Best Buy List

My company has asked me to compile a list of properties on our MLS that are the most well priced. I am basing this largely on $/sqft while comparing homes in the same neighborhood and comparing similar conditioned homes. My thought is that no more than 20% of the current inventory is well priced. This has been an overwhelming task to say the least. I am almost finished and we will make this list available to Carolina One Realtors just after the first of the year. If you are selling, you will want to price your home correctly so that you can get on this list. If you are a buyer, you will want to get a look at this list. No one wants to buy an overpriced home.

FHA Changes

The FHA loan limits are decreasing by about $15,000 and the level of downpayment is increasing to 3.5% from 3% as of Jan 1, 2009. This is not good news. If you're thinking about buying now, you should lock in the current limits as soon as possible.

Homes are Selling

If I asked you how many homes sold in Charleston in the last 2 months for over $400,000, I'd bet you'd be surprised at the answer. I was, my company's owner was, and most Realtors that I talked to were surprised. 172 homes have sold in Charleston since 9/1/08 for over $400,000. 36 of those sold for over $1M.

Charleston #2 on List of Best Cities to Visit

Charleston, S.C., took the No. 2 spot away from New York on the list of best U.S. cities to visit from Conde Nast Traveler magazine's Readers' Choice Awards. To see yahoo article, go to http://news.yahoo.com/s/ap_travel/20081020/ap_tr_ge/travel_brief_readers__choice

South Carolina Housing Market

According to national data, South Carolina is considered to be the fifth-best housing market in the country because of fewer sub-prime mortgages, fewer foreclosures and home price appreciation. With newly enacted legislation providing a tax credit of as much as $7500 for first-time home-buyers, and the SC Housing Authority providing down payment assistance, and increasing number of South Carolinians can reach the goal of owning a house while helping fuel the market and impact the economy.

Greenspan on the Housing Market

Former Federal Reserve chairman Alan Greenspan says the U.S. housing market will begin to recover in the first half of 2009, according to an article he wrote for Emerging Markets magazine published recently. Greenspan wrote that the recent slowing in the rate of decline in U.S. home prices is the first positive note in the year-long trauma and that eventually, frozen credit markets will thaw "as frightened investors take tentative steps toward reengagement with risk."

"More conclusive signs of pending home price stability are likely to become visible in the first half of 2009," he wrote. Once the housing market finds its footing, markets will be able to tackle the core issues of the credit crisis.

Source: MSNBC.com; Reuters.com

Under Water Stats

From a Wall Street Journal article:

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's Economy.com.

The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners under water in this period than any time in our history."

Among people who bought within the past five years, it's worse: 29% are under water on their mortgages, according to an estimate by real-estate Web site Zillow.com.

In contrast with the 12 million home borrowers estimated to be under water, 64 million have equity in their homes. These include 24 million households who own their homes free and clear, and 40 million whose homes remain worth more than is owed on them.

Charleston Stats

Charleston housing market continues to be off about 35% on number of sales but only about 5% in sales price. The rest of the year will be interesting.

Credit Crunch Origin

Lots of folks know that the current credit crises exist b/c lenders gave loans to people that shouldn't have gotten them. What most don't know if why they did it. Everyone thinks it was just greed. This is true to some extent but there is an underlying reason for all of this. It turns out that there was about $35 trillion available around the world in 2000 to invest in fixed income investments. That number doubled by 2005. By 2005, there was $70 trillion dollars that needed to be invested in fixed income investments. The reason for the sudden rise in that amount was the fact that all of these small 3rd world companies had become much more wealthy b/c they were participating in the new global supply chain of computers and other technology. They went out seeking fixed income investments for their new money. The U.S. had one of the greatest investments of this type in the world. It was mortgage backed securities. These are bundles of hundreds of home mortgages that are sold as stocks on the stock market. The U.S. market quickly ran short on its supply of these investments. The 3rd world companies still had lots of money to invest, but we didn't have the supply to meet their demand. Slowly, at first, some banks starting loosening their restrictions on lending to try to meet this increased demand. As they did, other banks began to do the same in order to compete. Once the snowball started rolling, there was no stopping it. Restrictions were all but removed in order to feed this ravenous appetite of $70 trillion dollars. And the rest is history. Now the opposite is happening. The demand for mortgage backed securities has dwindled. With that reduction in demand, the banks have had to cut back on supply. This has led to what we call the credit crunch. Banks don't want to give anyone money b/c there is not enough demand for mortgage backed securities.

National Home Sales

Nationally, existing-home sales rose in July to the highest level in five months, although they continue to be well below the numbers from last year at this time, according to the NATIONAL ASSOCIATION OF REALTORS®. Existing-home sales – including single-family, townhomes, condominiums and co-ops – increased 3.1 percent in July to a seasonally adjusted annual rate of 5 million units from a downwardly revised level of 4.85 million in June. Sales were 13.2 percent lower than the 5.76 million-unit pace in July 2007.
The national median existing-home price for all housing types was $212,400 in July, down 7.1 percent from a year ago when the median was $228,600.Lawrence Yun, NAR chief economist, said home prices in some regions could soon increase. “Sales have picked up significantly in several Florida and California markets. Home prices generally follow sales trends after a few months of lag time,” he said. “Still, inventory remains high in many parts of the country and will require time to fully absorb. We expect more balanced conditions in 2009 and will eventually return to normal long-term appreciation patterns.”
Regionally, existing-home sales in the West jumped 9.7 percent in July to a level of 1.13 million and are 0.9 percent higher than July 2007. The median price in the West was $273,200, down 22.2 percent from a year ago.
In the Northeast, existing-home sales rose 5.9 percent to an annual pace of 900,000 in July, but are 11.8 percent below a year ago. The median price in the Northeast was $278,700, which is 4.9 percent lower than July 2007. Existing-home sales in the Midwest increased 0.9 percent to an annual rate of 1.12 million in July, but are 17.0 percent lower than July 2007. The median price in the Midwest was $175,400, up 1.0 percent from a year ago.
In the South, existing-home sales slipped 0.5 percent to an annual pace of 1.85 million in July, and are 18.1 percent below a year ago. The median price in the South was $179,300, down 3.5 percent from June 2007.

