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All Carolinas Are Not Created Equally

Posted Tuesday, December 22, 2009

We used to refer to the Carolinas in one breath, as if all of the markets
behaved similarly. Today, that could not be further from the truth. All
of the major housing markets (Charlotte, Raleigh, Wilmington, Myrtle
Beach, Charleston and Hilton Head) have wildly different outlooks. In
this analysis, we will look at Charlotte and Raleigh.

Over the years, Charlotte has become a major finance hub because of
Wachovia's national expansion and NationsBank's 1998 acquisition of
San Francisco-based Bank of America. With the distress at both
institutions, employment has suffered greatly and the housing market
along with it.

Over many decades but especially over the last 15 years, the Raleigh
MSA has developed a huge technology-oriented employment base,
revolving around the three great universities: Duke (Durham), University
of North Carolina (Chapel Hill) and N.C. State (Raleigh). While the
banking business boomed earlier this decade, the technology business
tanked, and we believe the next few years will be the exact opposite, as
technology soars again while banks struggle. Therefore, we expect
Raleigh's housing market to outperform Charlotte's market.

Here is some more information to support our thesis:
Job Losses: Charlotte's 12-month job loss rate at -5.7% is more
than double Raleigh's -2.4%, and equates to nearly 49,000 jobs
lost in the last 12 months versus nearly 13,000 in Raleigh. Our
forecasts project Raleigh's job growth rate will outpace
Charlotte's through 2013.

Unemployment: Charlotte's unemployment rate as of
November is higher than average at 12.0% versus Raleigh's
lower than average rate of 8.6%. The rate is 10% nationally.

New Home Sales: Raleigh saw strong new home sales through
the summer and early fall, which ate through much of the
housing inventory in more desirable locations. Initially, sales
were limited to the entry level price ranges, but expanded in the
Fall to include sales at better located, affordable move-up and
active adult communities.

Charlotte didn't see an equivalent lift in traffic and sales this
year. Sales did pickup somewhat from the devastating declines
at the end of 2008, but Charlotte builders have continued to
report lackluster activity, even at the entry level.

Land prices: In Raleigh, land prices have fallen dramatically in
Raleigh's outer locations, while demand for “A” location
detached lots has been strong, particularly among several public
builders in the market.

While there is less evidence of price capitulation in the more
remote locations in Charlotte, there is also less appetite for “A”
locations. The removal of the #1 builder in Charlotte from the
market, however, will help stabilize the competitive

New start-ups: Raleigh has several small, start-up homebuilding
companies headed by former division presidents, which will
grow new businesses offering affordable homes on lots
purchased at distressed prices. The presence of start-up
homebuilders is a positive sign of Raleigh's shift towards
recovery, based on watching prior recoveries. In Charlotte, we
are not hearing of the same level of start-ups by former division
presidents and private builders recreating themselves.

Conclusion: In order to accurately assess the risk risk/reward, it is
important to recognize these 2 metros as distinct entities with
unique dynamics in play.

Article provided by: Jody Kahn, a Vice President at John Burns Real Estate
Consulting; www.realestateconsulting.com