2011 was a mixed bag for the Charlotte real estate market. The first six months of the year were dominated by headlines showcasing HUGE home price and sale declines year-over-year (the same period in 2010 had a government tax incentive which propelled than cratered sales) but then sales flattened. What’s taken over is this “new normal” which is extremely tight inventory, lower prices, and sales fueled by historically low mortgage interest rates.
Sales Remain Flat But Stable
Those longing for the days on 2006 best not hold their breath for long. In 2006, Realtors® sold 22,190 single family and condos – a record for any point in the Charlotte Multiple Listing Service reporting. But consider this: in 2006, if you had a pulse you could obtain a mortgage for atleast $200,000. If you had a pulse and a job, I could find a lender who would lend you $500,000 with no money down on a 6.25% 5 year ARM.
Those circumstances aren’t coming back…at least any time soon. While Wells Fargo (and a few others) will extend an FHA mortgage to a borrower with a credit score as low as 600, you will need to have a good reason for that and a down payment. Fact is that the pool of available buyers is significantly smaller than it was six years go but the Charlotte area appears to have finally found its bottom.
In 2011, Realtors sold 10,522 single family and condos (or 53% less than six years ago) but it’s in-line with the 10,330 closed in 2010 and 10,535 in 2009. During 2007-2009, sales fell rapidly and settled into the 10,000 unit range. The difference in 2009 and 2010 with 2011 is that during ’09 and ’10, “first time home buyers” were incentivised with a $7500 and then $8,000 tax credit. That didn’t exist in 2011.
That’s why 10,522 is so significant! Without any government incentives or non-existent lending standards, 10,522 homes closed. Union county has found the same floor: 48.3% fewer home sold than did six years ago but 2204 single family and townhomes closes in 2011; which was more than sold since 2008.
Month’s Supply of Homes Continuing to Drop
For Charlotte and Mecklenburg county, available housing inventory levels dropped 16.9% compared to 2010 to a 10.7 month supply of homes. At our peak in April 2010, Mecklenburg county had a 13.4 month supply of homes on the market which is a trend in the right direction to help stabilize and increase home prices. Greater than 10 months is definitely a buyer’s market and less than 9 months enters into a seller’s market.
The months supply of homes compares how many homes are selling in a month vs the total inventory. Therefore, when we say there’s a 10.7 month supply of homes, if no other properties were added to the market, it would take that long for every home to sell. At the height of Charlotte’s real estate market in 2007, we dipped to a 4.6 month supply (Seller’s Market).
Bank owned properties (HUD, VA, and other REO’s) are currently at a 2.2 month supply in Mecklenburg county. In those conditions, every home sells for close to full price or higher and multiple offers on the same property are very commonplace.
New Construction’s Comeback
For the last six years, there really hasn’t been a lot of new housing construction and Charlotte area home builders were descimated by the recession. Many had overpaid for land, which ate into their profits. Hundreds folded, others merged and thousand of empty lots sat empty with utilities in the ground ready for a foundation and a buyer.
In 2006, 3,847 new and newly constructed homes sold in Mecklenburg county; which then fell rapidly to just 1598 units closing in 2009. In 2011, builders constructed and sold 1570 homes BUT there is a HUGE land rush taking place as home builders are buying finished lots and re-starting sales.
I expect more than 2000 units to close in Mecklenburg county as builders race to meet demand on lots that are 1/2 to 1/3 the cost to develop just a few years prior.
The Presence of REO
Bank owned / foreclosed home sales accounted for just 24.57% of all sales in Mecklenburg county. In 2009 and 2010, REO’s were a larger part of the market however the banks figured out that by not flooding the market with inventory, they could keep from further depressing the market. The number of short sales have increased year-over-year but they remain a relatively small portion of the market (less than 1000 closed). I expect short sales to increase and remain for atleast the next three years in the Charlotte area as they remain a viable alternative to foreclosure.
Throughout the first part of 2011, the median home price is Mecklenburg county remained stable at $160,000. As fall arrived and sales started to slow, the median fell and now rests at $155,990. Prior to this recent decline last fall, the lowest the median sales price has been in Mecklenburg county since 2005 was $158,123. The average selling price of a home in Mecklenburg county also fell y-o-y from $220,637 in 2011 4.3% to $211,174.
If January is any indication of what the rest of the year will be, expect 2012 to be an even better year than 2011. So far in January, Realtors have reported 608 closed sales (offices have until the 8th of the following month to report sales). Short sales should continue to rise as an alternative to foreclosure.