Friday, May 3, 2013

Wells Fargo economist: Housing in 'a little bit of a bubble'

Charlotte and the rest of the U.S. may be due for a slow-down in home prices toward the end of the year if long-term interest rates rise, Wells Fargo senior economist Mark Vitner said Friday morning -- which he expects to happen.

Investors have been pouring money into pools that invest in single-family homes, drawn by their 5 percent to 6 percent returns at a time when interest rates are at record lows. At this point, housing has become "a little bit of a bubble," Vitner told a group of Wells commercial real estate bankers and clients at a breakfast event.

Vitner described a meeting with a young investor out of New York City, who came to Vitner's Charlotte office to talk about where he should buy houses in Charlotte, Raleigh and Atlanta with the $100 million he had raised.

"I asked him, 'Do you even own a house?'" Vitner said. He did not. Later, Vitner related, "He was asking, 'Now, where is Ballantyne?,'" implying that the capital flowing in to home-buying isn't necessarily the most knowledgeable about the housing markets it wants to invest in.

That could soon change. Vitner said with inflation risk low, the Federal Reserve will likely continue to keep interest rates low. But by the end of the year, he expects the Fed to scale back on its purchase of securities -- known as quantitative easing.

When that happens, the rate on the 10-year U.S. Treasury could rise to around 3 percent. That will make riskier housing purchases less attractive. It won't be enough to produce a bust, he said, but will make price increases slower.

Other notes from Vitner's talk:

On today's jobs numbers: Employers added 165,000 jobs in April, a Friday report showed, beating expectations. Vitner said that the bulk of those jobs are coming from part-time workers in the leisure, hospitality and retail industry. They're not full-time hires because of the upcoming costs of health care, he said. Still, "The economy doesn't look as precarious as it did yesterday."

On consumer confidence: The affuluent are feeling a lot better about the economy than the middle-class, Vitner said. That's reflected in retail results in local markets. The top mall in a market is doing well. The No. 3 mall is "sucking wind." In Charlotte, Vitner said SouthPark Mall is doing great while Carolina Place in Pineville is struggling.

On the local economy in general: "The economy here is gaining some momentum," Vitner said, and growing between 1.5 and two times as fast as the nation as a whole. Both Charlotte and Raleigh are in the top five fastest growing metro areas since the 2010 census, and Charlotte is the largest on the list.

South Carolina boom town: Charleston."If there's an economy that's closest to booming in the South, it's Charleston." Just one example: Boeing's put a billion dollars into the city since 2009, and will put another billion in the coming years.