Charlotte housing charmed, but for how long?

Byline: Doug Smith 

Charlotte's up-and-coming downtown, older neighborhoods canopied with trees and thriving new suburbs draw a flood of newcomers to the largest city in North Carolina.

Last year, 50,000 people migrated into Charlotte-dominated Mecklenburg County. Many came seeking jobs, lifestyle changes, moderate weather and Southern hospitality.

But this year, the city is gaining national recognition for what isn't happening.

Charlotte, with a metro population of 900,000, is among the few cities of its size to avoid a devastating housing bubble. As home sellers in other cities agonize over double-digit declines in home prices, Charlotte is recording modest gains, up 2 percent at the end of the second quarter of 2008.

"We never saw the price surge -- the rise in speculation that occurred in other cities," said Mark Vitner, a senior economist at Charlotte-based Wachovia Corp. "Over the past 10 years, appreciation in Charlotte has averaged between 5 and 7 percent."

Price escalation has been tempered by strong competition among builders, said Charlotte housing analyst Chuck Graham of Newton Graham Consultants. The average residential closing price in Charlotte was $223,946 in May, compared with $193,864 five years earlier.

That doesn't mean there isn't weakness in the market. Graham said Charlotte-area residential permits fell to 18,633 in the 12 months ending in March -- down 29 percent from the same period in 2007. The annual closings rate declined 14 percent, to 20,881 in the first quarter, from 24,296 in the first quarter of 2007.

Real estate brokers say tighter lending standards are making home buying more difficult. Still, Mark Baldwin, executive director of the Home Builders Association of Charlotte, said, "We are not as worried about mortgages as we are about the perception that if they wait longer to buy, prices are going to be less."

Said Graham: "Basically, what's happening nationally is about 15 months late arriving in Charlotte. I'm not sure how much longer we are going to be able to avoid it."

A diversity of employers and steady business expansion (last year 35,000 jobs were added in the region) have helped mitigate two decades of manufacturing job losses in the Carolinas.

While the textile and furniture industries have suffered, nine Fortune 500 corporations, from steel producer Nucor Corp. to home improvement retailer Lowe's Companies, have headquarters in the Charlotte area.

"We aren't dominated by any one industry," said Tony Crumbley, research vice president for the Charlotte Chamber of Commerce. "We have 50,000 banking and insurance jobs in the county, but we also have 34,000 people in manufacturing."

Charlotte has also evolved into the nation's second largest banking center (behind New York City) with $2.5 trillion in assets. Bank of America, the nation's second largest in assets, employs 15,000 people in the city, and Wachovia Corp., American's fourth-largest bank, employs 21,000. Their center-city headquarters dominate the skyline.

As in many cities across the country, there is a renewed emphasis on downtown residential developments. Still, what makes Charlotte unusual is its suburbs also are flourishing, as surrounding counties open new areas to development.

"Charlotte is probably the most geographically balanced city in the United States," said housing analyst Graham. "Housing development goes out 360 degrees from the center." He noted that young couples and singles tend to concentrate in the center of the county, while families flee to outlying counties seeking lower taxes and less-crowded school systems.

In the urban core, developers have completed four condo towers over the past four years, and announced plans for several more. So far, only about 11,000 people live in the center city, but analysts say this could grow to 25,000 by 2020.

Last year, the city, in an effort to reduce auto usage and improve air quality, launched the Lynx Blue Line, the 9.6-mile initial leg of a light-rail transit system linking the center city and the suburbs.

Business expansion isn't the only explanation for Charlotte's growth: The area is becoming something of a mecca for the elderly, too. Sun City Carolina Lakes, a Del Webb community just south of Charlotte in Lancaster County, S.C., is building homes for more than 4,000 active adults.

Still, experts say despite the city's diversity and growth, trouble could lie ahead. "We're not immune from what's happening in the market," Wachovia's Vitner said. "I think the influx of newcomers will fall off because of the difficulty for people to sell their homes in other markets."

Furthermore, the subprime lending crisis and turmoil in the financial markets have weakened the city's two big banks. "If a major employer were to relocate or be purchased, it would be difficult to absorb the resulting job losses," said Charlotte-based real estate analyst Frank Warren.

Doug Smith is a real estate reporter for the Charlotte Observer