Charleston Real Estate Blog

Homes in Charleston are still selling

... despite some media reports you may have heard that say housing is dead.

My client and I were looking at homes for sale yesterday and one was perfect so I called the listing agent to be sure that it was still available before sending a contract only to find out that it went under contract several hours earlier.

What's going on, I heard that nobody was buying homes since the tax credit expired.

But apparently, some people are still buying homes, at least here in the Charleston real estate market. Yes, it's true, every day a number of homes go under contract in Charleston and while there are still a lot of homes for sale in Charleston, there are still buyers and sellers who agree on terms and eventually close on the sale.

Now, back to the mainstream media for a moment.

Among several interesting quotes in a Washington Post article on yesterday's Case-Shiller home price index report was this gem:

"The report shows the ship is dead in the water now that the homebuyer tax credits have expired," Mitchell Hochberg, a principal with Madden Real Estate Ventures, wrote in a research note.

And while we're on the Case-Shiller index for just a moment, while the index indicated that home prices increased by 4 percent over the past year, it is important to recognize that the index is a rolling 3 month average of repeat sales, not only was the report during the tax credit period but also during the seasonal high point of the real estate calendar, the all important spring selling season. So you should start to see some declines in prices as measured by Case-Shiller in a few months but once again, maybe not as sharp a decline as some doom and gloomers might have you believe and of course, the Charleston real estate market is not measured by Case-Shiller and we might be doing a little better than many other locations. 

And back to yesterday for just a minute while I wrap up, the home was a pre owned home in a relatively new neighborhood and my client was also surprised to see many homes under construction because of course, we also hear that home builders are very pessimistic and housing starts are at an all time low.

Well, what's going on with that.

New home builders in Charleston are still building and selling new homes; they just aren't building as many spec homes as they did during the height of the housing boom, just a few at a time and of course, they are very happy to build to your exact specifications as well.

We'll look at what they have available today, maybe we can find that same perfect home as yesterday just waiting for us.

The home buyer tax credit, once again?

It's been said that housing leads the economy out of a recession but I disagree, it's jobs and job security that gives people the confidence to buy a home which in turn helps the housing market and the economy. But after all, people do respond positively to sales incentives.

Early yesterday, I noticed an article in the NY Times where HUD Secretary Shaun Donovan said that the administration has not decided whether to resurrect the home buyer tax credit and as the day wore on, more articles built on the story.

Shaun Donovan started if off with this comment from the transcript of CNN State of the Union:

“Look, Ed, I think it's too early to say after one month of numbers whether the tax credit will be revived or not. All I can tell you is that we are watching very carefully.” 

Diana Olick reporting at CNBC:

 “Just when I thought the housing market was finally being left to correct on its own, I'm starting to hear talk regarding yet another home buyer tax credit. From HUD to the hedge funds, it sounds as if it is gaining steam yet again.”

Economist Tom Lawler (who correctly forecast the size of the July existing sales decline) writing at Calculated Risk:

“Nevertheless, Donovan’s comments, and the press reports that followed, could well lead many a prospective home buyer to hold off on buying a home because another tax credit might be coming – which, of course, would lead to weaker than otherwise home sales, which Donovan implied might lead the administration to consider reviving the home buyer tax credit!!!!!!”

And that's the thing, if buyers believe that another tax credit is coming, they will hold off for now and home sales will be even worse requiring even more stimulus to get the economy back on track. So while I don't begrudge anyone (including myself) benefiting from tax incentives, my question is whether this is the most efficient use of government funds to help the economy.

As a Charleston real estate agent who would certainly benefit from any tax incentives being offered to people buying a home in Charleston, I stand by my above comment. Say no to another $8k and let the market correct on its own.   

Charleston real estate market report, sales, inventory and home prices, August 30, 2010

The reasons for the sharp decline in home sales in this month's Charleston real estate market report has already been well covered in my posts analyzing the national existing home sales report and housing is not really dead, yet. And the short reason is not just the expiration of the home buyer tax credit which pulled demand forward but consumer uncertainty regarding the job market and job security.

