike the Dow Jones 500- but this is an index of the top 20 housing markets in the US. Case Shiller peaked in “price” in the summer of 2005, and has been in decline since.

Charlotte led the country price appreciation in 2007, one of only 3 markets to gain in price, and for the first quarter of 2008, Charlotte is the only market still increasing in value.

Think about it, as most of the nation wallowed in declining home prices or price stagnation in the last 15 months, Charlotte home prices rose. Yes, in May Charlotte saw its first (barely measurable) decline, o.2%. Home prices in my Charlotte neighborhood are up 3.5% at the halfway mark in 2008, so I’m not too concerned.

Is Charlotte real estate Undervalued? Again, referring the the PMI report we find the Charlotte MSA has an affordability index of 114 where the greater the number, the more affordable the market. The affordability index is aproprietary PMI ranking based on median home prices vs the median incomes for an area. Our 114 makes us more affordable than 40 of the top 50 MSA markets in the US– So is Charlotte Real Estate undervalued? I think the unmistakeable conclusion is Yes, atleast if you live in the 80% (40 markets of 50) with worse affordability scores.

Is that uniform across the Charlotte market? No. Once you get above $750,000 you still get more for your money, but that market here is much slower. Once you go beyond certain recognizable boundaries, prices are much softer as well. But despite the Case-Shiller report of a .2% decline in prices, Charlotte remains in the tops of affordability and lower price risk.

If you buy wisely, now is a great time to buy Charlotte real estate.

  1. Here is what buying wisely means to me Insist on verifiable comps before you buy, the prices of comparable HOMES SOLD.
  2. Compare the comps condition and when sold- many communities have different price point- for example a community that is 20 year sold and half the homes have been renovated, and half have not. Or, in communities of custom and tract, somehow tract listings are priced more and more like the customs- not normally an accurate reflection of value. On the water, you have big water views and creek views…be sure you are comparing waterfront to waterfront- and not waterview or an interior lot.
  3. Likewise, pay close attention to location, the further out, the fewer buyers you’ll have to choose from, so your home needs the features people want. There are many differing conditions that can be compared. All this is information a good buyer agent will provide for you- and you can not rely on this information if provided by a builder or Listing agent.
  4. From the comp information, you’ll be able to determine the listing Agents pricing strategy. Is the home accurately priced? Aggressively prices? Or In Hoped For Pricing? This will help determine offer prices– and here is where the talking head prognostication really breaks down– if you offer most home sellers 30% off their asking prices, they will not only laugh, but they couldn’t sell the house to you at that price anyway because their note is larger than 70 %…. you can only get those 30% deduction in areas where homes are NOT selling, and the sellers have the equity to sell it 30% off, much more likely in those same 4 states where prices went up by double digits for many years earlier in the decade… and not likely anywhere in Charlotte.
  5. Finally, buying wisely means find a home or two that you really want, with all the must haves and as many “wants” as you can–then negotiate vigorously, for the best deal. Be confident, in a growing city like Charlotte theat price increases have just paused a bit, and if you are in a home and neighborhood you love, your chances of success are great. Here is a link to a post about Two Recent home buying Negotiations in Charlotte

But what of Foreclosures? Interestingly, the Mortgage Bankers Association first quarter Delinquency survey ranks the same 4 states- California, Florida, Nevada and Arizona as having 84% of the increase in prime ARM foreclosures, and 93% of the increase in sub-prime ARM foreclosures. Wow. Here in Charlotte, the foreclosures are mostly confined to a handful of areas.
Here is a not so well reported fact- of the 381 MSA’s, 58% experienced positive rates of house price appreciation during the first quarter. Interestingly, if you remove the 55 MSA’s with accelerating declines noted above, “67.7% of the remaining 322 MSA’s experienced positive price appreciation, the average being 2.14%,” states the PMI report.

In other words, if you take out California, Nevada, Arizona and Florida, 2/3 of American cities are increasing in price. The PMI report goes on to discuss just this – that the MSA’s are heading in two different directions. In the four states, home values are accelerating downwards and will continue to go down until they reach an equilibrium with affordability. The balance of the market, is steadily improving with prices up and inventories declining- though still quite high by historical standards.

So the market in Charlotte is definitely slower, by most measures around 30% slower, new construction is difficult to measure but may be off as much as 50%, prices are relatively stable, much of the top end, over 1 M is barely moving. But through most of the market, the homes that have to sell are selling, keeping prices relatively flat. Individual neighborhoods will vary, and individual comparison are available to all Buying clients.

