Why Charlotte's housing market is so contradictory
Plus: Lowe's reports huge 2nd quarter; UNC-Chapel Hill goes all-remote; Hype builds for 'Flyover Friday'; South End Krispy Kreme opens Tuesday with milkshakes, ice cream sandwiches, vending machine
Good morning! Today is Wednesday, August 19, 2020. You’re reading The Charlotte Ledger, an e-newsletter with local business-y news and insights for Charlotte, N.C. This post is sent to paying subscribers only.
LEDGER IN-DEPTH
Pandemic hits in sharply different ways: Buyers face house crunch as prices surge; many tenants struggle with payments as rents fall
By Ely Portillo
Charlotte’s largest-ever tent city sprung up just outside uptown, the region lost 156,000 jobs last quarter and apartment rents are falling for the first time in years as a wave of evictions looms.
Meanwhile, home prices keep soaring to record highs and buyers face bidding wars. There’s not enough supply to meet demand in a white-hot market, and the houses that remain are selling fast.
Welcome to the funhouse mirror of Charlotte’s Covid-19 housing market: Across the economic spectrum, we’re experiencing this crisis in vastly different ways — especially when it comes to where we live.
Hourly workers in restaurants and retail worry about missed shifts, layoffs and losing their homes if they can’t make rent. White-collar workers endure endless Zoom calls from home in their sweatpants and scroll Zillow listings while their portfolios recover nicely.
It’s the latest iteration of our new, contradiction-filled reality, in the same vein as the stock market closing at a record high on Tuesday while 30 million Americans remain unemployed; students gathering in “school camps” for remote learning while public schools remain closed; or photos of maskless, dancing partygoers splashed across our timelines alongside furious comments from people wearing masks in their profile pictures.
Things just feel different from the last major economic crisis a little more than a decade ago. Then, Charlotte’s big banks were teetering on the verge of implosion and the stock market lost half its value. The city’s titans were shedding jobs by the thousands — high-paying ones at that — and layoffs soon rippled through the whole economy. Home prices dropped 33% nationwide during the Great Recession, and 15% in North Carolina. Sales stopped, foreclosures piled up and construction ground to a dead halt.
This time, cranes are still swinging across the sky, building new towers. Construction crews are building houses and apartments as fast as they can. And when a “For Sale” sign springs up, it’s a good bet that “Under Contract” is soon to follow. Ignore the people wearing masks as you drive around town, and it can feel — almost — normal.
For-sale market ‘crazy busy,’ prices rise
“Crazy.” “Hopping.” “Better than I expected.” “Crazy busy.” That’s how a half-dozen real estate agents described the market for homes. While all cautioned that there could be a crash looming — if the virus resurges, if Congress can’t reach a deal on unemployment support, if a disputed election throws the economy into disarray — for now, at least, the boom is still booming.
“I think the minute we saw this we thought it would all shut down,” said Alyssa Roccanti, a Realtor with Savvy & Co. who primarily works in north Mecklenburg. “It’s not the market any Realtor would have expected. I just listed a home coming soon today, and I probably have 10-15 showings tomorrow. And it will go in a few days.”
When pandemic shutdown orders hit in March, many real estate brokers assumed the party was over. Mecklenburg County banned in-person real estate showings. Sales plunged 21% in April, 30% in May.
But the crash didn’t take. Home prices stayed high and sales bounced back, as pent-up demand unleashed a delayed spring home-buying season and the county allowed in-person real estate transactions to resume.
Home prices in July rose almost 11% from a year ago, with the average sales price in the Charlotte region hitting $344,991. Year-to-date, the number of closed sales is down just 1%. And there are only about half the number of houses on the market as there were a year ago.
Julie Tuggle, who represents buyers exclusively, said she’s warning clients that it’s still a strong seller’s market.
“I’m just counseling my buyers, don’t ask for closing costs, and you might have to go over asking,” said Tuggle. “And that’s if there’s not a cash offer (to bid against). I’m seeing cash buyers at asking price.”
