Housing Supply, Housing Demand and “The Corona”

The biggest unknown in any economic model is how we the consumers will act, and this rings true for Charlotte real estate as well. I had someone tell me that the “bottom fell out” of our real estate market and I had to take a step back to regroup before responding.

What market indicators were they looking at? Well, it turns out that they were looking at the economic indicator that reigns supreme above all others… their own gut feeling. No one feels comfy making large decisions in the midst of a global pandemic and yes, based on the Charlotte Region Weekly Market Activity Report from our local Realtor® association there have been some slowdowns. However, these slowdowns aren’t necessarily what you might think.

Pre-Corona Armageddon 2020 there was no disputing that the Charlotte real estate market is highly sought-after. There are tons of people moving here for all different reasons each and every day, and we have a booming economy and our job market is top-notch for people in professional industries. There’s so much opportunity here that we have to bring in job applicants from other cities and states because prior to the pandemic we had extremely low unemployment numbers for those working in traditional desk jobs. (No, the same cannot be said for those working in trades, customer service and labor positions, but the affordable housing crisis is a blog post for another day.)

Our biggest issue within Charlotte’s real estate market is and has been a supply problem. We have tons of qualified people and not enough housing to ensure that even the majority of buyers can find a suitable home. This in-turn drives up the prices for the homes that are available and creates the chaos and bidding wars we’ve seen for the last few years.

The changes that have been felt in our market are honestly, more of the same old story: too many buyers and not enough houses. Based on the Weekly Market Activity data the market is slowing down from the perspective of less homes are being listed for sale. So, in an already jammed up market people who would sell are afraid to sell. However, those that do venture into listing are being rewarded by receiving a higher percentage of their listing price at closing and their home being on the market an average of 38 days, that’s 19.1% LESS time than last year when the average days on market was 47 days.

If you’re looking to sell just remember: To the victor goes the spoils.  Get out there and get listed. If you’re a buyer waiting for the true “bottom” to fall out, it appears that you’ll be waiting a little longer than what a globally-debilitating economic crisis can offer up to impact our Charlotte slice of heaven.

What does it buy you?

According to the Charlotte Regional Realtors Association the average price of a home sold in the Charlotte area as of the close of January 2019 was $268,271. Over the course of a year this tends to fluctuate based on market factors, but tends to round out to somewhere between 250,000 and 300,000. So what does an “average” home in Charlotte look like? Well, depending on where in the area you’re looking to purchase that can look VASTLY different. So, which home works for you?

315 Arlington Avenue #605, Charlotte NC 28203

This gorgeous 1 bedroom, 1 bathroom condo unit is located in the sought-after South End neighborhood, convenient to the CATS light rail, Uptown Charlotte and with tons of dining and entertainment within a short walk. The building boasts a pool, dog run, rooftop terrace and 24 hr concierge. The home is listed at 269,000 for 720 sqft of heated living area (priced at 373.61 per square foot). HOA fees (monthly) are listed at $321.

3112 Kemptown Square, Waxhaw NC 28173

3 bedrooms and 2.5 bathrooms awaits you in this airy 1,328 sqft condo within a mile of downtown Waxhaw NC. The community has a pool, clubhouse, fitness center and walking trails. Enjoy your own private patio and one car garage. This home is listed at 235,000 (176.96 per sqft) with monthly HOA dues listed at $181.50.

13602 Kensal Green Drive, Charlotte NC 28278

This home is already under contract, but I’m still going to count this Steele Creek 4 bedroom, 2.5 bathroom single-family home. This home has 2,968 sq ft of heated living area on just over a half-acre lot (0.6 acres according to the listing) with a two-car garage. This home is listed at 290,000 (97.71 per sqft) and has quarterly HOA fees of $85.

1907 Savannah Hills Drive, Matthews NC 28105

You can call this 3 bedroom 3.5 bathroom home in Matthews yours for the list price of 299,900. This 2,995 square foot home sits on 0.2 acre corner lot and has an updated kitchen including custom cabinetry and hardwood floors in the kitchen, dining area and large living area. The home is currently priced at 100.13 per square foot.

427 Steel Gardens Boulevard, Charlotte NC 28205

Want a townhome near the NODA Arts District? This 2 bedroom 2.5 bathroom end-unit in the Steel Gardens community has just over 1,400 sqft of heating living area, a two-car garage and a fenced back patio area for you to enjoy! This home is currently priced at 295,000 (200.68 per square foot) and has HOA fees monthly of $425.