Additional Facts

The Charlotte economy is projected to grow 2.2% this year according to a variety of state economists.

The Charlotte Vacancy Rate for Commercial property is the lowest in the nation at 1.4%

Charlotte is number one on Relocate-America’s top 100 “Move-To cities :http://top100.relocate-america.com/

Charlotte is number 7 on the Business Journal’s list of “Best Places for Young Adults”:

http://www.bizjournals.com/specials/slideshow/45.html?page=7

Forbes Magazine says Charlotte is one of ten “recession-proof” cities in the country.
http://promo.realestate.yahoo.com/americas-recession-proof-cities.html

Charlotte is the most walkable city in North Carolina, named by Prevention Magazine:

http://www.prevention.com/bestcities/

The Charlotte real estate market is much slower, but still has healthy values because Charlotte home prices never experienced the rapid appreciation, the city remains one of the most affordable in the nation, and because of the strong underlying economic fundamentals- out business community is creating thousands of well paying jobs every year, and we never had the run up in prices that many markets did.

If you want to buy here in Charlotte, then come on down, find a good buyer agent, take your time and buy wisely.

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Disclaimer: The above article is my opinion of the Charlotte real estate market in general- as usual, the devil is in the details and as such, this is not an endorsement for any particular property in Charlotte.

———————————

It is a strong buyers market here in the greater Charlotte area. Thinking about moving to Charlotte, Lake Wylie or Weddington? Lake Norman? You can quickly compare area prices with the links below, or just give me, Terry, a call at 704-351-1519. I am a Buyer’s Agent specializing in relocations–and will represent only you. You can also search the entire MLS, by area with the first link below.

Related Links

Charlotte Home Search -By Area

10 Essential Do’s and Don’ts When Buying A New Home

Slowing or Downturn- the Truth about Charlotte Real Estate

Moving To Charlotte? Like a Good Introduction to the Area?

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Terry McDonald
I'm the owner/team leader of The McDonald Group at Wilkinson and Associates ERA Powered real estate brokers here in Charlotte NC. A transplanted Washinghtonian, my family and I came from the NYC area in 1993.
Terry McDonald
Terry McDonald

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  1. Bob Hergenwriter

    Over simplification in the media is not totally unknown but it has reached new heights in the past several years in which shock value or fear tactics replace legitimate news stories. Good post! Charlotte is one of the strongest real estate markets in the nation.

  2. Is Charlotte Immune from the Housing Crisis? | Charlotte Mortgages

    […] just read an amazing post by Terry McDonald of Wilkinson and Associates Realty, and he gave some fascinating statistics that show the […]

  3. Chico Realtor Sandi Bauman

    Incredible job on the status of the Charlotte real estate market, Terry. It should be VERY interesting to see what happens to your foreclosure market in the coming months… a little birdie told me that it could be intriguing.

  4. Terry

    Sandi, there are foreclosures here but so far limited to certain areas of town… however,the over 1M market, particularly the further out suburbs, are under pressure. As you know. I’ve worked a couple of these–:)

    terry

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  6. Olan Carder

    Best researched article I have read about the housing market. Charlotte is heathly and holds almost zero risk for buyers. Great Job!

  7. Jason

    Excellent post, facts are a powerful thing. the charlotte market is based on a solid foundation

  8. Megan McDonald

    Thank you for some encouraging news in this economic crisis. Charlotte has weathered the real estate disaster quite well. It is great to see statistics going against what the mass media is saying.

  9. Cassi Imes

    Great post, super informative! Proves that Charlotte is still an excellent investment.

  10. Karen Wilson

    This is very reassuring information for potential Charlotte home buyers and current homeowners.

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  12. Elizabeth

    Great article! I am a Realtor and have noticed that lately we have been getting more traffic at our office. I think that people are realizing that this is a great market and a great time to buy. Many people are from the North…they find out about our lower taxes in North and South Carolina and they are on the next plane!

  13. Olan Carder

    As always the truth really gets in the way of the media printing their story!! They can twist a headline around to make good numbers equal bad news for the market… Great job Terry!!

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The McDonald Group
Wilkinson and Associates ERA Powered
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Charlotte NC 28269
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Terry McDonald [email protected]   704-351-1519

Bobby McDonald [email protected] 704-351-1519