Is real estaterebounding? Charleston area real estate market has been showing encouraging signs of improvement


After five years of declining real estate values that crushed U.S. household wealth, sent buyers into hiding and played a key role in the nation’s deep recession, is the residential market finally turning the corner?

In the greater Charleston area, the answer appears to be a tentative “yes.”

“The honest answer is that it depends on which corner you live on,” said Michael Scarafile, president of Carolina One Real Estate, the area’s largest real estate firm. “Following growth in the number of homes sold ... we are now seeing price appreciation in selective parts of the market based on the basic principles of supply and demand.”

As the area’s monthly statistics on supply and demand, prices and sales stack up, it’s clear the trend lines have turned in a positive direction.

“The Charleston real estate market is in a state of transition from a buyer’s market to a healthy balanced market,” said Doug Holmes, a Realtor who teaches math at the College of Charleston and crunches statistics for his website, Charleston

“We’ve certainly turned the corner in terms of number of transactions and buying activity,” he said. “We will sell over 10,000 homes this year, and we have not done that since 2007.”

An uptick does not mean the real estate market is good, or even healthy, but it does mean prices appear to have stopped falling, the supply of homes for sale has been greatly reduced and sales are perking up.

For an example of bad-but-improving statistics, consider that nationwide builder confidence in the market for newly built, single-family homes remains in negative territory but increased to a more than five-year high this month, according to the National Association of Home Builders.

That means builder confidence is low, but better than it was, and improving quickly. On the stock market, investors have noticed, and an index fund of companies that build houses has roughly doubled in value since October.

“Combined with the upward movement we’ve seen in other key housing indicators over the past six months, this (builder confidence) report adds to the growing acknowledgement that housing — though still in a fragile stage of recovery — is returning to its more traditional role of leading the economy out of recession,” said NAHB Chief Economist David Crowe.

In the Charleston area, Brian J. Foster of the local Real Estate Information Service Inc. said the new home market started to rebound this year.

New home construction peaked in 2005 with 8,084 home starts, falling to 2,597 last year, Foster said. This year, new home starts are up 10 percent from the lows reached in 2011.

“This is the first real growth in starts since 2004 to 2005,” he said. “With the market gaining strength again, areas are beginning to see new growth, with Johns Island and Mount Pleasant starting new communities in areas where activity had been scarce in previous years.”

The health of the real estate market affects just about everyone because of its outsized impact on the economy.

From construction workers and real estate agents to timber companies and home improvement stores, the building, buying and selling of homes has broad financial reach. The health of that market also plays a big role in personal wealth because a home is the typical family’s largest asset and is a key source of government revenues for tax-funded services, from waterlines to schools.

The number of homes for sale across the tri-county area has fallen from nearly 11,500 in the summer of 2008, in the middle of the recession, to just over 6,500 in June.

As the supply fell across the Charleston area, demand was rising. At the current rate of sales, it would take about seven months to sell every home on the market, which is close to the six-month supply that Realtors say marks a market balanced between sellers and buyers

The last time the monthly inventory level was that low was at the end of 2006.

Statewide, levels remain elevated, with a more than 11-month supply of homes for sale. The monthly supply numbers are a key to the supply and demand equation. Consider that during the peak of the housing boom in some parts of the Charleston area, it would have taken less than six weeks to sell every home listed for sale.

That equation was reversed during the recession. In early 2009, so few homes were being sold in the Charleston area that it would have taken more than two years to sell them all.

This June, the Charleston area had enough homes listed for sale to satisfy 7.4 months of demand. In some areas, the supply was below six months, signaling a seller’s market, and in other areas, supplies were higher. “For example, the vast majority of price points in Mount Pleasant, with the exception of the super high end, are balanced or even a seller’s market, as demand has outpaced supply,” said Scarafile. “Multiple offers on hot properties, thought to be a thing of the past, are not uncommon.”

He said that on the other hand, Dorchester County, which approved an unprecedented number of building permits during the housing boom, still has excess inventory.

When the monthly cost of owning a home is compared to typical family incomes, homes have not been this affordable in the Charleston area since at least the 1990s. The National Association of Home Builders estimates that 75 percent of the homes sold in the first quarter of 2012 could have been purchased by a family earning the area median income of $63,000.

Other measurements of affordability are not so positive, but there’s no question that 30-year mortgage interest rates are currently the lowest they have ever been, hitting a new record during the past week at 3.53 percent.

Here’s how the math works out:

Assuming someone borrowed 80 percent of a home’s purchase price, the monthly mortgage payment on a median-priced home in the Charleston area would have been $1,059 five years ago.

Today, the payment would be $670.

That huge decline in the cost of ownership is the difference between 2007’s $213,000 home with a 6.34-percent interest mortgage, and today’s $186,000 home with a 3.53-percent interest mortgage.

“These artificially low rates make homeownership more affordable than ever and make buying less expensive than renting,” Scarafile said. “However, as they increase, and they will, it will put downward pressure on the housing recovery as buying becomes more expensive.”

Throughout the Charleston area, and much of the nation, there are many people whose homes are worth less than they owe on the mortgage because they bought when prices were higher. That situation, known as being upside-down on the mortgage, can prevent homeowners from selling or even refinancing, and those folks may have a long wait before values rise significantly.

The market remains weakened, with homes selling for prices last seen eight to 10 years ago, and real estate professionals remain worried that when prices do rise, banks will muck things up again.

“Many banks will use the market recovery to resume or accelerate foreclosure activities as they can recover more value in this market,” Scarafile said. “That added ‘shadow’ inventory, combined with sellers who have been on the sidelines and decide now is the time to sell, will constrain, or moderate, price appreciation in some areas.”

Also, demand may be constrained because some potential homebuyers have been sidelined by lending standards calling for high credit scores and large downpayments.

“The price recovery will not be V-shaped,” said Holmes. “Let’s all be happy that they’ve quit falling.”

Reach David Slade at 937-5552 or Twitter @DSladeNews.