NAR’s chief economist: Charlotte is “a very good market”

By Susan Shackleford

When Dr. Lawrence Yun spoke at the Association’s recent Installation Luncheon, he opened with a question for the approximately 375 Realtors® in the Crowne Plaza banquet room: “How many of you lived in Charlotte in the 1970s?”

About a third raised their hands. The relatively low number foreshadowed a theme that NAR’s chief economist would highlight as he painted the economic picture of the Charlotte metro market — continued strong growth, in both population and the housing market.

“You are in a very good market,” he said, noting both sales and price increases in residential real estate. Later, he cited Charlotte as one of 10 markets in the country that NAR expects will outperform the national average in home price appreciation over the next three to five years.

The big question, he said, is “are we due for a recession?”

“No” was his clear answer for 2020.

“One year ago, there was a lot of discussion about recession,” he recalled. “The stock market was down. Now the word ‘recession’ has completely disappeared. We are not going to face a downturn anytime soon, but the question is, ‘How strong will growth be in 2020?’”

Why Are Corporations Not Spending?

Consumer confidence is high and businesses are flush with cash, but gross domestic product (GDP) is lagging the 3% growth economists thought might occur following 2.9% growth in 2018, Yun said. Businesses have been tight-fisted with their money, not investing much of it in their operations, and commercial leasing agents are reporting only small increases in leasing activity.

“What could be the reason?” Yun posed.

“If you listen (to what corporations are saying) and look at quarterly earnings, they are afraid of a trade war so they are being extra cautious,” he said. “The recent Canada-Mexico deal is boosting the stock market. If businesses become more optimistic in 2020, we might get 3% GDP growth.” The current projection is for 1.6%.

Focusing on housing, Yun noted that mortgage rates of about 5% a year ago produced the most recent “hiccup” in the market nationally. “You talk to a boomer, they say 5% is still an attractive rate, but you talk to a millennial, and they say that’s way over my head. They (millennials) are accustomed to seeing 3 ½ to 4%. Buyers have been coming back over the last year because of falling mortgage rates.”

But still, home sales nationally are not what they were two years ago. “They have been weakening since early 2017,” Yun said. NAR data shows the percentage of consumers who “strongly agree” that it’s “a good time to buy” was just under 35% in the third quarter of 2019.

Low Inventory Frustrating Consumers

“Consumers are frustrated about choices; there is not enough inventory,” Yun explained. “Job creation is creating lots of potential first-time buyers, especially at the lower end. They are frustrated with their choices. There are also many multiple bidding situations, where there’s one winner and six losers for a property.

Inventory has been at historic lows nationally and in the Charlotte region in recent months. The Charlotte figure dropped to 1.7 months of inventory in December 2019, down from 2.4 months the same month a year ago, according to Canopy MLS figures.

“Home builders have not been building enough for multiple years,” Yun said. “That’s the principal reason why we have the inventory shortage.”

More Jobs, Higher Wages

In the Charlotte metro region, Yun noted that job and wage growth is strong.

Job growth locally more than doubled that of the national market from January 2000 through July 2019 — 37% to 16%. Actual jobs over that period went up from a little more than 900,000 to about 1.25 million.

Regional wages have risen from about $760 a week in January 2007 to $1,050 a week in October 2019 — an increase of well over one-third.

Charlotte is also one of two markets in North Carolina predicted by NAR to outperform the national average for home appreciation over the next three to five years. The other market is the Triangle (Raleigh-Durham-Chapel Hill). Colorado is the only other state with two such markets, with Fort Collins and Colorado Springs.

Despite the positive data, Yun noted the national homeownership rate has not rebounded to what it was before the recession. Homeownership reached a high of 70% in late 2003/early-to-mid 2004 and has bounced back to 65% as of the third quarter of 2019.

Many Millennials Delay Purchasing

The lag “is due to generational differences,” Yun said. “Millennials believe homeownership is part of the American dream, but their homeownership rate is lower (than previous generations). Our survey results show millennials, 80 to 85% of them, want to own a property, but not now, a little later. It’s part of their American dream, but not at the moment. They are paying off debt and getting married later.”

Based on national and Charlotte metro data, Yun said “I feel comfortable that the next five years, probably four of the next five years, will be improving years for real estate in the Charlotte area.”

He cited deficit spending by the government as a risk factor. “Even in our good economy, the deficit is widening again, and all the presidential candidates don’t seem to care about the deficit,” he said. “At some point, will the deficit bite back?”

For 2020, he foresees moderate growth nationally in the real estate industry, based on projected figures for new home sales, existing home sales, median price growth and the 30-year mortgage rate. “In Charlotte you can add 5% to all the figures you see,” he said, referring to the projections on his slides. That brought spirited applause from the crowd.