The good news for the Charleston real estate market is that July showed significant improvement in both the mid priced and luxury Charleston home sectors which wouldn't be impacted by the tax credit incentive like homes selling for less than $300,000. And considering how bad the economy seems to be on a national basis, the Charleston economy remains in pretty good shape with the Boeing facility under construction and other businesses (and people in general) relocating to Charleston. 

Statistics compiled by Howard Arnoff using the Charleston MLS as the source of data, information deemed reliable but not guaranteed.

Home Prices

The good news is home prices stabilized across all price ranges with minimal declines for the median price and average price over the past 12 months compared to the prior 12 months but prices based on dollars per square foot have generally declined. Home sales are sharply higher, inventory and absorption rates are lower. 

Sales and Inventory

Home Sales

Monthly Sales are represented by the blue line for 2008, the red line for 2009 and the yellow line for 2010.

The July decline is rather obvious but more importantly is how will sales hold up through the balance of the year.

Inventory and Absorption rate

Inventory is represented by the red line and corresponds to the left axis, the absorption rate is represented by the blue line and corresponds to the right axis.

Actual inventory should start to decline throughout the balance of the year but the absorption rate reversed dramatically with fewer home sales in July.

Sales, inventory and absorption rate for all homes by price point

There was nice improvement in both mid priced homes and luxury Charleston real estate compared to last year and of course, the first half of the year was exceptionally strong for homes selling for less than $300k.

The current inventory (inv) column reflects the number of active listings on the market on the 16th day of each month. The months of inventory (mo) column is equal to the current inventory divided by the monthly sales. This reflects how many months it would take to sell out of inventory at the current month’s rate of sale. It can also be referred to as the absorption rate.

An uncomplicated Charleston real estate transaction

I've noticed that I tend to write about difficult Charleston real estate transactions because they are probably more interesting but there are certainly lots of uncomplicated transactions with happy sellers and happy buyers agreeing and buying and selling a home in Charleston.

I can tell tales of buyers who liked the very first home they saw, maybe took a look at a few others just to be sure it was just perfect and closed their purchase with no hitches within a month but how interesting is that compared to stubborn sellers who (as an example) value their home at $150 per square foot when similar homes in their neighborhood have sold for $100 per square foot or the reverse, lowball buyers who insist on offering $100 per square foot when similar homes have sold for $150.

Or which is more interesting, the ease of making appointments by calling Centralized Showing Service and getting confirmed appointments quickly and easily vs. having to call the listing agent personally who doesn't answer phone calls or emails and when you finally reach them, find out that it just isn't a convenient time for the seller to show their home and wouldn't another day be better.

And writing about working seamlessly with lenders who keep the transaction on track to close on time is so much more boring than writing about lenders who hold up the transaction with unnecessary delays. Or realistic buyers who request appropriate repairs based on a home inspection and sellers who fix any problems discovered vs. the craziness of resolving a home repair negotiation between buyers who want the home to be put back into original condition and sellers who think their home is just fine the way it is. 

But be assured whether you are buying or selling a home in Charleston, even if I don't write about them very often, you can have a smooth and hassle free transaction.

Is now a good time to get a real estate license

Well, that depends.

There are always people entering and leaving the real estate industry no matter whether times are good or bad. And of course, now would not exactly be considered a good time in the housing industry.

But I'm asked that question from time to time and it's just my opinion but I personally wouldn't try to get started as a real estate agent in Charleston today.

Many people think that real estate is easy and that real estate agents make a lot of money. The problem stems from that nasty 6 percent commission that Lesley Stahl mentioned on 60 Minutes years ago so people tend to multiply a couple of million dollars worth of volume by 6 percent and figure they will make $120,000.

What they forget is that there are two sides to any real estate transaction, the listing side and the buyer side and most of the time, there are two agents involved. So you can immediately cut the commission in half. Now you have to take into account that you are going to work for a real estate agency and depending on where you select to hang your license, there is a commission split that must be paid to the agency that starts anywhere around 50 percent and can go as high as 100 percent (but generally only after you have "capped" out the amount of commission split with your agency that year).

So let's use two thirds to you and one third to the agency so now the $60,000 is $40,000. Let's take into account business expenses which include licensing fees, membership dues, technology and marketing expenses and whatever else and you should count on a minimum of $10,000 in expenses annually so now you're down to $30,000.

