HOLY COW! If this doesn’t make you spit your coffee at the computer screen like I did this morning, I don’t know what will.
Reading this in the Charlotte Observer this morning absolutely gobsmacked me.
For every home currently listed for sale in Mecklenburg County, at least two more are poised to come on the market – a hidden excess inventory that could depress home values and stall the market’s recovery, according to an Observer analysis.
Known as shadow inventory, these are homes that are crawling through the foreclosure process, properties that have been foreclosed on but not put up for sale, or houses whose borrowers are so delinquent they are unlikely to recover. Such homes are excluded from monthly sales statistics compiled by trade groups. “It’s an epidemic,” said Charlotte attorney Rick Mitchell, who sees a growing number of clients who have stopped making mortgage payments but haven’t been foreclosed on. “We have a dramatic problem.”
I’ve been warning about the deadly combination of shadow inventory, a national triple dip in real estate prices that is virtually guaranteed, the bank layoffs currently underway here and some of the highest combined local taxes in the nation on Charlotte for a long time, but this has even me … still gobsmacked.
Some basic math shows just how much trouble Charlotte’s real estate market is in compared to many of the rest of the cities in the nation. I’d been assuming that Charlotte’s shadow inventory was about the same size as the rest of the nation. With 3.3 million houses on the market and roughly 1.6 million in the shadow inventory nationwide, the national shadow inventory is 50 percent of the housing market’s current size, enough, CNN Money writes, to virtually guarantee a nationwide triple dip recession in real estate prices this year.
Now look at Mecklenburg County and the region. It’s shadow inventory is is FOUR TIMES the national average. That’s if the Obsever’s figures are correct and there are 7,887 homes on the market and 16,800 in the shadow inventory.
Process that for a minute before you consider this. National forecasts are that the national shadow inventory will bring housing prices into a triple dip by reducing them another 3.6 percent. If that’s what is supposed to happen across the nation, what happens in the Charlotte region, where the shadow inventory is, again, FOUR TIMES the size of the national shadow inventory? And what happens when you throw a few thousand layoffs by Bank of America that are underway on top of it?
Further complicating matters is that competition in the real estate market here doesn’t end at Mecklenburg’s borders. The seven counties surrounding Mecklenburg also have a shadow inventory four times the national average, the Observer reports.
The seven counties surrounding Mecklenburg have more than 17,300 homes in shadow inventory. In contrast, the seven counties had 8,636 homes listed for sale as of October.
For years, the Charlotte Chamber listed construction as the region’s number two industry on its website, after banking. That’s probably how this happened.
“Demand has historically proven strong enough in Charlotte to gobble through any extra supply,” the Observer assures readers. Then, halfway through the article, the Observer pulls the “don’t worry, there’s a huge influx of people still moving here” card.
Allen Tate Company executive Pat Riley said despite the slow economy, Charlotte’s housing market has something going for it that other areas don’t: People are still moving here.
That was absolutely true in the past. But what no one around these parts but me and Brookings Institute researchers has been willing to acknowledge is the demographics of those moving here. This is from piece I wrote last year and pretty much sums up why many of those still moving here won’t be gobbling up that excess shadow inventory this time:
Between 2000 and 2008, or right up until the beginning of the Great Recession, the Charlotte region had the second highest growth in poverty in the nation according to the Brookings Institute. We jumped from 123,000 impoverished people to 233,000 in less than a decade, a study of census data by the Brookings Institute showed. That same study ranked Charlotte first in the nation in the increase in the number of poor children living here, from 40,000 at the beginning of the decade to 87,000. This wasn’t because they suddenly became poor. It was because they moved here.
No doubt more middle class people will move here too. But if they follow the trend that has made Charlotte-Mecklenburg Schools a majority poor school system where less than a third of children are caucasian, they won’t move to Charlotte. They’ll instead locate in one of the surrounding counties where taxes are cheaper and schools are better.
For the Charlotte City Council to raise taxes this year as planned given this situation would be like pouring gasoline on a fire, especially if Bank of America lets a few thousand people go, a likely scenario. Then again, we spent over a billion dollars on trains, trolleys and trinkets for uptown over the last 12 years. Maybe they’ll spend the next billion to buy more Chiquitas.
On the other hand, if you’ve got great credit, are looking to buy and can get a loan … wow, I can’t even contemplate what you could buy and for how little six months to a year from now.
And I can’t help but wonder what this situation will look like by the time the DNC rolls into town.
