Home price escalation. Hot housing market. Soaring home sales.
That was the scene before the last recession when the housing bubble popped and sent the nation’s economy into a downward spiral.
Are we approaching that scenario again?
Economists and real estate experts say no — that conditions are different now.
A few warning clouds are on the horizon, but there’s no reason for alarm, according to Realtor.com.
“Things in the world of residential housing are generally safe and steady and continuing to grow,” according to the website operated by the National Association of Realtors.
Higher housing prices are “mostly the result of a housing shortage rather than ominous signs of another real estate meltdown,” Realtor.com said. “The factors that led to the historic bust — easy-peasy credit for all, rampant flipping, frantic overbuilding — simply aren’t happening today.”
Only highly qualified buyers are able to get mortgage financing, said Jonathan Smoke, chief economist for the website. “Flipping is back to normal. And we’re building about half as many homes as we need,” he said.
The website lists Charleston as No. 9 of overheating real estate markets in the nation, but only with an elevated risk compared to the top six in descending order: San Jose, Calif.; San Francisco; Austin; Salt Lake City; Dallas; and Los Angeles.
“There are places that have risks,” Smoke says. “But even those places do not resemble what they looked like in their actual bubble years.”
The median list price for a house in Charleston is $332,300, according to Realtor.com. That’s well above the median sales price of $239,000 for the first six months of the year, according to the Charleston Trident Association of Realtors.
“Prices in this coastal city, where horse-drawn carriages still run on the cobblestone streets, have been shooting up faster than they have historically,” Realtor.com said. “But the city’s economy is growing and unemployment has been steadily falling, reaching its lowest level in May since early 2008, according to the U.S. Bureau of Labor Statistics.”
Smoke said, “We’re not really seeing incomes go up at the same rate as (home) prices (in Charleston).”
The website added, “But Charleston also has more high-paying jobs now than it has in the past. And compared with, say, Silicon Valley, buying a home in Charleston is still a relative bargain.”
A University of South Carolina economist agreed with Realtor.com’s assessment, saying conditions that led to the housing bubble before the market crashed during the last recession are different now.
“One of the things we saw during the housing boom before, we saw house price appreciation at a much higher rate than we saw in employment growth,” said Joey Von Nessen of the Darla Moore School of Business at USC. “It did not have the underlying employment growth to support it. That’s an indication that the market might not be stable in the long run.”
House price appreciation should follow employment expansion and that’s what’s happening now, he said.
Home sales now are “based on genuine demand,” Von Nessen said. “It’s more likely to be sustainable.”
He said the housing market has performed well this year and has been the leading industry overall in South Carolina, especially in Charleston.
“The Charleston market has consistently been in higher demand than most other regions of the state,” according to Von Nessen. “The growth that’s been driving South Carolina is advanced manufacturing ... in Charleston and the Upstate.
“Charleston has a thriving aerospace sector that’s booming,” he said. “While employment growth statewide has been 2.7 percent, in the aerospace industry it’s been closer to 10 percent and higher in some years since 2010, and most of it has been concentrated in the Charleston region. As Charleston benefits from demand for jobs, the housing market does as well. That’s true for new construction and existing homes.”
Charleston’s tourism market and overall economy are also benefiting from low oil prices.
“That has the same effect in South Carolina as a tax cut,” Von Nessen said.
Phillip Ford, executive vice president of the Charleston Home Builders Association, called the region’s housing market sustainable.
“I haven’t seen any indications we are approaching a bubble,” he said. “I haven’t heard anything from economists that there is concern of a bubble.”
The head of the Charleston Trident Association of Realtors echoed his remarks. Michael Sally characterized the local real estate market as “on fire,” but said that’s because people are moving here to fill available jobs since the local workforce is already at full employment.
“We don’t want another bubble, and I don’t think we are close to one,” Sally said.
Reach Warren L. Wise at 843-937-5524 or twitter.com/warrenlancewise.