Is Charlotte Immune from the Housing Crisis?

July 19, 2008

Could Charlotte North Carolina be immune to the housing crisis? Maybe Affordability will be the key!

I just read an amazing post by Terry McDonald of Wilkinson and Associates Realty, and he gave some fascinating statistics that show the overall health of the Charlotte housing market. He also points out very clearly the so-called “National Housing Market” does not exist because real estate is local and therefore there is not one big market. Every individual market can be very different and although many reporters and economists like to average numbers together, sometimes that hides from very important facts… like the fact that the Charlotte Housing Market is at very low risk.

One idea that has been festering in my head is that the cause of the housing woes we are in can be closely related to affordability and the ill-fated attempts by many to avoid it. You would think that one of the most fundamental elements of mortgage lending is making sure a home buyer can AFFORD the house they are buying! That would seem to be common sense, but with changes in the mortgage market that actually became an after thought.

Back in the 80’s and 90’s the mortgage industry shifted from banks and S&L’s that held mortgages they made to a market that securitized the loans into bonds and sold them. Freddie Mac invented the first MBS (mortgage backed security) and everyone was off to the races! Instead of banks making you a mortgage loan, keeping that loan and collecting your payments; they began to outsource the originating and servicing of the loans to other companies… enter mortgage brokers. While servicers consolidated rather quickly, origination companies fragmented and splintered into hundreds of smaller shops with some being one person working out of their home office.

With “one-man shop” brokers selling loans made by lenders who never intended to keep the loan to begin with… well it doesn’t take a rocket scientist to figure this out. Would you be more likely to lend my money or your money? Somewhere the greed factor kicked in and people stopped caring if the people buying the houses could actually afford to make the payments long-term. Once Wall Street saw all the cash changing hands and figured out mortgage lending was becoming an investment business, they had to jump on board… enter subprime lending. From 2003 - 2006 the Fannie/Freddie/HUD share of the MBS (mortgage back security) market shrunk from 70% to 30%. During this period a majority of new mortgages were being written by people that had been in the room for like 10 mintues. Fannie/Freddie/HUD have been at this a long time and had seen the ups and downs, but when Wall Street gets excited about something new… watch out! Typically there is a lot of enthusiasm and not much caution.

How does this affect Charlotte home buyers? Simple. Houses here are affordable. There are plenty of people either in Charlotte or moving here that don’t need a crazy loan program to buy house… they can afford a nice house with a traditional mortgage program! PMI’s proprietary Affordability Index measures how affordable homes are today relative to 1995. A score of above 100 means homes are more affordable, Charlotte scored a 114! So home prices have to drop in some cities so people can afford to buy them with traditional mortgages, but in Charlotte home prices are stable because they are affordable.

Check out PMI’s report yourself and you can see the tremendous stability in the Charlotte housing market.

Myers Park Mortgage is a HUD approved lender that offers FHA and VA (Veteran) loans, conventional and Jumbo loans for Charlotte area real estate. We lend in NC, SC, TN, VA, GA, and IN, but specialize in the Charlotte Metro. (Lake Norman, Concord, Harrisburg, Matthews, Mint Hill, Pineville, Monroe, Fort Mill, Lake Wylie, Gastonia)

Call today to apply at 980-721-7478 or APPLY ONLINE.

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