Living and Working in Charleston SC

Unfortunately, there isn’t anything new to report as far as market statistics are concerned.  We really won’t be able to see anything conclusive until mid November.  Current inventory numbers remain unchanged and dismal.  I’m afraid we’ve only seen the first phase of what could be a longer term real estate/mortgage related slide. 

Where will the bottom find itself?

Here are the numbers I promised directly pasted from the MLS.  Stay tuned for updates:

3 months of inventory to over 14 in 3 years.  Keep watching.  If you’d like a specific report on a subdivision, or section of town let me know. 

The Charleston Real Estate Market is consistently poor for sellers with inventories remaining 10,000 and days on market climbing, and sales to list price rations dropping.  It’s not doom and gloom in Charleston like other parts of the country.  Average sales prices are actually staying around $300,000 plus or minus $10,000 from one month to the next.  What does this mean to sellers?  Merchandising is everything, and as always, pick an agent that is going to be honest with you about price and listen to them.  Pick the agent first based on your perceptions of their integrity and ability first, and leave price discussions for later. 

What does this mean for people buying a home?  This is only my opinion, but I think that prices are going to drop.  They are not dropping as you would expect, but the days on market and sales to list price ratio trends indicate that prices should be dropping.  What you don’t know is, are buyers using all of their purchasing power to buy more home, instead of using the current market conditions to save money. My experience working with buyers is that everyone wants a home that is more than they can spend, so given the opportunity, most people are going to try to get more home.  What this could mean is that even though the average home price isn’t going down, that on a house to house basis, prices are dropping and it’s just not showing up on the market wide statistics. Again, I can’t prove this to be a certainty, but I think you can get a lot more home for your money now than a year ago.

This does sound self-serving of course, but a big problem right now for buyers is finding an agent that will tell them the truth about the market.  The big agencies are all advertising, “Now is a great time to buy!”  That is a mixed truth.  Maybe it is depending on your situation and maybe it isn’t.  I would say that if your career is moving you to Charleston right now, and you want to buy, you will probaby come out OK.  Even when homes were appreciating at 10% plus, it was hard to get out of a home in less than two years. 

There are many factors is such a complex decision.  Talk to an agent you’re comfortable with and get the facts. 

What are the questions people want answers to when it comes to our market?  It depends on who you are.  We come into contact with different groups of people.  Investors from outside the area that don’t know our market want to know is this is a good time to buy here or not.  The answer is clear.  Definitely not.  It’s pretty difficult to find a property that will cash flow because our prices have outpaced rent rates.  And our market has almost certainly not hit its bottom.   Another question is, how low will it go?  We really don’t know what will happen here since the supply of buyers has shrunk so rapidly.  Many of the buyers we were working with in 2005/6 were 100% financing either by necessity or choice.  Most of those would not qualify by today’s practices since the mortgage meltdown.  Sales in my backyard, the more affordable Summerville, have shrunk to half of last years number of August and September.  The buyers simply are not out there.  Inventory levels on the other hand are increasing beyond the 10 month level.  We thought we might not see this out in Summerville, but it’s here.   Is there a silver lining for buyers?  In 2005, homes that were priced correctly and in decent shape were selling in less than 30 days, with the average in many areas of Charleston being around 60 days.  What this meant to buyers is that they had to make decisions very quickly, or face starting the search process over again, only to be rushed again.  Sales/List prices were over 99%.  The big topic at real estate sales meetings was negotiating multiple contract scenarios.  At this time, most everyone, including many experienced investors, expected the trend of appreciation to continue.  There was no hesitation on the part of buyers, because the appreciation trend had been on a steady path for over 10 years.  We had little reason to believe differently.  Today, buyers are in the driver’s seat.  There is much more selection.  Sellers are much more anxious when they get some attention from one of the few real live buyers.  And if things don’t work out on the first pass, there is plenty more to choose from.  In fact, you’ll already have three or four choices lined if you’re working with a decent agent.  While the average sales prices will probably go down some more, it is possible to beat the curve if you do the right things in the buying process.  If this explanation doesn’t provide you with enough assurance to take the plunge you can always rent for six months and see what happens.  I’ve done enough moving for three people, and as painful as it is, this too shall pass, and before you know it, you’re settled into your new home.  In six months, there is still going to be 10-12 months of inventory, and prices are either going to be the same, or just slightly lower.  I’m referring to averages.  If you’d like specific information about certain communities like downtown or Isle of Palms or West Ashley, I’m happy to provide it within reason.   Please use the blog so that everyone can see your question and my response. 

First, the numbers.  Then we can go into interpretation. 

July 2007 total versus July 2006:  

Overall including all residential

Sold Units: 1070 vs 1465

Average Sales Price: $315,000 vs $300,000

Inventory:  10432 9.8 months vs 8483 5.8 months

Now, the same numbers for townhomes and condos

Sold Units: 251 vs 349

Average Sales Price:  $265,000 vs $225,000

Inventory:  2857 or 11.4 months vs 2347 or 6.7 months

 And Single Family

Units:  784 vs 1026

Average Price:  $342,000 vs $335,000

Inventory:  6801 or 7.3 months vs 5655 or 5.5 months

 Sales Peaked in July 2005 at 1553 overall residential

It doesn’t take a financial expert to see that in 2005, investors were looking for alternatives to the Securities Markets, where they felt vulnerable.  The securities market is stronger now, and let’s face it…it’s a hell of a lot easier to go online or call your broker to invest in securities than it is to flip houses or deal with renters.  That’s the extent of my commentary related to the tie-in with securities.  Interest rates were very low in 2005, still fairly low in summer 2006, and they’re higher now.  That means that for primary residence purchases, those that can wait, are waiting. 