The Realities of Rent-to-Own

Everyone has to live somewhere, so many find renting to be the best option due to low credit score, lack of funding for a down payment, and the general uncertainty of whether or not they’ll live in a home or an area long-term. Making the jump to homeownership can be difficult given the financial burden, so the idea of paying rent and having that money ultimately used towards your purchase of a home seems like a fabulous idea, but there’s more to it than that.

Every business transaction must be advantageous for both sides, otherwise, why would they enter into it? Let’s look at what each side is dealing with:

Seller

  • If a seller is listing a home for sale, they have the intent to liquidate their investment. They want to sell it, not continue to hold it and rent it out. There are risks and expenses associated with renting a home and many sellers aren’t looking for those responsibilities anymore.
  • If an owner is going to rent a home, they want to receive the market rate of rent. They’re not going to willingly accept less than properties that are similar based on condition and location, unless there’s a good reason.
  • In this market it is easy to sell a home, there are more buyers than properties available, so sooner or later the seller can offload their investment and walk away with cash (as long as they’ve priced it appropriately, of course).

Buyer/Renter

  • Wants to purchase a home, but doesn’t think they have enough funds available for a downpayment. This likely means that they don’t have additional funds to afford housing that is higher-priced than the market rate of rent.

How does rent-to-own work?

For this type of deal to work, the seller retains ownership of the home while the buyer becomes a long-term tenant. During this time the tenant normally pays more than the home would rent in the market. For example, if a home would rent for $1,800 monthly, the tenant may pay 2,000 or more each month. 1,800 of that payment would go to the seller as rent, the remaining portion of the payment would be held as “savings” towards the downpayment. This downpayment savings grows very slowly, and the buyer must pay an upfront fee to place this purchase option into effect, which often takes away the advantage of this transaction setup.

There’s also significant risk to the buyer and the seller. The seller is staying as the owner, which means they foot the cost of insurance and taxes. Also, the buyer is under no obligation to purchase the property at the end of the deal. They may lose some or all of their “savings” but again, that isn’t very much money to begin with.

These deals are more advantageous in a real estate market where there’s too much inventory and it’s difficult for a seller to offload a property. In that type of market environment there’s an advantage to renting the property in the hopes of selling at a later date than to let it sit vacant for long periods of time. This is the same market environment when we see sellers financing deals instead of requiring buyers to go and get their own loan from a traditional mortgage lender or bank.

In our current real estate market where buyers far outnumber available properties and home prices are increasing, you can still find rent to own properties advertised, but many (if not all) are scammers. So buyer (or tenant) beware!

What the F… Foreclosure, I mean

Everyone in the real estate market is looking for a good deal, but is a foreclosure property the right choice? There doesn’t seem to be a day that goes by that I don’t receive this question from a client. We all want a great deal in this saturated real estate market, it’s competitive out there, it’s hard, and it’s emotional. To make the best decision possible for you and your family, let’s shed some light on the process, which is likely different than what most consumers think that it is.

The Auction process

A true foreclosure is a property where the owner has fallen behind on their property taxes, mortgage payments or another form of debt that is secured by an interest in their home. This means that if a borrower doesn’t pay, their bank can take their home and auction it in an effort to be compensated for the debt.

In North Carolina, the majority of foreclosures are nonjudicial, which means that the lender doesn’t have to file a lawsuit against the buyer, however, there will need to be a hearing in front of the clerk of courts in the county where the property is located. Once approved by the clerk, the home is advertised and a notice of sale is sent to the owner.

This is where things get confusing for someone looking to purchase a foreclosure! Foreclosure sales are auctions, not foreclosure postings on popular real estate websites. To participate in an auction you need cash, and you may be buying a property with undisclosed debts tied to the title. Even if you win a foreclosure auction there’s a 10-day upset bidding period, which means someone else can still outbid you (which may trigger another 10-day upset bidding period) or the homeowner that was foreclosed on can redeem their property and cancel your purchase.

Foreclosures Listed on Real Estate Search Websites

Foreclosure properties listed on the consumer websites are most-likely bank-owned homes. These homes have gone through the foreclosure process and are now being listed for sale, so the word ‘Foreclosure’ is more of a marketing term than anything at this point. However, there are still some significant stumbling blocks to ownership for the average homebuyer.

