Optimism for Charlotte Home Sales

The Dilworth housing market is only continuing to improve! Stabilized home prices, new home construction, and improving attitudes toward homeownership are all contributing factors to a hopeful recovery of the housing market.

In the article below, Mark Vitner, Senior Economist for Wells Fargo Securities, shares his thoughts on the improving Charlotte housing market:

The slow but steady improvement in the housing market has progressed to the point that a genuine, self-sustaining recovery now appears to be under way. Sales of existing homes through the first four months of this year are running 4 percent ahead of their pace a year ago, and sales of new homes have increased 15.3 percent. Home prices also appear to have stabilized, and new home construction has increased.

While the news is better, the pace of recovery will likely remain modest for some time. A sizeable backlog of foreclosures remains, and there are still more than 11 million homeowners that owe more on their mortgage than their homes are worth. Sluggish job growth and high unemployment also continue to cut into the growth of new household formation. In addition, relatively tight mortgage underwriting criteria continue to keep many potential buyers on the sidelines.

History

During the latter part of the past decade, household growth hit an air pocket as the economy slipped into recession. Massive job loss and the stubbornly high unemployment rate among younger persons caused many of them to move back in with their parents or other relatives. Many baby boomers delayed retirement or remained in their current homes awaiting a recovery in value that would permit them to sell and relocate. The baby bust generation, those born from 1965 to 1985, were hit particularly hard, accounting for a disproportionate share of new home sales during the housing boom and a large proportion of the problems in the subsequent bust.

Reasons for optimism

Even though the recovery has been slow and many hurdles remain, there are plenty of reasons to be optimistic about the housing market. For starters, much of the downside risk has been removed, as home prices have likely overshot to the downside in nearly every major market when comparing prices to rents or household income. Moreover, there was not nearly as much overbuilding during the boom years as widely thought. The Joint Center for Housing Studies at Harvard University notes that total number of new homes built during 200211 was the lowest of any 10-year period since the early 1970s. The number of vacant homes for sale remains high, however, reflecting unusually sluggish household growth and slower immigration. Both are likely to improve in coming years, as the broader economic recovery gains momentum.

Attitudes toward homeownership also are improving. Various measures of housing affordability show a larger proportion of U.S. households can afford to buy a home today than just about any time in the past 40 years. Unfortunately, many of the people who can afford to buy a home already have one that they may not be able to sell at worthwhile price. But that also is changing. The inventory of homes available for sale has decreased sharply over the past year, and homes on the market are increasingly seeing multiple bids. Asking prices have risen across much of the U.S., particularly in hard-hit markets like southern California, Arizona, and Florida.

The demographics also are expected to turn more favorable. Two years of slow but steady improvement in the labor market have led to a slight pickup in household formations, and more baby boomers who put off retirement are moving forward now. Trade-up activity has improved, which is providing a much-needed boost to new home construction.

And things should get even better. People born after 1985 represent a cohort even larger than the baby boom generation. While many have speculated that this generation will hold different views about homeownership, survey data suggests otherwise. Right now this cohort us driving gains in the apartment market but, as employment conditions gradually improve, they increasingly will drive demand in the for-sale market.

For the near term, however, the recovery in housing is likely to be driven by more mundane forces. The increased uncertainty surrounding the European financial crisis and U.S. fiscal policy is expected to lead to slightly slower overall economic growth during the second half of 2012 and during early 2013. Absent a worst-case scenario in Europe, we do not believe the slowdown will threaten the budding recovery in home sales and new home construction. Progress may slow a bit from its recent pace, but conditions should continue to improve.