Uncharted Territory

Higher prices for single-family detached homes may be here to stay. Increasing municipal regulations, water shortages, and land constraints—Reno is surrounded by mountains—combined with forecasted steady job and population growth have likely built a floor that will keep prices from falling too far.

When the market rights itself, first-time buyers will be poised to buy. Builders nearly abandoned the entry-level market during the runup, choosing to build higher-priced move-up product instead. Priced out of the market, many first-time buyers moved into rentals, creating a pent-up demand for units priced less than $300,000. Some builders are planning condo projects now to respond to the need for affordability, the first of which are nearly guaranteed to succeed. “They are going to have no trouble selling condos for [a] couple of years,” says Kaiser. “The ones who are in quickly are going to make a killing.”

JOHN MCMANIE WENT THROUGH the real estate bust of the early 1980s while working for The Ryland Group in Cincinnati and Columbus, Ohio. It's safe to say he's thankful to be building in Charlotte, N.C., these days. “We're definitely on an upswing. There's no end in sight. I don't want to sound cocky, but it looks very healthy,” says the owner of Dublin Homes, which builds about 50 homes a year in Union County, N.C., a fast-growing suburb southeast of the city limits.

Charlotte didn't boom along with the other East Coast markets, but you won't find builders complaining about that now. Its historically steady growth, combined with population growth and comparatively low prices, has set the area up to be one of the best-performing markets during this downturn. Few real estate speculators and continued economic growth should help support strong housing demand in Charlotte and its neighbor to the east, Raleigh, N.C., says Celia Chen, director of housing economics for Moody's Economy.com.

It's not difficult to find positives about Charlotte. As affordability in many markets has waned, it has actually improved in the Charlotte metro area. Between 1995 and 2002, a household earning the median income could afford 66.4 percent of the homes sold in Charlotte. During the first quarter of 2006, that figure stood at 71.2 percent, according to the NAHB-Wells Fargo Housing Opportunity Index. “You can still buy a new home in Charlotte for $130,000, though I'm not saying you can buy a lot of them,” says Mark Baldwin, executive vice president of the Charlotte HBA. (The Charlotte Regional Realtors Association reports an average sale price of $240,213 in June, up from $214,144 a year earlier.)

Prices have remained low in part, Baldwin says, because of intense competition in the market. Twenty-four of the country's top 30 builders are in business in Charlotte, he says, and the Charlotte HBA Web site lists more than 400 builder members.

Those builders aren't having trouble finding work. The Charlotte area is growing rapidly, propelled by corporate relocations, a popular financial district, and retirees who are choosing the Carolinas over Florida. “This area just seems to be growing like a weed,” says Scott Hanlon, sales manager of Brookwood Home Builders, who estimates that one-third of his company's sales are to people moving from the Northeast. The population of Mecklenburg County, home to Charlotte, grew an impressive 14.5 percent between 2000 and 2005, but that growth was surpassed by Union County, which grew 31.6 percent in the same period, according to Census Bureau estimates.

Much of that growth has come as a result of corporations moving and expanding to the area. As the second-largest financial district in the country, Charlotte—called “the financial capital of the South”—has generated a steady stream of new home buyers, says Wachovia's Vitner.

Young professionals are flocking to the city, but so are their parents. Builders affectionately refer to the retirees as “halfbacks” because they're originally from the Northeast and are moving halfway back from Florida, and they see a source of demand from the demographic for years to come. In May, the first residents moved into Sun City Carolina Lakes, a 4,400-unit, active adult community by Del Webb just over the South Carolina border from Charlotte. The company is also planning another 1,650-unit development in Lincoln County, northwest of Charlotte.

Bonterra Builders, based in Union County, has sold some of its Craftsman-style homes to halfbacks. The company expects to close 240 homes this year and 360 in 2007, says Scott Kelly, the company's broker in charge, who adds that Bonterra expects positive growth for at least the next five years. “It's hard not to be enthusiastic here.”