But that's only if you can do $2 million dollars and that's easier said than done. You see, there are thousands of real estate agents in the Charleston real estate market and many are long time veterans with a large sphere of influence, a long record of success and high name recognition. And while some people will always use a new agent or some family and friends will give you a chance to help them buy or sell a home in Charleston, all of the above is probably why I've heard that the failure rate in real estate is close to 80 percent.

If all that sounds discouraging, I apologize because certainly there will be someone in real estate school right now who passes their exam, gets their license and becomes a top producer within the next year and earns over $100,000 next year and for many years to come.

But more than likely, they are the exception, not the rule.

You could make a lot of money in real estate but above all please remember this, it's not easy.

Housing is not really dead, yet

But you might have thought so based on the media reports of the sharp decline in July existing home sales which I characterized as dismal but expected.

Brian Williams at NBC News.

"Housing, the real estate market, it's a disaster, in plain English. The numbers came out for July today. One economist calls them eye watering. Here's the big bad number. Sales of existing homes fell off a cliff last month, down 27 percent. That's the biggest one-month drop on record in our history." Watch the video.

David Streitfeld writing at the NY Times fresh off his recent article suggesting that real estate as an asset class is dead.

"The steep descent surprised nearly every analyst ... The financial markets took the news badly ... Economists said that just as the credit had artificially buoyed the market, the end of the credit was artificially depressing it. 'If you pay them, they will come. But when ya stop paying them, they leave in droves,' the economist Tom Lawler wrote in an e-mail. His conclusion, 'People shouldn't panic'."

He continues, "Mr. Lawler, whose forecast for July was much more accurate than his colleagues' estimates, said housing would truly be healthy only when there was enough employment growth to spur the creation of new households." Read more.

So are you surprised ... by either the news or the reaction. How all these economists got it wrong except for Tom Lawler is beyond me but you know what they say about an economic forecast, it's usually wrong. Most were probably sleeping under a rock which would make them good candidates to buy a home if they still feel like they have any job security after their big misses. The financial markets obviously weren't paying any attention either.

And how did Tom Lawler get it. By paying attention and doing a thorough bottoms up analysis. 

Oh, and jobs and job security ultimately matters more than an $8000 tax credit. And if you remember the cash for clunkers program, car sales soared and then crashed. All either program does is pull demand forward so you should expect a sluggish fall for real estate sales and no significant improvement until the economy picks up and business starts hiring again.

Housing isn't really dead according to Andrew Jeffery at Minyanville.

"Buying a house isn't the same thing as investing in the 'housing market' Not even close. The argument relies on the naive, yet now-popular belief that the same factors that make taking a flier on a Vegas condo risky must, by extension, also make buying a starter home in Austin, Texas, a dicey proposition.

Demographic movements, not short-sighted speculation, are behind the creation of real estate wealth in the long run. These shifts explain why rural towns with stagnant populations won't see appreciation for decades (if ever), while regions with expanding job markets and a growing population are ripe for smart investment (yes, such areas exist, even now)."

And as I see it, he makes two very important points.

First and foremost is the real reason that 60 something percent of Americans own a home. It's a place to raise a family and create lasting memories. I have rented and I have owned at different times in my life. And I just don't believe that people grow up wanting to be tenants staring at white walls and paying their landlord's mortgage just to have shelter.

And if I can tout Charleston for just a moment, the Charleston real estate market seems to me to be exactly what Mr. Jeffery is describing, an expanding job market and a growing population.

Photo courtesy of flickr by foundphotoslj 

Existing home sales fall 27% nationally in July 2010, dismal but expected

The National Association of Realtors® released the existing home sales report for July 2010 and to the surprise of nobody, sales declined sharply by 27 percent.

Lawrence Yun, NAR chief economist, said a soft sales pace likely will continue for a few additional months. “Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired. Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September,” he said. “However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs.” (emphasis added) Read more from the NAR.

Not much spin from the NAR this time although I believe the outlook of a pause period through September is somewhat optimistic and I wouldn't look for any improvement between now and the first of the year. And jobs matter most and there hasn't been and likely won't be much improvement on that front in the immediate future either.  

