Home is where the $$$ is Housing inventory predicted to remain tight, driving prices higher

A new home rises on the Isle of Palms. A lack of available home inventory is becoming a concern in the Lowcountry.

When Jeff Gruber learned his new job required him to move to Charleston from Virginia, he started looking for homes as soon as possible last fall.

After driving around and checking out several houses recommended by an agent and others he found online in his price range, he settled on a three-bedroom house in West Ashley. He wanted to live as close as possible to his employer’s office in downtown Charleston.

Gruber quickly realized he was priced out of Mount Pleasant, where he wanted to live with his two black Labs, and his choices were limited. Almost all of the existing houses he looked at needed work.

Gruber finally paid $206,500 for a 1,834-square-foot house in February and gutted the main living quarters, at a cost of several thousand more dollars.

“I did not think there was adequate housing available for the price I could afford,” he said.

Finding the right home can be a daunting task, and in the Charleston area, it can be more difficult as the economy booms, more people flood the market to fill available jobs, people hold onto homes longer and developers burned in the last recession are hesitant to overbuild.

“The homes that are coming on the market are going off just as fast,” said Michael Sally, president of the Charleston Trident Association of Realtors. “The inventory shrunk rapidly in the past 18 months, and we don’t seem to be gaining much ground. We need more product.”

Sally’s biggest concern is that housing prices will continue to rise and hurt the Charleston market.

“Home prices could outpace incomes,” he said. “That would make them unaffordable.”

So far this year, 8,648 homes have sold in the region at a median price of $239,000. That’s more than 1,400 units a month changing hands. Volume is up 8.9 percent over last year, and the median price has risen 8.3 percent, compared to the first six months of 2015.

If the second half of the year sees as many sales as the first half, home transactions will eclipse last year’s total by more than 1,000 units. Even so, it won’t set a record.

The highest number of home sales recorded in one year in the Lowcountry was 18,076 in 2005, two years before the housing market crashed and the last recession set in.

The local market has about 5,400 homes listed as “active” for sale in the Charleston Trident Multiple Listing Service, and, at the current rate, about 25 percent of those will be sold in July. Still, inventory is down 12.5 percent from a year ago.

Sally maintains a healthier housing market in the Lowcountry would list about 6,500 units up for sale at any given time. That would provide more selection and help hold down prices in a high-demand environment.

“Those of us who have been in the business a long time, we would prefer a stable housing market to one that’s on fire,” he said.

The Charleston area hasn’t had 6,500 houses on the market for the past couple of years as 35 new residents a day pour into the Lowcountry to fill jobs being offered through expanding industries such as Boeing, Volvo, Mercedes-Benz and the service sectors that follow.

“Before they need a mechanic or a dry cleaner, the first thing they need is a place for family,” Sally said. “Everything else spawns from there.”

Talk of a building moratorium in Mount Pleasant exacerbates housing concerns, he said.

“That’s going to create more problems in the housing industry,” Sally said. “We have a traffic problem. That’s not the answer to our traffic problems. The answer is more roads.

“People are moving here, and we need them to fill those jobs,” he said. “We don’t need to start turning them away. We don’t need to create a problem in the housing industry because we have a problem in the transportation industry.”

Several issues are driving a lack of housing inventory for prospective home buyers, according to Phillip Ford, executive vice president of the Charleston Home Builders Association. They include land prices, a shortage of labor to build homes and concerns about risk because of what happened in the last crash. Builders don’t want to be left with a lot of empty, speculatively built houses if the market cools, Ford said.

“I think builders are still cautious,” he said. “I think there is still a general feeling of not putting more specs out there than they can sell. People haven’t forgotten about what happened in the past.”

Ford expects about 5,000 housing permits to be issued in 2016 in the Charleston area, a number that’s been pretty consistent for the past couple of years.

“We are not seeing the days when the market was real hot before the recession,” he said. “We are not seeing 7,000 or 10,000 like we did before the recession. It’s been a consistent market, and that’s not a bad thing.”

He called the region’s current homes sales market “hot.”

“When you have a market that’s hot, and there is demand, and supply is tight, you are going to see these escalations in price,” Ford said.

Housing inventory is a problem across the state, but it’s more acute in Charleston, and it’s all tied to the job market and the Holy City’s global reputation, according to Nick Kremydas, CEO of the S.C. Realtors Association.

Agents in other parts of the state would love to have Charleston’s problem, he said.

“When you have a diverse economy with tourism, agriculture and manufacturing, jobs equal housing,” he said. “You can’t buy a house if you don’t have a job. When you create the jobs you are creating in the Lowcountry, it’s going to be an attractive place to live, work and play.”

Before the housing market crashed, Kremydas said builders overbuilt and banks doled out money easily. The fundamentals underlying the housing industry are different now. Lending rules are tighter, and builders aren’t putting up as many homes without buyers in hand.

“If you are an independent builder and building on an order basis, you are trying to make as much profit as you can,” he said. “The better profit is in the higher-priced homes.”

The inventory is tightest is in the $150,000 to $180,000 range, the sweet spot for most first-time buyers.

“You can sell those all day long, but there aren’t any on the market,” Kremydas said.

Affordability is once again a topic of concern, he said.

“People in the service sector — teachers, nurses, firefighters — they have a tough time living anywhere near where they work,” Kremydas said. “You have to go out farther from your base and it stretches out infrastructure and contributes to sprawl issues as well.”

Prices may ease some when more inventory hits the market, but availability of housing stock will continue to be a problem, he said.

“I don’t see the housing shortage we are witnessing slowing down any time soon,” Kremydas said. “For the short term, there is going to be tight inventory across the state. The ‘days on the market’ continue to shrink and the median price continues to rise. Foreclosure inventory has gotten back to a normal level. That little niche is gone.”

Reach Warren L. Wise at 843-937-5524 or twitter.com/warrenlancewise.