Introducing a new feature, Ask the Agent. I get emails from time to time with questions and while I answer directly, I thought a good idea might be to incorporate them into the blog format when appropriate. I can't think of a better question than the one on the minds of most people who are watching and reading the bad news on the housing market than this one, "With all the bad news, is it still a good time to buy Charleston South Carolina real estate?"
The short answer. Yes.
I'm going to apologize in advance for the length of this post but it is an important question with a lot to write and read.
I could have stopped at the short answer but thanks for your patience.
But I'll try to do better than the National Association of Realtors (NAR) or a leading Charleston real estate agency who runs full page ads saying, "it's a great time to buy or sell real estate now". I'll present some facts and forecasts to help you justify a good decision and buy a home in Charleston South Carolina despite the current bad news you are seeing everywhere regarding the state of the housing industry.
Charleston South Carolina is a great place to live.
Let's start with Charleston. Charleston is one of the very special cities in the United States. Historical, beautiful and growing. Our job growth is outstanding and our current area population of just over 600,000 is expected to be more than 1 million people in the next 20 years. We are a major tourist destination and many visitors fall in love with Charleston and want to move here. Businesses have discovered that Charleston is a great place to locate and many jobs have been created and many more likely will be bringing additional people to the Charleston area.
Our health care system is superb with outstanding hospitals including The Medical University of South Carolina (MUSC). Because of tourism, we have more world class restaurants than any city our size I have ever seen anywhere. There are lots of things to do, we have culture, the arts, places of historical significance, there are lots of golf courses and the beach is within 30 minutes from almost anywhere you might choose to live. The weather is great, we have 4 seasons, a mild winter, a long spring, summer is hot and humid but it's hot and humid everywhere and then a long and beautiful fall.
There are always the chance of hurricanes, the last big one was of course Hugo in 1989 and you have to remain vigilant generally from mid to late August until the end of September. We also had a big earthquake in 1886, granted, it was over 100 years ago so my best advice is to buy good insurance and stay safe.
The cost of living here is reasonable, insurance is a little high, taxes are reasonable and homes are a little more expensive than you might think but there are good reasons for that. See above. It cost serious money to live on the beach and downtown Charleston is some of the most expensive real estate in the country. Having said that, there are very nice and affordable homes all within 30 minutes of downtown.
The past few years.
Charleston real estate appreciated very nicely in the housing boom years of 2003 through 2005 but not as dramatically as some of the well known markets around the country including Phoenix, Las Vegas, Miami and much of Florida along with the usual suspects like California. Where Phoenix may have had annual appreciation rates of over 50% year over year for several years, the Charleston area had healthy appreciation more along the lines of 15% to 25% per year depending on the area. Mount Pleasant for example had a little more price appreciation because in order to control growth, building permits were limited. As is usually the case with supply and demand, high demand and less supply caused prices to climb a little more.
Builders bought up all the land they could find and planned and built subdivisions at a rapid pace. New construction was a "wait in line" proposition as buyers flocked to the new home community and put down a deposit and waited, sometimes more than a year for the house to be ready. The new home site agents sold their allocation every month, when the buyers finally moved in, they had instant equity because the builder would raise prices for every X number of homes they sold so the newest construction in the neighborhood was many thousands of dollars more than what you purchased at 6 months or a year previously.
As to condos, between the condo conversions and new construction, it reached a fever pitch. Everyone seemed to want a condo either for investment purposes or just the convenience of no maintenance living. A real estate friend of mine began marketing herself as the "Condo Queen".
If you couldn't wait for new construction, you faced other more difficult decisions. There were lots of buyers competing for the limited number of available homes. When a house went on the market, it wasn't uncommon for lots of buyers to view it the first day, competing offers were the norm and in many cases, bidding wars. If you liked a house and didn't make a decision to write an offer while you were still viewing it, it likely wouldn't be available if you wanted to think about it overnight just to be sure. A lot of people made very poor choices when rushed into a major financial decision like that.
What happened next.
There were many excesses in the housing industry. Affordability, or lack of it became an issue. Real estate buyers sometimes bought more house than they could afford and used creative financing to keep payments as low as possible and thought that prices would go up forever so they could sell or refinance later. It turned out not to be the case.
While there was certainly some mortgage fraud that has been and will be discovered, many borrowers just didn't understand the consequences of the loans they were taking out. Other buyers thought that they could simply refinance their mortgage when they needed to. When interest rates rose and adjustable mortgage rates reset to higher rates, many people were no longer able to afford to make the new higher payment. Many buyers bought homes with no money out of their pocket. Speculators bailed out.