She recently represented a couple relocating from Jacksonville, Fla., who lost out to other buyers on two houses. When the couple saw a third house they liked, they scheduled a showing for the next day and drove more than six hours. By the time they got to Charlotte, the seller was under contract with someone else.
John Kindbom, regional vice president and branch leader of Allen Tate in Concord, who serves as president of the Canopy Realtor Association, said historically low inventory and interest rates are the driving factors behind soaring prices.
“We still have a very, very undersupplied market of homes for sale,” he said. Home construction has lagged since the recession, even as demand bounced back, and the low supply means some potential sellers are reluctant to list their houses because they’re worried they won’t find anything comparable to buy.
Supply shrinks: Raw numbers add perspective: In July, there were 5,580 houses for sale in the Charlotte region. Compare that to July 2014, when there were a reported 15,709 houses for sale — almost three times as many options.
A house on the market last month sold in an average of 36 days, or twice as fast as houses sold in 2014. The pace of sales is especially frenzied at the lower end of the market. Houses below $300,000 are hard to find and selling fast.
“You pretty much have hours to make a decision,” said Jonathan Osman, owner of Tryon Realty Partners. “You’ll drive up to the appointments and there’s people waiting outside.”
Strong underlying demand and the lack of a big excess supply glut is a major reason this economic crisis feels different than the 2007-08 real estate crash and ensuing recession, when real estate prices sputtered and then crashed, Kindbom said.
“We helped create that problem with some of the lending practices out there,” he said. “If you could fog a mirror, you could get a loan. That’s not what we have here.”
One reason for strong demand: from 2010 to 2019, the city gained more than 150,000 new residents, all of whom need a place to live.
And with 30-year fixed mortgage rates hovering below 3%, buyers are finding they have more purchasing power — if they can get a loan, if they have savings for a down payment and if they’re confident they’ll still have a job in a few months.
Rental assistance program ‘swamped,’ rents falling
That’s not the case for many Charlotteans, especially those on the other side of the housing market: rentals. Although for-sale home prices tend to get the most attention, about 44% of households in Mecklenburg rent their dwelling. Of those, almost half are “cost-burdened,” meaning they spend more than 30% of their income on housing.
“We are seeing fairly desperate folks coming into the rental assistance program we’re running,” said Julie Porter, president of the Charlotte-Mecklenburg Housing Partnership. “We’re pretty swamped with that.”
The not-for-profit company is administering the city’s $11.5M combined rental, hotel stay, mortgage and utilities assistance funds, paid with a variety of federal and local funds. Out of almost 4,300 applicants since April 1, roughly ¾ are seeking rental payment assistance, Porter said. People seeking help with mortgage payments make up a much smaller proportion.
“The difference is marked,” Porter said. “The workers the pandemic has disrupted most are service workers. They’re in lower-paying jobs that require the business to be open and there to be a lot of customers. ... They are out of work to a much larger degree than the middle wage and higher wage folks.”
The Charlotte Regional Business Alliance’s 2Q economic report showed that while local employment declined in almost all sectors, finance and insurance jobs actually saw a slight increase. Professional services and information jobs fell 6% locally — significant, but still better than the 10% decline nationwide.
Leisure and hospitality jobs, on the other hand, fell off a cliff, dropping more than 40% locally.
Porter said that’s a key difference between this crisis and the Great Recession.
“It hit all levels of income,” she said of the last crash. “People who were middle-income, people who were higher-income, they saw their (home) values tank. There were massive job losses, but they were different types of jobs. And that’s not how this pandemic has hit people.”
Porter sits in a unique spot to observe all sides of the market: The CMHP is a landlord of affordable housing, a developer in partnership with other private-sector companies and a facilitator of home ownership through programs helping low-income and first-time buyers.
‘Start building’: CMHP has almost 70 for-sale units under development, in addition to their apartment portfolio.
“We put them on hold at the start of the pandemic,” said Porter — but not for long. “All my board members have said just go ahead and start building, because there’s no slowdown in the home purchase market.”
