Out this week, the Case-Shiller Survey from Standard and Poors shows in that in April Charlotte finally hit the negative column with prices falling 0.1% from the April before.  If you had been reading my blog, you would have known that when I reported the numbers from April in May.  While this is the first time prices have dropped since 1991, there's more to this story...A LOT MORE. 

While this was the first drop since 1991, Charlotte's market has been incredible resilient when other markets had taken steep declines.  I would argue that 0.1% is essentally flat, especially since the months leading up to April were all positive gains.  So is this beginning of Charlotte's down fall?  No and I'll give you a few reasons why. 

First, consider what was happening when Charlotte's market was growing at a modest pace.  According to the Case Shiller survey dated April 26, 2006 for sales from February 2005/2006

• Miami MSA +30.2%
• Los Angeles +20.4%
• Las Vegas MSA: +10.8%
• Washington DC Metro Area: +17.1%
• Chicago +9.1%
• Denver +3.4%

Charlotte was not added to the index until December of 2006 when the results looked like this for October 2005/6:

• Miami +8.55%
• Los Angeles +5.2%
• Los Vegas: +2.6%
• Washington DC Metro: -0.8%
• Chicago: +5.1%
• Denver: +.7
• Charlotte: +6.8%

So what happened in Miami, L.A., DC?  Just after 9/11 when interest rates were reduced to record levels, money was cheap and real estate in the markets of L.A., Vegas, Miami, and DC were booming.  In can speak from experience in the DC metro area, most of the new construction that was being built at that time was for homeowners 55+ because of a lack of available schools.  Buyers had nowhere else to turn but to existing construction, which saw record appreciation from 2002 to mid 2006.  For every one home, you had on average 10-15 people who were making offers.

In other parts of the country, buyers were doing similar with many purchasing available new construction and condos with the goal of selling for a profit when the project was completed.  Sounds like a good idea until there's more available on the market than there's buyers for which started to tumble prices. 

Here in Charlotte, our market was under the radar for the most part since we were growing at steady 2-6% pace over the last decade.  What kept our market from getting overheated was the available new construction was enough to meet the demand of buyers relocating here from the west coast and the north east.  In 2006, the Charlotte Chamber was estimating that 50,000 people a year were relocating to the Charlotte area. 

Along with the influx of new residents was an influx in the job market with many health care, financial services, and manufacturing businesses relocating to the Queen City or expanding their employment roles.  Call it what you will but it we had just enough demand to meeting the growth we experienced.

So where did our -0.1% result?  All anyone has to do to find -0.1% is to look at the current market numbers posted on my website and blog.  In April, 100% financing went away for borrowers who were getting a mortgage without a down payment.  Smart real estate agents and lenders found work arounds like utilizing down payment assistance programs however not every seller is willing to participate.  The next is the foreclosure market here in Charlotte. 

While not as robust as in other cities, we do have our fair share of bank-owned and HUD-owned homes.  However, many buyers and investors are snatching up these homes as they represent an incredible value when compared to the traditional sale.  Additionally, our foreclosure market is really limited to the lower end new construction starter homes and the extreme high end luxury properties.  Don't misunderstand me...the two are hardly equal but in both groups, you had borrowers that had should not have been qualified but were and purchased a home they couldn't afford.   

Get away from the idea that sub-prime mortgage products were designed to just to scam poor people because they weren't.  Many sub-prime products were designed for investors to purchase flip and second homes.  In other parts of the country, sub-prime loans were utilized because the home values had far exceeded FHA, VA, conventional and Jumbo pricing.  Most ALT-A programs were designed for investors and commission-based sales people like myself.  That lenders were qualifying someone who worked an hourly job in the mail room with one of these products is fraud since that was not the intention.  Here in Charlotte, since our prices didn't have a huge spike and homes remained relatively affordable, we have not had this mass of foreclosed properties because lenders relied on these products as their sole source of lending.

Charlotte's savior is the continued influx of buyers relocating to the area.  Yes, people are still moving here in a considerable amount however these buyers are not all purchasing right away.  Some are renting until their home in their former town sells while others are just feeling out the city.  These guys are buying and many are buying even before their leases are up due to rising interest rates and the deals afforded by the REO's on the market.

Is Charlotte the next Miami, Las Vegas, or Washington DC?  I certainly do not think so but who can tell the future.  All I ask is that you use a little perspective.  If you look at the factors that sunk those cities with double digit loses, it was as a result of sustained double digit increases, high development, high investor activity, and high buyer demand.  Have we seen that here?  That's for you to decide. 

Jonathan Osman
Charlotte NC Homes, Charlotte Real Estate