With 2011 drawing to a close, builders, real estate agents and home buyers are looking ahead to 2012. What will the Charlotte real estate market bring in 2012? Where are home prices headed? Will it be a good year to buy a home? The following market report is meant to answer some of these questions (as much as possible without a crystal ball).
Summary: Home prices in the Charlotte area have fallen over the past year, but sales have risen. Recent data suggests that this housing market might be headed for a turnaround. I believe the low point, or trough, for the Charlotte housing market has already happened. My prediction is that prices will bounce along the bottom through the first quarter of 2012, and rise gradually beyond that.
Charlotte Home Prices: Past, Present and 2012
According to the most recent Case-Shiller index, home prices in Charlotte dropped from 2010 – 2011, but were more stable at the monthly level. From August 2010 to August 2011, prices in the city fell by -3.4%. To put this into context, the worst annual decline for that same period was in Phoenix (-7.7%). The strongest metro market was Detroit, which saw a price gain of 2.7%. So the Charlotte housing market is not the best, but it’s certainly not the worst either.
At the monthly level, home prices in Charlotte give the impression of bouncing along the elusive “bottom.” From July to August of this year, prices edged upward by 0.2%. This can partly be attributed to the seasonal surge in home-buying activity. Many people seek to buy a house while school is out. But in light of the fact that some metro areas kept declining right through the summer, this could be considered good news for the Charlotte real estate market. Home prices in Atlanta, for example, dropped by -2.4% from July to August — no summer surge there.
Bloomberg expects the Charlotte area to be one of the strongest housing markets in North Carolina by 2012. They have forecasted a four-year price increase of nearly 14% for the metro area.
Unemployment Rate Still High
Charlotte’s unemployment rate is not doing any favors for the local housing market. In the spring of 2011, the city’s unemployment rate rose sharply, surpassing the national rate. That’s the point in the chart below where the blue line (Charlotte) crosses and rises above the red line (U.S.). In August, the unemployment rate in Charlotte was 9.9%, as compared to the 9.1% national average.
But many are optimistic that the city’s role as an economic hub will give it a much-needed boost. Charlotte is home to a number of major corporations, such as Bank of America, Lowe’s and Goodrich. It attracts businesses and job seekers alike. The city recently announced its “Charlotte Works” program, an initiative to connect job seekers with the tools needed to find work (computers, training, etc.).
Positive Sign: Home Sales and Inventory Reduction
Home sales in Charlotte have risen for the last two years, leading to a much-needed reduction in housing inventory. This also improves confidence among home builders, who have suffered from credit restrictions and weak demand in the past. Permits for new home construction are about one-third what they used to be before the housing crash. Builders have adjusted to this over the last few years by reducing staff and limiting production. They now say that homes are selling faster — a sign of stronger demand.
“There are more people out there looking,” said Jason Esposito of Charlotte-based Eastwood Homes. “We’re going through [inventory] a lot quicker than we were before.”
A continued reduction in housing inventory will help stabilize home prices in the Charlotte area. Demand seems to be growing, albeit at a slow pace. If the city can add jobs in 2012, demand will pick up even more. Above all else, these are the two factors that will determine when the Charlotte real estate market recovers — inventory and unemployment. The city doesn’t have the kind of inventory problems seen in cities that were ground zero for the housing crisis (think Las Vegas and most of California). But there is still an imbalance between supply and demand.
Foreclosures in the Charlotte Area
The foreclosure situation in Charlotte needs to be mentioned for several reasons. Many people are aware of the recent rise in foreclosures nationwide, because it produced a lot of headlines. According to RealtyTrac, home foreclosures rose 7% in October 2011 over the previous month. In North Carolina, foreclosures rose by more than 30% during that same period.
Many would point to this as a sign of doom and gloom. But it’s not. It’s a sign that banks are working through their backlog of foreclosures more efficiently. Foreclosure processing came to a screeching halt across the country earlier this year, when news of the so-called “robo-signing” scandal broke. State and federal authorities investigated the sloppy paperwork of lenders, and the lenders put many of their pending foreclosures on the side burner. This created a backlog of distressed properties.
There will be no return to normalcy in the Charlotte housing market until we work through these backlogs. So a sudden surge in filings is not necessarily a bad thing — as long as they’re not new filings.
RealtyTrac also released a report showing the cities with the highest number of foreclosure starts during the third quarter of 2011. These newer filings are a more accurate assessment of the current health of a housing market. Charlotte did not make the list (which is a good thing). In fact, there wasn’t a single North Carolina city within the top-20.
The sudden surge of foreclosures in North Carolina has more to do with a backlog than the current state of things. Getting these homes listed and sold as efficiently as possible will help Charlotte home prices in the long run. It’s something that must be done — and the sooner, the better.
Disclaimer: This article includes predictions for the Charlotte real estate market in 2012. This information is offered for educational purposes only. No one can predict the future of housing markets with any level of certainty. Readers should avoid making financial decisions based solely on the information contained in this article.