Porter said their down payment assistance and homebuyer education programs haven’t slowed. Attendance at homebuyer classes has nearly doubled since they switched to a virtual format.
Construction slowdown ahead? There are worrying signs that construction — already lagging demand for new housing — might slow further. The National Association of Homebuilders said this month that a “staggering increase” in lumber prices, which have doubled since April, could hurt the market.
Porter said CMHP is running into delays and higher costs as they build, caused by everything from contractors raising prices to disrupted supply chains and shortages for everything from appliances to doors.
“Doors was a weird one,” Porter said. Those uncertainties are all leading to prices that come in way over bid. “If you’re in the multifamily market right now, you can’t price anything except the day you’re going to award it.”
Carol Hardison, CEO of Crisis Assistance Ministries, said the emergency aid group is serving about 300 people a day, roughly similar to their pre-pandemic numbers. But instead of waiting for hours in the agency’s lobby just north of uptown, they now wait in the parking lot for drive-through service.
“The Covid cloud creates this constant fear and uncertainty for hourly and low-income workers,” she said. “It’s a compounding effect for them. We’re seeing this with a lot of people seeking rent assistance.”
Some hourly workers are missing paychecks even if they don’t personally get sick, because they have to quarantine after exposure to someone infected. Hardison said one client, a bus driver, recently returned to her job after a furlough, then almost immediately had to take two weeks off to self-quarantine because someone else at work got sick.
All that might finally be cooling off Charlotte’s hot apartment market. ApartmentGuide.com found average rents were down almost 4% in Charlotte as of July, a stark reversal from years of rapid growth.
Still, on-time rental payments held pretty much steady in the first week of August, according to the National Multifamily Housing Council.
Industry-watchers are wary that the July 31 end to the $600-a-week supplemental federal unemployment insurance payments — and uncertainty around the $400-a-week supplement President Trump is attempting to enact through executive order — will cause a snowballing crisis, especially as months with zero income add up for unemployed people.
Courts have opened up again, and North Carolina’s eviction moratorium is over. But Hardison said there hasn’t been a “bam!” jump in evictions yet, in part because social distancing rules mean courts are processing fewer cases and partly because magistrates are encouraging landlords and tenants to enter mediation immediately, before even coming to court.
Hardison said Crisis Assistance is seeing more clients who are three months behind on rent than usual. The amount they’re paying out has jumped from an average of $400 per family to $1,000.
Kim Graham, executive director of the Greater Charlotte Apartment Association, said on-time rent collections trended up after the start of the federal stimulus programs. But since the expiration of those programs, on-time collections are trending down, though still just slightly.
“No one knows what's going to happen,” she said. Landlords are concerned that new eviction moratoriums could prevent them from collecting rent from tenants who fall many months behind. “We’re caught between federal mandates, state rules and local mandates.”
“That is extremely scary for rental owners,” Graham said. “We really do need some long-term plans for rental assistance.”
Regardless of their apparently diverging trajectories, Charlotte’s rental and for-sale housing markets have one thing in common: uncertainty. Everyone expects that there’s another shock waiting somewhere, maybe just around the corner.
“Everyone’s going to feel something from this pandemic. It’s just going to take time,” said Roccanti, the Savvy & Co. Realtor.
Or as Osman, of Tryon Realty Partners, put it: “Anyone that’s walking out of this now and saying ‘we’ve survived the ’rona economy’ is ludicrous.”
Ely Portillo is assistant director at the UNC Charlotte Urban Institute. He previously spent a decade as a reporter at The Charlotte Observer.
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Essential back-to-school provisions at Trader Joe’s
This is a rough week for parents of kids who are starting their school year learning from home, and Trader Joe’s took the opportunity to have a little fun with the sign over the beer and wine department. “I feel seen,” laughed one mom stocking up at the Rea Road location.
