Seeing the 950-square-foot bungalow near downtown Charlotte listed for $235,000 in June, the 28-year-old with a job in construction management offered $240,000 in cash, assuming the fast money would get the deal done. Not so fast: The home sold two days later for $285,000 to one of the other dozen bidders seeking the property.
Buying a house for 20% more than list price is a stretch, but it reflects the strong market in the Charlotte and Raleigh-Durham areas, real-estate industry officials say.
The average home value in the Charlotte market has skyrocketed by 13.6% over the last year, while the Raleigh market has seen a 6.8% gain, according to Zillow, a Seattle-based market research company. The median home value in the Charlotte region is $211,700, compared with $261,800 in the Raleigh region. Zillow expects the pace to slack off to a still robust 4.6% in Charlotte over the next year, and 4.3% in Raleigh.
“Our housing supply is about two months, which is considered a severe undersupply. That’s the lowest it’s ever been,” says Stacey Anfindsen, a Cary residential appraiser who writes the Triangle Area Residential Realty market report. “We have finite land where people want to live. … When you have people chasing finite resources, prices are going to go up.”
Experts see little chance of a reversal in the housing market anytime soon. Zillow has rated Raleigh and Charlotte second and fourth, respectively, on its list of the 10 best U.S. housing markets this year. Population and income growth are driving strong demand for homes, with the number of people living in Charlotte increasing 16% between 2010-17. Raleigh saw 14% growth over the same period, based on U.S. Census Bureau estimates.
Meanwhile, the supply of homes for sale continues to shrink, partly because of the brisk market and limited incentive and capacity for builders to construct new homes. The Queen City had 20% fewer homes for sale in April than a year earlier, according to the Charlotte Regional Realtor Association. In the Triangle, slightly more than a fourth of homes that are under construction or recently completed did not already have sales contracts, according to housing market analysis company Metrostudy.
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Housing starts in North Carolina have rebounded steadily since bottoming out at an annual rate of about 30,000 between 2009 and 2012, according to the Federal Reserve Bank of Richmond. In recent months, the annual pace has doubled to more than 60,000 starts, based on new-home permits issued across North Carolina. In April, more than two-thirds of the state’s 6,368 new-home permits were issued in the Charlotte, Durham or Raleigh metro areas.
Still, many banks remain leery about lending for big land developments after the devastating 2007-09 recession. Nationally, residential acquisition, development and construction loans in 2017 were 64% lower than the peak level in early 2008, according to the Federal Deposit Insurance Corp. and the National Association of Home Builders.
Banks “have been cautious about getting back into speculative building,” says Reed Jackson, managing partner of Charlotte-based real-estate brokerage Ivester Jackson. “We’ve had a shortage of new construction alternatives, which has led to price appreciation in the high-demand areas.”
Cost and availability of labor are also major problems, the National Association of Home Builders says. Prices for 1,000 board feet of lumber have jumped 70% in the last year, while overall construction costs have increased for 19 straight months.
Even with higher housing prices, homes are selling like hotcakes. Charlotte homes sold in April within 44 days, on average, compared with 29 days in the Triangle, Multiple Listing Service statistics show. North Carolina’s cost of living remains significantly less compared with Austin, San Francisco or northern California, Andfindsen says.
How long will it last? Jackson says most experts are expecting the Federal Reserve to raise rates about three times over the next year, leading to mortgage rates pushing about 5%. That is still historically low, he adds, though many homeowners became used to 4% or lower rates in recent years.
“Instead of 10 people looking at one house, you might have four or five people looking at one house,” Anfindsen says. “But you still have four or five people looking at one house. … We’ve got a lot more people moving in than moving out. It’s tough to see any scenario short of a really bad recession nationally that would reverse our housing trend.”
Even if rates jump to about 5%, the North Carolina metro areas will remain strong, he predicts. Mecklenburg and Wake counties are each expected to add more than 210,000 residents between 2020-30, according to the UNC Carolina Population Center in Chapel Hill.