This is a blog, not a newspaper column, so you tell me.  Are some of you waiting for prices to come down?  My guess is, probably so.  Around the water cooler, talk is that prices are coming down.  But the real numbers don’t reflect that.  The buyers we have been working with are willing to pay to get exactly what they want.  90% of the buyers with whom we work start with a monthly budget figure, and work from there.  I don’t know how much of that has to do with the way we guide our buyers.  But that’s a different story.  Of all the buyers we’ve worked with recently, one has started with his criteria, and then negotiated downward, versus starting with a price (directly connected to a payment), and then searched for the most home they could find for that amount.  Does that make sense? 

Averages can be very misleading.  In Charleston, all it takes is a few ocean front or downtown sales to drive up the numbers.  I recently had a buyer client ask me for a report on a specific zip code.  29412, which is in James Island.  Here is the report.

Sales and Inventory History

Saturday, August 04, 2007
Category - Residential

Even though we’ve drilled down into a smaller area, the report still seems to support the same conclusion, that prices are continuing to climb.  There are a lot of different ways to go with this conversation.  What’s relevant us an our clients is, what can we do with this information? 

For those of you that are trying to time your purchase, I would look more at interest rates, than average home prices.  It’s hard to build a solid case that the market is going down.  With the current inventory levels, we can help you use this to your advantage to get more for your money, or pay less for a home that exceeds your criteria.  The inventory levels ARE continuing to rise…but so are the average sales prices. 

For those of you that want to use your market knowledge to get the best price, or to sell your home for the best price, the answer is simple.  Just work with us.  There are many posts in this blog that tell you how to do it…and any agent has access to this same information.  They may not be able to look it up, but they do have the same access we do.  There is one point I can’t emphasize enough for  those of you that want to use your primary residence to get ahead financially.  SELECTION AND IMPROVEMENT CHOICES ARE EVERYTHING!!  When you go to buy your home, you need to look past what are your likes and dislike and consider very seriosly the next person that is going to live in your home.  Sorry for getting off track…we were talking about how to use the market to your advantage.  Will most of you will use the market to get more home, with more upgrades, with more space, on a better lot etc.?  Or will you stick to your criteria and try to save some money? 

Theories vary about why we have cracked foundations here mostly for homes built in the 70’s.  Some think it’s because we have an earthquake fault in Summerville.  Others believe it’s poor site prep.  Probably a little of both.  Mount Valley and Ram Jack would be able to speak more autoratatively than me.  My approach is from a real estate standpoint.  It’s a pretty bitter pill to swallow for the owner to ante’s up the 10 to 20 g’s to get the repairs done, only to find their home is still devalued. 

Cara and I  actually bought one of these homes two years ago.  We were trying to get the most home for our money, the repairs were guaranteed, and we were thinking we were going to be here for quite a while.  Our theory was that it devalued the home by about $10,000 and we negotiated accordingly. 

When we’re working with buyers and we see one of these homes, what we tell people is that it puts a cloud of sorts over the property and makes it less marketable.  It will take longer to sell, and an educated buyer is going to want at least $10g taken off the price, when the repairs have been completed…and more if they haven’t.   You do have the possibility that someone will fall in love with your home and pay closer to full price, but that chance is pretty slim.  Whenever we’re looking at homes, we always inspect the garage carefully to look for any obvious cracks.  You can tell if it’s cracked all the way through by seeing if the crack is level….if both sides of the crack are on the same level.  It the two sides of the crack are at different levels, then it’s not a surface crack.  We also look for excessive cracking in the bricks outside the home if it is a brick home.  And we look for horizontal cracking inside the homes.  Vertical cracks are more typical from standard settling.  Horizontal cracks indicate potential structural issues.  You’ll want to have your inspectors look more closely. 

The biggest problem with buying one of these homes, is that you can pay 100 engineers to inspect the property, and they are all going to qualify any statements they make with disclaimers that say the the inspection is limited to what they’re able to see. 

A Ladson, SC company, Force Protection recieved a contract for 1000 military, bomb resistant vehicles this week.  This is pretty big news given that they produced 286 vehicles all of last year.  They’ve had zero fatalities so far in Afghanistan and Iraq.  The vehicles and it’s occupants usually need some repairs after an IED explosion, but both survive.  Visit www.forceprotection.net to learn about other news, including employment opportunities.  Force Protection will be hiring all types of workers from IT, to engineers, to welders and assemblers. 

Thank you very much to those of you that expressed concern this week; to those of you that don’t know, I graduated from Virginia Tech in 1985.  It’s been a tough week for everyone; we’re all realizing that deep down we’re all connected.  There is nothing more difficult to deal with than young lives lost.  Our hearts go out to the friends, family, faculty staff, everyone that is connected in any way to this tragedy.  It’s difficult to know what to say to one another in the tide of something so sad that will ring true and not sound trite in some way.  It’s too great a loss so let us only say, or just feel that we are grieving together.