Metrostudy’s 2Q14 survey of the Charlotte housing market shows continued strength and improvement. Starts and Closings are up. Total inventory supplies are well within equilibrium. Finished Inventory supplies are low relative to our increased closings. Vacant Developed Lot supplies for the total Charlotte market are fast approaching equilibrium but are in short supply in Charlotte’s most desirable submarkets.
2Q14 starts for all product types were 2,469, a healthy and needed increase from last quarter’s 1,979. 2Q14 starts were 9.2% higher than the 2,262 quarterly starts from a year ago in 2Q13. Charlotte’s annual starts (rolling four quarters) as of second quarter rose to 9,380, ahead of last quarter’s annual total of 9,173. 2Q14 Closings totaled 2,249 units, 280 more than our 1Q14 closings. Compared to one year ago, Charlotte’s 2Q14 closings increased by 19.3%. Annualized 2Q14 closings broke through the 9,000 mark with 9,093 for all product types. Last quarter’s year over year total was 8,730.
Bill Miley, Metrostudy’s Regional Charlotte Director says we don’t need to be economists to determine Charlotte new housing trends. The supply of new homes (as well as resale listings) is very low. Low supply will lead to higher prices. Through the first half of 2014, we are ‘using up’ more than twice the number of vacant lots via starts (4,427 1st half starts) versus new lots being developed (2,267). That’s a lot supply train wreck heading at us. It has always been true that builders and buyers can move farther into the exurbs and find better affordability. With the ‘closer in’ lots gone and impossible to replace at today’s lot prices, growth will continue, as it always has, a little ‘farther out’.
Some details on start information for different housing types are below:
Single Family Detached Housing: Charlotte’s 2Q14 Quarterly starts of single family detached new housing units increased to 2,259 up 23.5% from 1Q14. Quarter over quarter Annualized single family detached Starts totaled 8,617 up from the 8,415 as of first quarter. Detached Annual Closings in Charlotte were 8,173 new homes, up from 1Q’s 7,779. The 4,151 detached inventory homes as of 2Q14 reflect a low 6.1- month supply, unchanged from the 6.1 supply in 1Q14.
Attached Housing: Quarterly Starts of all attached housing totaled 210, up from 151 in 1Q14. Charlotte had 763 year-over-year Attached Starts at the end of second quarter. Annualized Closings as of quarters’ end continue to decrease, now at 920 units. Over all Attached inventory numbers and supplies continue to decrease due to the reluctance of builders to start new buildings and inability to obtain financing.
Townhomes: Quarterly Starts increased to 195, up from last quarter’s 140. These starts were badly needed to help replenish the inventory supply that had been under six months for the past three quarters. Annual Townhome starts as of 2Q14 rose slightly in Charlotte to 686. Town home closings will continue to increase as the finished supply improves. Affordable townhomes remain in short supply.
Condominiums: Annualized condominium starts throughout the Charlotte market as of second quarter of 2014 totaled 75 units with 15 new second quarter starts. The 116 units of condominium inventory, relative to annual closings, put the current supply level at 8.9 months.
Total inventory of homes in all stages of construction (Model Homes + Finished Vacant + Under Construction) rose slightly to 4,652 in 2Q14 over the previous quarter but not enough to increase the monthly supply level which remained unchanged at 6.1 months. Months of supply remained low due to the calculation of monthly closings relative to 2nd quarter inventory numbers. A 6-8 month supply of inventory is considered to be in equilibrium.
When viewed relative to Annual Closings, the 1,164 units of Finished Vacant Inventory dropped to the lowest supply we have ever recorded in Charlotte at 1.5-months, down from the 1.6 monthly supply that existed at the end of 1Q14. We closed more new homes in 2Q14 than we completed. A ‘normal’ supply of finished inventory would be 2-2.5 months.
The total number of Vacant Developed Lots in the market at the end of 2Q14 continued its rapid decline to 25,972. We have absorbed 4,448 lots in the first half of this year while only 2,345 newly developed lots have been delivered. Relative to demand, the 25,972 Vacant Developed Lots in Charlotte represents a 33.2 month supply, falling from the 35.5-month supply at the end of 1Q14 due to Charlotte’s significantly higher starts compared to the new lots being put on the ground. At our current rate of absorption we should be under a 30 month supply by year’s end. Equilibrium is considered to be 24 to 30 months.
“Today, the Vacant Developed Lot Supply in our nine county Charlotte market has dropped to a 33.2 month supply; by market standards, still too high,” said Miley. “There are 964 ‘active’ subdivisions in Charlotte and by definition; they all have some Vacant Developed Lots. 204 or 21% of these subdivisions have not had a single start in the past four quarters- and it’s not because of price. Most date back to 2007 when builders needed lots anywhere and our housing market was running at full speed. Then the world changed. Today, those subdivisions are considered too far out for most builders and buyers. They are perfect candidates for long term investment purchase.”
Look at the vacant lot supply in Charlotte’s subdivisions where there have been at least 12 annual starts. (That’s only one per month). Charlotte’s Vacant Developed Lot supply plummets to 13.3 months! By market area, the VDL supply in Mecklenburg would be 11.7 months, Union 11.8, Cabarrus 12.6, Gaston 20.5, Iredell 21.6, and South Carolina (Lancaster & York). Both land prices, lender A&D requirement and local zoning restrictions are affecting our ability to replace subdivisions where we need them. This trend is affecting future affordability and impacting both starts and closings, as it is in every major housing market in the country.
Learn more about markets featured in this article: Charlotte, NC.