Each month, we will be writing about the Charlotte real estate market to give you the latest figures on homes sold, homes on the market, and pricing forecasts among other things. You can save this blog post, so that you can easily check back on our posts for future months. And if you subscribe to our monthly newsletter, you will automatically receive these monthly updates, as well as other informative information and what has proven to be popular - our monthly Fagan. Foodie Review where we review a locally-owned restaurant that we particularly like. You can subscribe to our newsletter below, and you can check out our past Foodie Reviews here.
The Charlotte Housing Market Remains Strong
Despite interest rates being higher than a year ago the Charlotte housing market has remained strong. Mortgage rates have decreased buyer demand, and we see that in the sales data. As of May 1, the number of homes sold in the last 12 months is down 10%. But that does not mean that higher interest rates are the sole cause of the drop. The number of new listings is also down 7%. So what do those figures tell us? That tells us that fewer sellers have put their homes on the market due to what some call the “rate lock effect” where the homeowner does not want to “trade” their low interest rate for a higher rate on a purchase. And they also tell us that home sales in Charlotte only dropped 3%. That is hardly a “plummet” as some media pundits like to report.
(The graphs represent the Charlotte market)
Additionally, the media loves to talk about high interest rates. Compared to what exactly? Yes, they are higher than what we have experienced since 2001, but not compared to the 50 year average of 7.81%.
Unfortunately the hyperbole promulgated by some in the media has caused misunderstandings by many consumers. Even with today’s current rates in the 7% range, it is actually cheaper to buy a house today than to wait 1-2 years for rates to come down. With home prices up over 7% in the last 12 months, and continuing to increase despite current rates, it is cheaper to buy today as well as being able to possibly take advantage of the tax deductions that come with home ownership. And when rates come down, one can refinance and often have a lower monthly payment than it would be by waiting. For more on this topic, you can read my blog, Should I Wait to Buy a Home.
Will Charlotte Home Prices Continue to Increase?
I often get asked how prices are continuing to increase in Charlotte when home sales are down. The answer lies in the basic principle of supply and demand. In residential real estate, we are in a buyers market when the inventory of homes for sale, at a given time, equates to 7 months or more. That means that it would take 7 months to sell every home if the pace of sales continued at the current rate. The market is considered in equilibrium when there is 4-6 months of inventory - meaning that there are roughly the same number of buyers and sellers in the marketplace. When inventory drops below 4 months, then we are in a sellers market. And that is where we have been since 2015. Today, the inventory for the entire Charlotte market stands at 1.2% which is incredibly low. So, when inventory is this low, prices will continue to rise, because it means that we have more buyers than sellers in the marketplace. Interestingly,
Charlotte continues to grow which is also driving the low inventory that we are experiencing. While some of these new residents rent, a larger percentage want to purchase a home. Thus, existing Charlotte residents are competing with those who have just moved to the Queen City. In the last 14 years, we have added over 400,000 people to the population. And when you look at long-term migration projections for the US, it is Southern cities like Charlotte who will continue to grow compared to Midwestern and Northeastern suburbs -many of which are experiencing a net loss of residents. The most impactful way to alleviate our low inventory is through the construction of new homes. They are the only type of owner-occupied real estate that do not displace someone when they are purchased. But homebuilders are challenged with rising land costs, difficult entitlement processes to obtain municipal approval for construction, and a continued shortage of labor. Thus, while we added 400,000 po0pe,e to our population in the last 14 years, we only added 100,000 new homes. And unfortunately, will continue to have significant challenges as it relates to housing inventory as it is expected that Charlotte will add another 1 million people by 2050. This supply-demand mismatch will likely persist, as Charlotte expects to add another 1 million people by 2050.
Is There a Real-Estate Bubble in Charlotte?
I talk periodically to people who think that the real estate bubble is about to “pop” in Charlotte. But when I ask why they believe that, they generally point to the run up in home prices in the last few years. While I understand that someone might believe that on the surface, they are not looking at the reality of the situation. As long as current trends continue, inventory is going to be low while causing prices to continue to rise. Homes are still selling rapidly, often receiving multiple offers above asking price after just a few days on the market. The inventory shortage combined with Charlotte's expanding population means home values will likely continue their upward trajectory. Yes, there will be something that causes prices to fall, but it is likely to be an event or series of events that we cannot predict that will lead the country into a big recession. And how long is a person willing to wait for that to happen? Buying a home for a family to enjoy and create memories is not solely an investment like buying a stock may be. And just as with investing, trying to time the real estate market generally does not pay off.
NAR Buyers Agent Compensation Changes
The big news impacting the U.S. residential real estate market is the recent settlement by the National Association of Realtors in a lawsuit that was filed last year. While it is too early to tell what the total impact of the settlement will be, it will produce change. You can read more about it in my recent blog, “The National Association of Realtors’ Settlement for Buyer's Agent Compensation: What’s the impact on Charlotte Buyers and Sellers?”
We believe that change will be good for consumers. Some are predicting the demise of buyer agents. I do not believe this is true, but many below average agents may leave the business. What we know is that the overwhelming majority of buyers value being represented by a competent agent when purchasing a home as shown in the graphic. And this settlement, which will bring greater transparency to the home buying and selling process, will hopefully ensure that more buyers get that type of representation going forward.
Bottom Line:
The bottom line is that home prices continue to rise in Charlotte despite lower demand. And the expectation is that they will rise at a faster rate once interest rates come down, as there are a lot of buyers sitting on the sidelines. If you are waiting to buy a home, talk to us. We can run an analysis to help you decide if it makes sense to wait or if it is better financially to buy now.
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