Working hard, but where’s the reward?


We were all taught to work hard if we wanted to get ahead.

Studying hard would bring good grades, and good grades would get us into good colleges. Graduating from a good college meant a good job, and more hard work would bring promotions. Promotions would bring more pay and a better lifestyle. If the promise was that hard work would bring happiness, why are so many of us unhappy?

In my world, hard work by many is actually making it harder for them to buy or sell a home. These are strange and unique times, and as Lawrence Yun, chief economist for the National Association of Realtors, recently asked, “When will the strangeness end?” The default rate on new Fannie Mae mortgages is only 1.2 percent compared with 28.7 percent for similar mortgages made in 2007, but today’s Fannie-approved homebuyer has an average credit score of 762 compared with 720 in normal times. Another survey finds today’s average buyer earns $80,900 compared with $72,200 only a year ago. If the default rate is the lowest in a decade, why is it so hard to get a mortgage? For many of us in the industry, hard work is not being rewarded. It is being punished.

Newly built inventory is at a 40-year low. Mecklenburg County issued only one-third as many permits for new, single-family homes in each of the past three years — 2010, 2009 and 2008 — as in 2007, which means today’s seller doesn’t have to worry about a competing new home down the street or around the corner. Simultaneously, today’s buyer can actually purchase a home for less than its replacement cost. So why are so few doing so? Nationally, real estate values stabilized in some communities almost two years ago, but not in Charlotte. We entered the recession late and it looks like we will stabilize later as well. Still, as Yun noted earlier this month when he spoke to 300 local Realtors, Charlotte’s “inventory is down 20 percent” and “sales are rising” which, hopefully, means the worst is behind us. Collectively, homeowners in Charlotte certainly hope so, too. As is always true, opportunities are present every day. The trick is recognizing them. With money market rates under 0.5 percent but inflation near 4 percent, where is today’s investor putting his or her money? Gold was a good inflation hedge a few years ago, but its price today is at an all-time high. Real estate has always been the other traditional inflation hedge, and quietly but steadily more and more investors are choosing real estate as their investment choice in 2011.

Multiple bidding is becoming common for foreclosed properties, although, because of the reluctance of banks and regulators to lend, 30 to 35 percent of these sales are all-cash, according to the NAR. Knowledgeable investors know rents have increased 200 percent nationwide in the past 30 years compared with 150 percent for food and 160 percent for the consumer price index, and rents are forecast to increase 3 percent to 3.5 percent for each of the next 3 years. Real estate is the new inflation hedge of choice and, in my experience, perceptive investors rarely, if ever, makes frivolous or impulsive investments. The bigger question is: If the well-heeled, cash-rich investor is buying real estate, why is everyone else sitting on the sidelines?

Vacancy rates and days on market are down. Multiple rental applications mean that a more-creditworthy rental applicant is being approved today than just two years ago. Collections are up and there are no more delinquencies on average than we experienced the past five to six years. The result is that property management is enjoying the best of times and this is especially true in the Charlotte region. Charlotte continues to experience a net in-migration although many new Charlotteans cannot sell their previous residences in other cities. Simultaneously, local homeowners are still transferring to district offices, home offices or overseas and cannot sell their Charlotte home. The result is a steadily growing, active rental market, especially for nice homes and condominiums.

In short, local homeowners are converting their primary residences into investment real estate, savvy investors are buying foreclosures to convert to rental units and new Charlotteans are filling them up. Until more traditional and, currently, unhappy buyers return to the market, investors are helping to keep the real estate market afloat.