Charlotte fell out of the top 10 cities to watch on the Annual Urban Land Institute rankings this year. The queen city fell to 13th place behind cities like Raleigh/Durham, Austin, and Phoenix. Nashville, TN is at the top of the list this year. This “Markets to Watch” report indicates “a noticeable shift in commercial real estate investor behavior, with a growing sense of caution and selectivity.” Data in the report comes from more than 2,000 leading real estate industry experts. They explored the shifts that occurred especially in light of the pandemic, climate risks, investing, and trends of working from home. Cities in the Sun Belt are typically ranked highly on this scale due to cost of living, quality of life, and business-friendliness. This means that they maintain their appeal, despite recent changes in market conditions.
So what does that mean for the average homebuyer in the Charlotte area? It actually means that our market conditions might be cooling off somewhat, but there is no reason to worry because the city is still very attractive to people wanting to relocate here. The problem for those homeowners is that there are not a lot of homes to choose from at the moment. Sellers are hesitant to list their homes because interest rates have been extremely high which makes the cost of living go up substantially when they turn around to purchase a home.
At the end of October, there were 6,322 homes for sale in the Charlotte region, representing a 1.8 month supply of homes. Homes that are listed are now spending an average of 34 days on the market before they go under contract, and on average are receiving 97.4% of list price. While the average sales price is just slightly higher than last October, the median sales price is dead even with last year. This shows that the market has slowed substantially.
For sellers, this means more patience, and a willingness to make some concessions on the sale of their homes. There are fewer listings, but buyers are hesitant, so sellers might need to be willing to negotiate despite the “seller’s market”. For buyers, this means that there could be room to negotiate which can help offset the real cost of higher interest rates.
There have been some indications that inflation is cooling which means that lower interest rates could follow. As of today, the average interest rate on a 30-year fixed rate mortgage was 7.87%. This is a far cry from the under 3% mortgage rates we were seeing during the height of the frenzy at the tail end of the pandemic. If you take the median priced home in the Charlotte region at $380,000 and calculate the payments at 3% interest you get a principal and interest payment of $1,602. At 7.87% interest, the principal and interest payment is $2,754. That is a difference of $1,152 just in principal and interest. That doesn’t account for taxes and insurance, or homeowner’s association fees which can be much higher as well due to inflation. These rumors of lower interest rates could keep many buyers out of the market until the spring. It could also be the reason we are seeing a dip in inventory as sellers wait until there are more buyers. Hopefully we will see a return of a robust spring market.