In the Charleston real estate market, the numbers are similar. There is no way to break out the existing home sales from new home construction using the sales summary from the Charleston MLS but historically, new home sales make up approximately 25 percent of all home sales in the Charleston real estate market.

In July 2010, there were 667 homes sold, down 24 percent from the 882 homes sold in July of 2009. And of course, sales were down sharply from June 2010 when the tax credit was scheduled to expire (and by the way, the little extension to close by September 30 won't amount to much difference).

I've become a little bit less a fan of median prices because any change in the composition of what is selling will affect the median price. And that is probably why the median price in Charleston rose much more than nationally, up 6.8 percent locally vs. a 0.7 increase nationally from a year ago. With fewer first time home buyers in July and more mid priced move up buyers and luxury Charleston home buyers impacting the statistics, the median was bound to increase.

But, due to the high inventory levels, there will be pricing pressure on sellers so look for prices to decline somewhat during the slower second half of this year. Buyers will definitely have the upper hand in negotiation.

And on the mortgage front, news couldn't be any better with 30 year fixed conventional mortgage rates solidly hanging around 4.25%. And with the strength in the bond market, is it out of the question to see mortgage rates starting with a number 3. Amazing!  

UPDATE: Read the follow up post, Housing is not really dead, yet.

The home is already under contract, you can't buy it

Warning, sarcasm ahead. Mr. BigShot called me yesterday afternoon about a listing. He is a real estate agent from another state and was angry that a home he was inquiring about was already under contract.

The first problem of course was trying to explain that the Charleston MLS requires homes that are under contract but contingent continue to be shown as available when people are searching for homes for sale. That may not be the way that Mr. BigShot's MLS works but it happens to be the rules here in the Charleston real estate market. And that didn't sit well with him.

But it gets worse. He wanted to know if he could put a full price offer on the home (even though he hasn't seen the home, for some reason, he thinks he wants it but then again, people tend to want what they can't have).

So after I explain that regardless of what price offer he wants to make, it would have to be a backup contract (non-primary) and would not necessarily entitle him to buy the home regardless of the already agreed on price between the seller and buyer who have a contract unless that contract fails to close.

Well, that answer caused him to hang up the phone on me obviously in disgust.  

I don't practice law and I certainly hope Mr. BigShot doesn't either but my question to Mr. BigShot is what part of the word contract do you not understand and don't contracts mean anything where you currently practice real estate.

Please! 

Photo courtesy of flickr by NobMouse

[Cartoon fun] Double dip recession

Great cartoon fun no matter what your politics are, a double dip recession and dips from both parties, h/t Barry Ritholtz, The Big Picture. Barry is both smart and funny.

Government loan modification programs failing miserably

... and it really shouldn't come as much of a surprise to anyone.

The NY Times is reporting that the Making Home Affordable Program, another of the government efforts to stem foreclosures and stabilize the housing market is failing miserably. Read more.

Locally, here in the Charleston real estate market, it seems much more orderly and I suppose I don't know what neighborhoods look like in Florida or California but there is a home that will be foreclosed on my street as soon as it goes through the legal process but neighbors have pitched in by cutting the lawn and making the home look a little better.

Now I wish they would cut the lawn of another neighbor who is actually living in their home but that's a story for another day.

And it seems that lender owned homes are coming on the market and either selling quickly or being reduced in price and selling eventually. And there is even more positive news with short sales being approved a little quicker by the banks and actually closing.

So the free market does work after all and it would probably be a better idea for the government to step out of the way and let the chips fall as they may but then you probably don't expect that to happen, do you.

And while we're on the subject of loan modification, if you are in financial difficulty, please don't contact one of the many loan modification companies out there that will take your money and do nothing for you. I'm sure it's frustrating to not get answers from your lender but I just heard of someone who wasted $3000 that they surely couldn't afford and got foreclosed anyway when they sent their money in and got nothing for it. 

Now that is an area the government should get more involved in, namely protecting us from scams, frauds, and ne'er do wells.  

Hope and prayer will not sell your Charleston home

My buyer wrote a very fair offer based on comparable sales of homes that have sold recently but it was substantially below the listing price but not what I would consider a lowball offer because the listing price was basically unrealistic. The offer was deemed unacceptable by the buyer who made a very small concession in a counter offer which my buyer politely declined.

