With the spring homebuying season well underway, buyers across the Charlotte area are likely to dig deeper into their pockets than they had to a year ago.
That’s because the inventory of homes for sale continues to lag here, as in other parts of the U.S., giving sellers bargaining power to demand higher prices.
After a harsh winter that chilled homebuying, Charlotte real estate brokers say they’re seeing robust activity – though a bit less than last spring, some say.
Sandra Larsh, broker in charge for Charlotte-based Cottingham Chalk Hayes Realtors, described the spring market as “extremely strong,” with prices rising, homes receiving multiple offers and some properties selling in one day. But thanks to persistently low supplies of homes for sale, the market is slower this spring than last year, when pent-up demand created a flurry of activity, she said.
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Here’s a look at five trends shaping Charlotte’s housing market this spring.
1. Stubbornly low supplies
When asked what is holding back the spring housing market, most real estate officials are quick to point to one factor above all others: the low number of homes for sale.
In general, anything less than a six-month supply of homes is considered a seller’s market. The Charlotte metro area has been below that level since November 2012, according to the Charlotte Regional Realtor Association’s data on existing homes.
In March, the region had a 5.1-month supply. In Mecklenburg County, you’re likely to find tight inventories in the southwest and northwest, both at 3.1 months, and the south-southwest, at 2.6 months.
With a low supply of homes on the market, buyers are struggling to find what they want, stopping many of them from making a purchase, real estate officials say.
“I cannot tell you how many people want to buy and just cannot find the right property,” said Janet Gaglione, president of the Charlotte Regional Mortgage Lenders Association.
Across the 18-county Charlotte region, sales of existing homes in March were up 1 percent over last year, following an 8.4 percent year-over-year decline in February, according to the most recent figures from the Realtor association. February marked the first annual decline in sales in the region in nearly three years because snow and ice disrupted activity.
In a twist, low supplies are keeping inventories from rising, real estate officials say. That’s because some potential sellers are choosing not to list their homes because they can’t find property they want to purchase.
Kerry Stecher, broker in charge of the Ballantyne office for Helen Adams Realty, said brokers with her office have been advising potential sellers to find temporary housing, such as a short-term rental arrangement, so they can sell their properties now and take advantage of the peak of the homebuying season.
2. Too few lots for construction
A tight supply of available lots is holding back new construction.
Bill Miley, Charlotte market director for Metrostudy, which tracks lot availability, said the supply of lots is considered at equilibrium when it is 24 to 30 months of inventory. North Mecklenburg County now has a 23.5-month supply, he said. In Union County, it’s 18.6 months.
Developers are trying to get more lots ready, but finding financing has been a challenge, he said. He expects the supply in the Charlotte region to be at equilibrium later this year but shortages to persist in high-demand areas. He expects Union County, for example, to hit an all-time low of 15 months at the end of the year.
Alan Banks, a co-owner of Charlotte-based homebuilder Evans Coghill Homes, said lot availability does not seem to be getting any better in Charlotte. As supplies have tightened, builders have been paying more for them, he said.
“Conservatively, I spend 20 percent of my week talking about land, looking for where can we go to build a house,” he said.
“We need somebody putting lots on the ground. Hundreds of lots on the ground.”
3. Prices rising more slowly
Home prices in Charlotte, as elsewhere, have posted sizable annual gains in recent years as they’ve rebounded from lows reached in the housing downturn. Charlotte prices are still rising, but not as fast as before.
In February, Charlotte-area home prices rose 6.7 percent from the same month last year, according to Standard & Poor’s Case-Shiller index. U.S. home prices rose 12.9 percent over the same period.
“Appreciation rates are going to come down, which they should, and that’s a good thing,” said Pat Riley, president of Charlotte-based real estate company Allen Tate Cos. He expects appreciation to return to a more normal 3.5 percent annual rate.
Large gains in prices have been raising concerns about affordability, especially for first-time homebuyers. Earlier this year, Lawrence Yun, chief economist for the National Association of Realtors, noted that home prices have been rising faster than incomes.
“As the prices keep going up, people kind of wait or hesitate” to buy, said Hadi Atri, president and CEO of SouthPark-based Re/Max Executive Realty.
Mortgage buyer Freddie Mac said Thursday the average rate for a 30-year loan fell to 4.21 percent from 4.29 percent the week before. Mortgage rates are up about a full percentage point since hitting record lows about a year ago, potentially adding hundreds of dollars per month to a mortgage.
Gaglione, of the Charlotte Regional Mortgage Lenders Association, said one of her clients who was prequalified last summer for a loan was qualified to borrow $30,000 less by the time a house was finally bought in March.
4. Lower credit scores accepted
Since the start of this year, homebuyers have seen a growing number of lenders accept lower credit scores as they peel back some of the tough lending standards they’ve had in effect since the housing crisis.
After defaults on subprime mortgages helped spark the recession in 2007, many lenders raised the minimum credit scores they would accept.
Skip O’Neal, Charlotte-based senior loan officer for Cunningham & Co., said lenders have been reducing the minimum credit scores they accept for loans that conform to Fannie Mae and Freddie Mac guidelines and those backed by the Federal Housing Administration.
Lower scores are being accepted as lenders look to offset the declines in mortgages for refinancing, he said. Since last year, the mortgage industry has seen demand to refinance plummet amid higher mortgage rates.
Mortgage professionals say the lowering of credit scores is helping borrowers who have blemished credit histories, because of a setback like a divorce, but who also have the ability to make their mortgage payments.
“It used to be we could not do anything under 640 as a lender for FHA loans, but now we can go down to 620” if the borrower’s income, debt-to-income ratio and other financial qualifications are strong, O’Neal said.
Mortgage professionals are quick to point out that the loose lending practices common before the downturn are not returning. Federal rules that took effect this year require lenders to ensure a borrower can repay their mortgage, which means no- and low-documentation loans can no longer be offered.
“It is harder for the self-employed or the commissioned-income individual to qualify,” O’Neal said. “It’s harder for them to document their income.”
O’Neal also said lenders have been accepting lower credit scores for jumbo loans – those that are more than $417,000 – as lenders grow confident that property values won’t decline.
5. Upper end recovering
The increased willingness among lenders to make jumbo loans comes as real estate officials say Charlotte’s upper-end housing market is rebounding, from Ballantyne to Myers Park to Lake Norman.
Atri, of Re/Max Executive Realty, said more high-end properties are being built in the Charlotte area.
Matthew Paul Brown, head of Premier Sotheby’s International Realty’s Charlotte office, said the firm had a property in SouthPark go under contract this month in less than 24 hours. The selling price was $1.25 million, and the home had multiple offers, he said.
“The market in high-end is picking up,” he said. “Every day we’re posting an increase in listings.”
But the rebound in the upper-end market is not even across the Charlotte area, he said.
“You have some different pockets that have not recovered. Some other areas of the Charlotte metro area were hit harder than others, but we’re seeing those areas start to come back and recover.”