Bottom line, lots of available inventory which simply compounds the problems in the housing industry. The builders kept building. It takes time to slow down and stop. If a builder was selling 10 homes a month, every month, they planned to build the same number in the future months. If sales slipped, and they did and the builder sold only 5 homes sold per month, after 3 or 4 or 6 months, then the builder is sitting on 15, 20 or 30 unsold homes. They have to move that inventory and reducing prices or offering incentives are their options. They can't afford to have empty houses that they are paying interest to the bank on.
The seller of a preowned home is competing with new construction and they may have wanted to trade up and buy something new. They wrote a contract contingent upon the sale of their current home. If their current home didn't sell because generally it was priced too high, they had to cancel and then the builder got stuck with more homes in inventory because of cancellations. The seller of a preowned home was thinking that they would be able to get a certain amount of money from the sale of their current home. It took some time and in some cases, still does, to convince a seller that what their house was worth a year or two ago is no longer what it is worth today when they are competing with not just new construction but many other preowned homes and fewer buyers than before.
The problem for some sellers might be compounded by how much equity the seller has taken out of their home if they refinanced. Let's talk about Mortgage Equity Withdrawal (MEW). Many people refinanced and took money out of their homes as if they were ATM machines. Some took too much and they are now under water. It's like being upside down on a car except that houses cost more and are worth more than cars so the numbers are much larger. If you took money out of your home and want to sell, you may have to bring money to closing to sell. Some sellers don't get it and others don't want to hear about it and still others have no money to bring to closing and still have to sell. It's a big problem. Realize that if you took money out of your house previously, it still isn't there to take out again.
The current Charleston real estate market
Charleston real estate has held up remarkably well despite all the problems you hear about every day. Inventory is high, unit sales are off and yet prices have stayed remarkably stable to slightly up on single family homes, as to condos and townhomes, they have dropped a little in price because inventory is (I can't think of a word big enough for how much inventory is available in condos - perhaps gargantuan might describe the current condo inventory).
Supply and demand affect on pricing courtesy of Calculated Risk.
I am continually amazed that the Charleston South Carolina real estate market has defied gravity and that prices have not fallen. When I've been the listing agent, I have been pricing homes to today's market and despite that, offers are even less. My sellers have been fortunate, their homes have gotten offers and they have sold while many others sit unsold. Perhaps a little less than they or I felt they should be getting but sold nonetheless. When you stop and take a look at inventory and absorption rates, if there are 8000 properties on the market and 1000 sales per month, that is an 8 month supply of inventory. Another way of looking at it is that 1 out of 8 properties got an offer and 7 out of 8 remain unsold. It's tough for sellers.
As to buyers, it is a delight. Whether a buyer is looking at new construction with big discounts or bigger concessions, the new home market is the sweet spot for a buyer today. The big caution would be if the builder does you such a favor by discounting, what will they do next. With preowned homes, the key is to find the motivated seller. Perhaps they have a job transfer and have 2 mortgage payments, maybe they simply can't afford their house any longer, many nice houses are available and as long as you don't fall in love but want to negotiate your best deal, it is available to you.
What should you do now?
Let's wrap this up with this idea. You really have to know why you want to buy and how long you plan to stay. It should go without explanation that if you think you can buy and flip, you are flipping crazy. I've seen it tried, I can't say I've seen anyone making money flipping lately, you must be watching television reruns.
If you plan to live in your house for a year or two, then maybe this isn't the right time to buy. My personal opinion is that the housing industry won't straighten out until 2009. That is a long way out. You may buy now and find your home is worth a little less in a couple of years. That could still be ok for many people because unlike other investments, everyone needs to live somewhere. If you don't buy, there is still a cost to put a roof over your head.
Consider what happens when you rent. If your monthly rent is $1000 or $2000 per month, you have effectively thrown $12,000 or $24,000 into the garbage. Add to that the fact that you have no tax deductions for mortgage interest or for the payment of your property taxes and you'll pay Uncle Sam a little more for the privilege of renting. And having rented at various times in my life, while convenient, it simply doesn't feel like home because it really isn't home, just a place to fall asleep, wake up and come back to after a day at work.
If, on the other hand, you plan to live in your newly purchased home for more than a year or two, the market should see some pent up demand from the numbers of people who put off purchasing this year and next. When inventory stabilizes and demand picks up, prices will follow upward. I have already discussed why Charleston should do better than other areas around the country. If you can afford your mortgage payment and if you understand the terms of the mortgage you are signing and are comfortable that you can afford it, there are great buys to be had in the market today. Will they be slightly better tomorrow. Probably, but where are you planning to live between now and then.
Find a great real estate agent who can find and negotiate a great deal on a new home for you. The best time to buy is when is when everyone wants to sell.