Low mortgage rates spiked house sales in Charlotte area. Why that trend won’t last
Lower mortgage rates boosted home sales and pending contracts in the Charlotte region in October. But the increase may be more of an interlude than a trend as home prices continue to rise.
Home sales increased by 4.4% and pending contracts by 4.8% in October compared to September, according to the Canopy Realtor Association’s October housing market report. From a year-to-year standpoint, home sales increased by 1.7% and pending contracts rose by 23.6%.
The increase in both sales and pending contracts comes after two months of decline in both numbers. The change is largely due to lowered mortgage rates, Canopy suggests.
“Rates moving lower and dipping to 6% in late August and September, brought buyers and sellers back to the market, resulting in more new listings, pending and closed sales this past month,” said Canopy’s 2024 president, Charisma Southerland, in the report.
The lowered mortgage rates were a hoped-for result when The Federal Reserve cut the federal interest rate in September. While the rate cut doesn’t directly impact mortgage rates, it can and has influenced them.
But not for long.
In North Carolina, rates have jumped back up to around 7.08% as of Tuesday, according to Bankrate, a personal finance company. This rate is similar to last year, according to data from Freddie Mac.
Canopy’s data covers the 16-county region surrounding Charlotte including Alexander, Anson, Cabarrus, Catawba, Cleveland, Gaston, Iredell, Lincoln, Mecklenburg, Rowan, Stanly, and Union. It also includes Chester, Chesterfield, Lancaster and York counties in South Carolina.
Supply and demand versus interest rates
While the Fed is expected to continue cutting the federal interest rate in 2025, don’t expect mortgage rates to dip too far.
Recently, Yongqiang Chu, director of the Childress Klein Center for Real Estate at UNC Charlotte, presented the school’s annual State of Housing in Charlotte report. There he said the new normal for mortgage rates will be in that 6% to 7% range.
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Mainly, because of supply.
While supply has increased 35% from October 2023, according to Canopy, so has pending contract activity, which indicates buyer demand. That rose by 23.6% in the Charlotte region.
Canopy adds that supply is still not a healthy level. That housing deficit will lead to higher mortgage rates.
“We all know the Federal Reserve is going to cut interest rates,” Chu said during the presentation. “Is that going to translate into big changes, decreases in interest rates going forward? My answer is probably not. The reason is: We are going to build up a huge deficit going forward…You cannot have a very low interest rate and a huge deficit.”
He added that the idea of seeing rates drop down into the 3% to 4% range, as buyers saw in 2021 and in the years after the Great Recession, probably won’t happen again in his lifetime.
“That was not the norm,” Chu said.
Supply and demand versus housing costs
The need for more housing is also increasing housing costs.
Median sales price hit $395,000 in October and the average sales price was $492,068, according to Canopy. That’s a 3.9% and 5.7% yearly increase, respectively. The average list price was $510,373, a 4.9% increase.
According to Chu’s findings, a household would need to make at least $138,036 to comfortably afford to buy a house in Charlotte at the median sales price.
Comfortability is assessed by looking at mortgage payments, property taxes, insurance and utilities.
The average salary in Charlotte is about $68,880, according to ZipRecruiter. Chu said three out of four households in Charlotte cannot afford to buy a house at the median sale price.
“At this stage, any supply is good supply,” Chu said at the summit. “Be it affordable housing supply. Luxury housing supply. As long as we are adding more housing units to the market, it helps.”
To buy or not to buy
Housing construction is slowing down when compared to how Charlotte’s population is increasing. New single-family and townhome projects are in the works, such as the Eastland Yards development and the River District.
But those aren’t set to open until about 2026.
However, Canopy says if buyers are looking for affordable homeownership opportunities, townhomes and condos may be the way. Townhome inventory in Mecklenburg County rose by 46% in October and condos increased by 83%.
Both Southerland and Chu said the main questions buyers have is whether they should wait for lower interest rates.
The answer, not really. If you can afford it, go for it. If not, talk to a loan officer about possible financial assistance or advice.
“Mortgage rates will continue to fluctuate but buyers who are ready to purchase should not hesitate or wait for the perfect rate,” Southerland said in the report. “More than 80% of properties in the (multiple listing service) are eligible for some type of down payment and closing cost assistance, and programs cap at $760K. So, it’s not just for lower-priced homes.”