Properties listed as foreclosures are likely to be distressed properties. When someone knows their home is going to be foreclosed on, they are less likely to take good care of it. When the bank takes over ownership it really wants to offload this property and therefore offers the home in as-is condition. This could mean that the property is not even in an inhabitable state. There could be major foundation issues, mold, holes in the roof, you name it. North Carolina is a buyer-beware state, so it’s extremely important to know what you’re about to enter into if you decide to go under contract on one of these homes.

If you are using traditional financing such as a mortgage of your primary residence, the homes needs to be deemed inhabitable for your bank to go through with lending on the home. The bank will send out a property appraiser to walk the home and research recent sales for similar properties in the area. This ensures that the money the bank is going to lend to purchase the home, is being used for an asset that is worth that amount of money. This also covers them if they need to foreclose on you if you don’t pay your mortgage and then sell the home to cover your defaulted mortgage.

During the property appraisal, the appraiser may deem the home uninhabitable unless certain items are fixed. This stops the purchase dead in its tracks. Without those fixes being made to the home, the lender won’t go through with lending you the money to purchase the home. How could this home be your primary residence if it’s too dangerous to live in?

This puts the borrower in quite a dilemma, because the seller has made it clear that the home is to be sold in its “as is” condition, and that they will not make any repairs. So it’s up to the borrower, who legally can’t make those repairs because they don’t own the home. So, the sales transaction is now in a stale-mate. The borrower is out of a lot of money in due diligence and earnest money fees, appraisal fees to the bank and possibly inspections, but they don’t have a home.

How do you know if a foreclosure is right for you?

If you are looking at foreclosures as your primary residence, it’s important to understand the pitfalls. This is why I ask each one of my clients that would like to pursue a ‘foreclosed’ home these two questions:

1- are you financing your home with a mortgage or are you paying cash?

2- how risk-averse are you? (i.e. what’s the risk profile of your investment portfolio? or, How do you feel when the stock market goes down and negatively impacts the balance in your 401k account?)

If a client is using a mortgage to finance their purchase and they don’t have a healthy appetite for risk I advise staying out of the foreclosures arena. There are many beautiful homes for sale that don’t have the headaches associated with foreclosure homes.

Appraisal and homeowners inspection: what’s the difference?

When you buy a product or a service you always want to know what you’re buying and that it is of good quality. For everyday items like food, clothing and household goods if something isn’t the quality that you expect you can simply return it to the retailer or throw the items out and chalk it up to a learning experience. However, when purchasing a home there is no return policy and the only way to dispose of a bad purchase is to re-sell it, which comes with it’s own lengthy process and headache. So it’s important to understand what you’re buying when you invest in a home, and what the current condition is of that home.

To best protect yourself and your investment it’s best to get a home inspection, completed by a certified, trusted professional. Your home inspector is there as your advisor so you understand the condition of the home that you’re purchasing and can point out potential maintenance pitfalls or items that are not working as intended, which could greatly impact your quality of life while living in a home AND your checkbook due to the possibility of hefty repair bills.

If you’re taking out a mortgage to finance your purchase, your lender sends out their own inspector, which is known more formally as an appraisal. The appraiser will set up a time to walk through the home, but their reasoning for being there, the items they’re concerned with, and the report they furnish to the bank are much different. The appraiser is most concerned with whether or not a home’s value within the marketplace warrants the loan that the mortgage lender is about to extend on the property. If a buyer defaults on their mortgage, the lender forecloses on the home, which is then sold to cover the debt. Therefore, the lender wouldn’t want to lend $500,000 on a home that is only worth $200,000. That represents significant risk to the lender, so they hire a 3rd party professional to assess the value of the home prior to writing the mortgage.

Therefore, a home inspector is working on behalf of the buyer to understand the condition of a home and give the buyer insight into aspects of the home such as: electrical and plumbing systems, air heating and cooling systems, and structural integrity of the home.

Meanwhile, the appraiser is working on behalf of the bank to understand the overall value of a home, so if the bank must take possession to satisfy the buyer’s debt, that the home will have enough re-sale value to cover the unpaid portion of the mortgage debt.

If your lender assures you that there’s no need for you to purchase a home inspection, ask them the extent of their inspection and if you can see the style and format of the report they’ll be producing. More likely than not, it’s an appraisal and not an inspection aimed at protecting the buyer’s interests. So get your own professional to look out for YOU and your interests. Please get a home inspection 🙂

 

Inspection v appraisal chart