In brief
Huge quarter for Lowe’s: “Lowe’s reports blow-out quarter with 30% surge in revenue.” The Mooresville-based company said Wednesday morning that revenue and earnings were up about 30% in the 2Q, as customers doing work around the house streamed into the home-improvement chain. (CNBC)
New from the Ledger Covid-19 Data Room:
“Local Covid numbers show progress”
“Total Mecklenburg deaths continue to surpass historical averages”
What a cluster: UNC Chapel Hill moved to all-remote classes after several “clusters” of Covid cases broke out in campus dorms — a situation the student paper The Daily Tar Heel called a “clusterf—.” The school wants students out of the dorms by Aug. 30. Other public universities including UNC Charlotte are continuing with plans for at least some in-person classes. (Inside Higher Education)
Trade and Tryon upgrade: Crescent Communities and Nuveen Real Estate announced plans to spend $25M to overhaul the ground-level retail at Trade and Tryon streets uptown at the newly named One Independence Center next to the Charlotte Center City Marriott. Renovations have started and aim “to infuse new energy into the intersection’s storied past.” (Crescent)
Back to school: Charlotte Mecklenburg Schools Superintendent Earnest Winston says he expects the district’s medical advisory panel to provide recommendations in about three weeks on when schools might be able to reopen. The committee is likely to provide guidance on how the school board can determine when Covid numbers are acceptable. Interviewed on WBT radio, Winston also thanked teachers and other CMS staff for their planning and dedication and said CMS has already started planning for students to return. (WBT)
Jail support: Mecklenburg County Sheriff Garry McFadden told county commissioners that an encampment across from the jail uptown, designed by activist group Charlotte Uprising as a support center for inmates, has devolved into an area where “sex acts are taking place” and that “people are bathing in the pond at Marshall Park.” Two pit bulls were also fighting at the site on Tuesday, he said. Charlotte Uprising said the sheriff was “telling lies.” The “jail support” started in May during the protests. (Joe Bruno on Twitter, WFAE)
Panthers/Charlotte FC job cuts: Tepper Sports and Entertainment, which owns and operates the Carolina Panthers and the Charlotte FC soccer team, has furloughed more than 16 full-time employees and laid off at least three others because of the pandemic. Departments affected include security, community relations, ticketing and entertainment. Furloughs are expected to remain through Jan. 31. (Observer)
Historic VanLandingham refreshed: Ascent Real Estate Capital and Stono River Partners are restoring the VanLandingham Estate in Plaza-Midwood. They’ve started construction on a patio, and “the ability to accommodate tenting for events up to 250 guests is planned. The venue will also offer a ceremony site and extravagant bridal suite.” They also plan to develop two more buildings on the property. (Biz Journal, subscriber-only)
Mail-sorting machines: Seven mail sorting machines at the U.S. Postal Service facility near Charlotte Douglas International Airport have been or are being removed, leading to questions by employees, postal union members and politicians. Postmaster General Louis DeJoy said Tuesday he would stop removing sorting machines and mailboxes until after the election. (WFAE)
“Hot now” doughnut news: Krispy Kreme opens its newest Charlotte location in South End on Tuesday with some menu items that aren’t the typical doughnut shop fare: hand-spun milkshakes made with original glazed doughnut-infused ice cream; “scoop sandwiches,” which consist of ice cream layered between sliced doughnuts, and the company’s first doughnut vending machine, which sells doughnut 3-packs 24 hours a day. The shop will feature artwork inside and out by local artist Gina Elizabeth Franco. It’s at 2116 Hawkins St., next to the new Insomnia Cookies — which is also opening Tuesday. (Krispy Kreme is a majority stakeholder in Insomnia Cookies.) Got the sweatpants ready?
Programming note: Ledger editor Tony Mecia appears as a guest on 90.7 WFAE at 6:40 a.m. and 8:40 a.m. on Thursdays for a discussion of the week’s local business news in the station’s “BizWorthy” segment. Audio and transcripts are also available online.
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Executive editor: Tony Mecia; Managing editor: Cristina Bolling; Contributing editor: Tim Whitmire; Reporting intern: David Griffith