Charleston South Carolina real estate prices
Charleston South Carolina real estate prices for single family homes have held up very well during the current real estate downturn. How can that be?
Unit sales are down by 19% for the same 5 month period as last year.
Inventory is at up by 37% and there is 8.5 months supply at current absorption rates.
Days on market is now 91 days compared to 63 days last year.
Yet prices are down less than 1% on an average sale basis and up almost 5% on a median sale basis.
I showed a house for sale this morning to a nice couple and the first words after saying hi to me was, "how come so many homes are for sale?" There seem to be for sale signs just about everywhere and yet prices are stable to slightly higher.
Some for sale signs have cobwebs. Some sellers have fired their listing agent and are now working with their second and sometimes third agent and their home remains unsold.
The Charleston South Carolina real estate market shares some of the same issues that the National real estate market is experiencing but with some subtle differences which I believe is the reason that pricing remains stronger in Charleston than in many other areas of the country.
The trends:
Interest rates have gone up though they remain historically low. There has always been significant housing activity at interest rates of 7, 8 or 9%. Many consider high interest rates to be anything above 12% but we're spoiled by the unusually low interest rates that were recently available.
Tighter lending standards. The mortgage industry got a little loose with programs designed for anyone to be able to qualify for a mortgage. Money should not have been lent to some borrowers. Underwriting was lax to non existent. No documentation was required in too many cases. People I wouldn't loan $5 to get a meal at a fast food restaurant were borrowing 107% on a home. Minimal monthly payments were required in the beginning of the loan. Many borrowers didn't care, as long as home prices continued to go up, they could refinance later.
When interest rates rose and home prices stopped increasing, many borrowers found themselves squeezed by higher monthly payments and a lack of refinancing options. The investor / speculator was in even worse shape than the homeowner. It has been said that there was predatory lending at work by the mortgage industry but there was certainly some predatory borrowing by the investor / speculator market.
As to the homeowner who took out a loan that they didn't understand, it is certainly unfortunate for them as people who might lose their home and ruin their credit. And while there is a lot of paperwork to sign, somewhere in all that paperwork were the proper disclosures that would tell them what would happen with their loan. They could have asked a professional real estate agent for advice. The attorney closing the loan is usually very helpful at explaining anything that is not understood. The attitude of many however was, it didn't matter, they weren't going to lose money if things didn't work out and with very little of their money vested with 100% loans in many cases, and why wouldn't everything work out anyway?
OK, so you have lots of inventory on the market because borrowers who can't pay their mortgage want to sell along with the normal inventory that is on the market anyway. You have less potential buyers because loan underwriting standards have tightened and that effectively reduces the market of available buyers. If supply is high and demand is low, what should happen to prices. If you guessed, they should come down, you're right ... except, ... prices have not declined in the Charleston area.
Why are prices in Charleston stable to slightly higher with market conditions the way they are?
Some background:
One interesting thing about Charleston real estate is that the market is so broad, from extraordinary high end luxury properties downtown, on the beach and in golf course communities and other beautiful neighborhoods to upper middle, middle priced and lower priced properties making housing choices plentiful for the many people moving to Charleston and for those moving around Charleston. Because some very high properties sell, it would seem to raise the average sale but because only a large handful sell every month, it wouldn't move the median (which is the middle price point) of all sales. The median is what determines affordability and the median price in Charleston is up almost 5% over the past year despite thousands of houses for sale that no one seems to want to buy. They are actually still buying, just a few less than before.
Sales have slowed in Charleston because buyers from around the country who might want to move to Charleston have been unable to sell their homes in their current location. They are facing the same problems that sellers are facing here, decreased demand and increased inventory.
Some sellers are asking ridiculous prices for their homes. Despite all indications, media reports, advice from real estate professionals and even the pet dog, they are stubbornly refusing to believe their house is not worth what they think it is. This is where the cobwebs on the signs and the multiple agents hired to sell the house really comes into the picture. This is inventory that is on the market but not realistically for sale. I noticed a half a dozen of the same style houses in a neighborhood recently and while 5 were priced right in the same range, one was asking about 20% higher for an apparently similar home. Advice to seller. It won't. Pride of ownership is one thing, buyers do not want to overpay.
Charleston prices are not declining:
More people are moving to Charleston than are leaving. There is a long term trend of migration from the cold and snow of the North and Midwest to the Southeast. In fact, the South now has as many people living in it as the other 3 regions of the country combined.
Job growth is strong. Charleston has been discovered by the business community as a place to relocate their businesses and many are joining the strong government and military industries, which along with the Port of Charleston and health care that have been an important part of Charleston's economy for so many years.
Telecommuting. Long gone is the day where people had to live near their employer. With cell phones, laptops and blackberrys, people can work from anywhere in the world and many do exactly that. (See location below). Wouldn't it be nice to sit by the pool or beach or watch the golfers on the course as you conduct your daily business?
Location. Charleston South Carolina is one of the most beautiful and historical cities in the country and the world. While the phrase in real estate, "location, location, location" might not be the entire story, location still does command a pricing premium. Charleston is a wonderful place to live. In 1991, I was living in Charlotte North Carolina and first saw the Carolina Coast. I said then, "one day, when I can, I'm moving there". I did in 2001 and couldn't be happier living anywhere else. Many visitors come to Charleston and feel the same way. They figure out a way to relocate to Charleston and they're moving here. Population is expected to climb by more than 50% in the next 30 years from the current 600,000 to about a million. I hope they are all not on I-26 and Ashley Phosphate at the same time.
It will be interesting to see what happens to prices in the Charleston South Carolina real estate market in the short term and how the mortgage and inventory situations sort themselves out in the days and months to come but Charleston seems to be holding up very nicely in the current real estate slowdown. While some sit on the sidelines waiting for the absolute bottom, there are some very good buys right now if you know where to look and how to obtain the necessary information to negotiate your best price. I'll keep you posted.