If you have been a reader of my blog for some time, one thing you will find missing is a prediction as to what the future holds. Quite frankly, I haven't a clue what the future is for Charlotte real estate – no one does. The people that say that we will be through this in another year are wishing that were so and the folks predicting Charlotte as the next Detroit are overly pessimistic. However, I am noticing a few trends that has signaled that now is the best time to buy a home in the Charlotte area.
1. Pessimistic Buyers are Purchasing
Over the course of the last couple of years, I have contacted a number of buyers who felt that it was smart to delay their purchase as they felt the market was still in decline. Today, most of those buyers have entered the market and are purchasing. What do they know that you don't? The answers follow.
2. Interest Rates Have Never Been Lower
Everything is more expensive today than they were in 1971 except for mortgage interest rates. 30 Yr Fixed interest rates should be 5.5% – 6.5% today however they are 4.375-4.75%. Adjustable Rate Mortgages (or ARM's) are a full percentage point lower than that and rates on Jumbo products (mortgages above $417,000) are near 5% as well.
A $200,000 mortgage at 6%, the principal and interest payments alone are $1,199.10. At 4.375%, that same mortgage principal and interest is only $998.57 or $200.53 less per month. Over the course of a year, that's $2406.36 that's not going to your lender's profits and over 5 years, that's $12,031.80.
If you decided to pay put that additional $200 towards the principal balance of your mortgage, it would cut down a 30 year mortgage to only 22 years and would save you $50,746.64 in interest payments!
3. Home Prices Are Low and Flattening Out
Not every part of town has experienced a slump in home prices. If you happen to be shopping for a older ranch-style home in Myers Park, you will expect to pay close to $400,000. However, in the more suburban parts of the Charlotte area like near the Arboretum, north of I-85, Concord, Waxhaw and Indian Trail, many homes are priced back to their 2003 prices. Sellers are offering incentives and looking for ways to move their home so that they can continue with their plans of a relocation, family expansion, contraction, etc. This is an opportunity for a buyer to purchase on their terms which wasn't a possibility just two short years ago.
While prices have sharply declined, most recent sales data indicates that prices are starting to bottom out as many sellers are contracting the market by removing their homes and others are finding alternatives such as becoming a landlord.
4. This Many Foreclosures Won't be Around Forever
In 2009, over 12,000 homes were foreclosed upon in Mecklenburg county and year to date, over 5,000 have returned to the lender. Bank owned inventory accounts for only 7-10% of our market and up to 30% of our sales. The lenders who now own these banks are not interested in dumping the inventory on the market as it will depress prices and force even more foreclosures from sellers that just walk away. Instead, many lenders are finding creative ways to use their inventory in the meantime while the market settles. This includes offering the homes for lease, selling them to non-profits and government agencies along with financing. In addition, many more distressed homeowners are taking advantage of mortgage modifications, which should drop the level of foreclosures in a year or two. That will result in fewer opportunities to score a killer deal.
Finally, the builder-gone-bust inventories are dwindling so your opportunity to purchase a new never-lived in foreclosed home is dwindling.
5. Buyers Will Be Back in Mass
In the Charlotte area, the 10% unemployment rate and the under-employment rates are the two most substantial factors affecting real estate. Many of the unemployed are finding work and if they were one that had a foreclosure in their past, they will be able to purchase a home again three years following the foreclosure. Potential buyers that were scared off by the state of the economy are starting to look again as they are feeling confident in the future as well.
In less than 5 years, most homeowners that were hit hard by the recession will be in the market to purchase a home again and at that time, with little new construction happening now, existing inventory prices will rise to meet demand.
6. Taxes are Going UP!
Every government from the federal government to the state to the county and city are flat broke. Many feel, like the Charlotte City Council, that they can ignore their financial state and keep spending more money they don't have. While the common sources of revenue are to raise the property tax and sales tax rates, I would expect to see the idea of the real estate transfer tax in North Carolina return after the fall.
A real estate transfer tax is a tax on the purchase and sale of your home. In North Carolina, the only similar tax are the deed stamps that are $2 per $500 of the sales price. However, transfer taxes in other states can account for as must as 1.5% to 3% of the sales price. On a recent referral in from outside Baltimore MD, the seller of a $280,000 home paid $3,500 in transfer taxes on top of the property taxes, real estate fees, and recording fees. In that state, the transfer tax is sent to the state while each county and city can choose to charge their own tax in addition to the state.
In 2007, the North Carolina Association of Realtors