Market Demand

According to the MLS, there were 6,491single family homes and 2,656 condo units sold in Charlotte in all of 2010. Most of the news throughout the year compared the prior years monthly totals and the seasonally adjusted averages, but that information is far less useful when preparing an outlook for the year. The primary factor that we need to look at when looking at supply and demand is absorption. 

Supply of Houses

Single-family homes have a supply of 8.6 months of houses currently on the market in Charlotte as a whole. The supply of homes is based on last year’s sales velocity, which was down from the previous year. In markets where property values are generally rising, the supply of real estate will usually cover somewhere in the ballpark of 6 months of demand. If the volume of sales is similar to last year, it is unlikely that single-family homes in Charlotte will experience much rise in value during the coming year.

Supply of Condos

The downturn in the economy and the tightening of lending standards has been the hardest on condominiums. True townhomes aren’t much different than a single-family house when it comes to getting a loan. However, the requirements around purchasing into a condominium are much more challenging. The result has been a dramatic slow down in condo sales. At last year’s sales velocity, there is a supply of roughly 13 months for all of Charlotte. Until the lending requirements begin to loosen, demand for condos is likely to hold it’s current level.

Shadow Inventory

The biggest threat to the economy is shadow inventory. The presence of the unknown thwarts the economy and keeps buyers on the sidelines. The exact size of the shadow inventory is a mystery. There are all kinds of speculation around the amount of inventory that banks own but aren’t trying to sell as well as homes that the bank has a right to foreclose on but has elected not to do so. The major consideration that most analysts miss is that many banks are electing to rent out condos when they foreclose on homes rather than waging price wars to sell homes—a trend which is likely to continue and continue to mitigate the impact of the mysterious shadow.

When all other factors of the market are stripped away, the most basic factor of the economy are the people in it. It is impossible to predict if 2011 will be a great year or another year that people look back on and proclaim wishes for things to be different than the last. What we have, though, is an opportunity as individuals to make sound decisions, to invest wisely, and live within our means. When we do this, the answers to the market and economy will present themselves-- yet look different than we thought because they carry far less significance than ever before.