Wells Fargo economist warns of higher rates and housing bubble

 Wells Fargo economist warns of higher interest rates, housing bubble
By Kerry Singe
ksinge@charlotteobserver.com
By Kerry Singe The Charlotte Observer
Posted: Wednesday, Mar. 13, 2013
Modified: Wednesday, Mar. 13, 2013
Wells Fargo Securities senior economist Mark Vitner in a December 2010 handout photo.
Wells Fargo & Co. senior economist Mark Vitner issued two warnings to attendees at a commercial real estate luncheon Tuesday. He also praised Charlotte Douglas International Airport, saying anything local leaders can do to ensure its independence “would be good.”
Vitner told attendees that he expects interest rates, which have been around historic lows, to rise this year. He also warned of a possible housing bubble in the residential market, thanks to the large amount of investors buying homes.
Vitner was speaking at an annual real estate forecast held at Carmel Country Club and sponsored by the North Carolina Chapter of the Certified Commercial Investment Member group. The Certified Commercial Investment Member designation is given to those in the commercial and investment real estate industry who complete specified coursework. Only about 6 percent of the profession, or about 15,000 professionals nationwide have earned the designation, according to the group.
The Federal Reserve has spoken publicly about keeping interest rates low until the economy improves. Still, Vitner said, he expects to see such talk soften during the year and predicts that long-term interest rates will move up.
“I have a fairly high conviction on that,” he said.
Vitner also warned about a possible housing bubble brewing in the residential market, thanks to the growing number of investors buying single-family homes.
Private investors, such as hedge funds, have raised $10 billion to buy homes across the country, he said. Investors are buying new homes from homebuilders and renting them out.
“We have seen more speculative activity than I ever thought we would have seen,” after the past housing bubble, he said. “Speculation like that never ends well.”
Vitner also said he expects to see single-family home starts grow by 30 percent in 2013. And while that may sound like a high number, he said, it actually lags past recoveries, where such starts typically rose by 50 percent following a recession.
In Charlotte, as across the country, homebuilders are starting to have trouble finding attractive lots for building, he said. They also are finding a shortage of workers.
He also said that home prices nationally are “a little inflated” and he thinks the appreciation will “cool” by the end of the year.
“I think there are some bubble cities,” he said, naming Austin, Texas, Raleigh and Seattle, among others. Charlotte is “probably” experiencing a bubble, he said.
U.S. home prices rose 9.7 percent in January compared to the same time last year, the biggest increase since April 2006, according to the latest report by CoreLogic, a real estate analytics firm. The change marked the 11th consecutive monthly increase in home prices nationally.
Home prices in South Carolina rose 7 percent in January compared to the previous year. North Carolina home prices, meanwhile, rose a more modest 3.1 percent during the same time, CoreLogic data shows. The figures include distressed sales, such as foreclosures.
The number of Charlotte-area homes sold recently, however, has surged.
Charlotte area home sales rose 26.6 percent in February compared to last year, according the Charlotte Regional Realtor Association. This follows a 40 percent annual surge in sales seen in January.
During Tuesday’s presentation, Vitner also stressed the importance of the airport, saying it is a key reason companies chose to relocate to Charlotte.
He said he believes it is one reason Charlotte fared as well as it did when San Francisco-based Wells Fargo & Co. took over Charlotte-based Wachovia Corp. Some people had worried about massive job losses, which didn’t materialize.
As an example of how the airport may have helped minimize job losses, Vitner shared how he can leave his Charlotte home in the morning and fly to San Francisco and be in a meeting by 10 a.m. local time.
“We have unparalleled access,” he said.
Vitner didn’t take sides for whether the airport should be controlled by the city or a separate authority, as some are proposing. The key, he said, is to ensure that the airport can remain independent and not be used as a piggy bank by city leaders or others.
“It is an issue that deserves our attention,” he said.
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Singe: 704-358-5085
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