Basically, the seller has disregarded the facts and current market conditions in the Charleston real estate market. The home has sat unsold since being listed at the beginning of the year with only a slight price reduction while in the same zip code, over 200 homes have sold year to date but an equal amount have languished on the market unsold.

You see, it doesn't really matter what you think your home is worth, the only thing that matters when selling your home is what a ready, willing and able buyer offers you and an appraisal has to support the price. So if your home is listed for sale and very few people are viewing your home or nobody is making an offer or several offers have come in that you deem unacceptable, it may be time for you to reconsider your list price.

Unfortunately, this seller responded that "at the right time, the right offer will present itself".

As if someone is going to want to buy their home after falling off a turnip truck on the way to the showing appointment or miraculously drop in from the sky and present the seller with an acceptable offer.

If you want to sell your home in Charleston, pricing it realistically based on comparable sales and flexibility in negotiation are the way to go.

Hope and prayer will not sell your Charleston home but maybe a St. Joseph's statue will help.

Mount Pleasant waterfront, new proposal for Patriots Point

The Town of Mount Pleasant doesn't really have a downtown unless you consider Pitt Street in the Old Village to be downtown. At one time there was talk of building a new downtown near the Mount Pleasant Towne Centre. And Mount Pleasant, even though it is a suburb of Charleston, is actually one of the largest cities (or towns) in the State of South Carolina.

A design proposal was just released that would transform the Mount Pleasant waterfront into a mixed use development incorporating 2000 homes, a high end hotel, shopping and public areas and simultaneously help the financially ailing Yorktown military attraction at Patriots Point. Read more from the Post and Courier.

[Repeat after me] Charleston real estate is local

With all the dire forecasts for the economy and housing specifically, it seems like a good time to remind everyone that real estate is local and even within the Charleston real estate market, real estate is local.

Some forecasts for housing from CoreLogic, Altos Research and RadarLogic all have a national perspective and as I've mentioned on many occasions, the Charleston real estate market doesn't share many of the same characteristics of Florida, California and many other distressed real estate markets.

But even here in the Charleston metropolitan area, there are differences in home sales activity and home prices between Historic Downtown Charleston, the beaches, Mount Pleasant, Daniel Island, Summerville, Goose Creek, West Ashley, James Island, etc., and then even more local within neighborhoods in each of those areas.

So repeat after me, real estate is local and Charleston real estate is local.

photo courtesy of flickr by KevinDooley

What the average price should tell you when selling your home in Charleston

Some homes sell. Others don't.

And if you are listing your home for sale in Charleston, of course, you want to be one of the people who sells their home and moves on instead of having the listing expire or withdrawing it and re listing it again with the same or another Charleston real estate agent.

And as I've said for at least a hundred times, pricing your home for sale is important but what is even more important is that when there is some interest by a buyer in your home, you have to be flexible when negotiating.

Here's why.

A look at the chart shows you that the average selling price is lower than the average price for homes that are currently available for sale and for homes that have come on the market in the current month (in this case, July 2010). And the average selling price is also lower than homes that have expired unsold and homes that have been withdrawn from sale.

And very interestingly, homes that are under contract (contingent and pending) that haven't closed yet have very similar sales prices to homes that have sold.

My buyers just closed on a home Friday and the sellers had to come down in price quite a bit in order to get the contract accepted. In fact, I was surprised how motivated to sell and how flexible they were because it was priced very well from the start. And proof of that is that the home appraised for more than 7 percent over the sales price.

But the sellers knew that they had an interested buyer and they wanted to sell so they made sure that they got an agreement. They didn't want the buyers looking at other available homes leaving their home still on the market and waiting for another buyer to materialize.

And at higher price points, there is simply a lot more competition for fewer buyers, or in other words, it would be an understatement to say that a lot of inventory is available.

Chart courtesy of the Charleston MLS, information deemed reliable but not guaranteed.

Great photo of lighting strike at Boeing plant in Charleston

A great picture of a lighting strike at the Boeing assembly plant under construction in Charleston on July 26, 2010. The left lightning bolt is actually curling around through the crane and the right one went down an elevator shaft. Awesome! I wish I could credit the photographer but it was forwarded by email so many times until it got to me that I just don't know who took the photo.