Fannie Mae and Freddie Mac Bailout

I wanted to take a minute and try to summarize the news regarding the government’s takeover of Fannie Mae and Freddie Mac and how it may impact the mortgage and housing markets. In the short term, the rescue is likely to help bring mortgage rates down and should improve credit availability and affordability. While it will not solve all the problems the housing market is facing, it is a significant step.
As for specifics, Federal officials on Sunday announced the takeover of Fannie Mae and Freddie Mac, putting the government in charge of the twin mortgage giants and the $5 trillion in home loans they back. The government’s move extends as much as $200 billion in Treasury support to the two companies and represents a dramatic attempt to shore up the nation's housing market. It places the two companies into a "conservatorship" to be overseen by the Federal Housing Finance Agency. Under conservatorship, the government would temporarily run Fannie and Freddie until they are on stronger footing.
In simplistic terms, Fannie Mae and Freddie Mac are quasi government agencies which are run as private companies, but have operated with the implicit backing of the government. That guarantee has now become explicit. Their role, when created by Congress, was to help promote the flow of money in the mortgage market. An individual deposits money in a checking or savings account at a Bank. The Bank then lends that money to an individual who wants to buy a home and secures the loan with a mortgage. That mortgage is then, in many cases, purchased by Fannie Mae and Freddie Mac, allowing the Bank to make another loan to another homebuyer. Fannie Mae and Freddie Mac then package the loans into securities and sell them to investors or Wall Street. Fannie Mae and Freddie Mac then use that money to buy more mortgages from the Bank. And the cycle continues.
The problem is that, with the changes in the housing market and increasing levels of default, investors have been more hesitant to buy these mortgages or to lend money to Fannie Mae and Freddie Mac. Without this constant infusion of money, Fannie Mae and Freddie Mac are unable to continue to purchase the same number of mortgages from the Banks. That makes fewer loans available, increases mortgage interest rates and results in a squeeze on the credit and housing markets. With the Treasury Department now standing behind Fannie Mae and Freddie Mac and being willing to inject the necessary money, the capital markets, and the mortgage cycle I talked about above, should flow more freely.
The stock market responded well to the news yesterday and it should help stabilizing the credit markets which should, in turn, help the housing market as well.

Coastal Insurance

The coastal insurance market has loosened up in the past two years as more companies write policies here and prices on some coverage has fallen. 12 new insurance companies have entered the state since 2007. Another three are expected to enter in the next 90 days.

How Much Has Your Investment Grown?

Want to see an example of why owning a home is one of the best ways to create wealth? Suppose you bought the average home in Charleston in January of 1998. It would have cost you $136,541. Based on a down payment of only $1000, your monthly payment would have been around $1000 and that would include your taxes and insurance. 10 years later in January of 2008, you would still owe $114,906 on that home, but it would now be worth $304,386, the average home sales price in January of 2008. That's a profit of $189,480. How else can you turn $1000 into $189,480 in 10 years?

Costly Seller Pricing Mistakes

Here are some predictable mistakes home sellers make when pricing their home:

1. Sellers often price their home
based on "need" rather than the
market.

2. Sellers use the ‘wrong’ properties
for comparison when pricing.

3. Sellers build in a ‘negotiating
cushion’ and then have no one
with which to negotiate.

4. Sellers take advice from ‘well
meaning’ but uninformed parties.

5. Sellers allow positive emotions
about their property to influence
their pricing decisions.

Pricing a home correctly is the most important service I offer my clients. Properties that actually sell average selling for 95% of their list price. If your home is priced more than 5% above what it should sell for, it will probably never sell. Listing the home for too high a price and then reducing the price slower than the market is called 'chasing the market.' We are seeing a lot of that in this declining market.

Charleston Single Family Home Statistics

Below are the stats for sales of single family homes for different areas of Charleston. The first line for each area is for the period 1/1/07-8/6/07 and the second line is for the period 1/1/08-8/6/08 with the percentage change from the first line. Notice that these are average sales prices. I usually use median sales prices, but since I'm looking at a comparison from year to year, average sales price should show about the same percentage change. I was using the 'Sales by Area' chart on the MLS and that chart only shows average sales price.


Area # of sales AVG Sales Price

West Ashley 631 $279k
433 -31.4% $267k -4.3%

James Island 364 $344,845
216 -40.7% $310,306 -10%

Folly Beach 31 $796,833
16 -48.4% $861,148 +8.1%

Johns Island 112 $329,102
76 -32.1% $335,354 +1%

N. Charleston 504 $159k
375 -25.6% $166k +4.4%

Mt. Pleasant 784 $501k
646 -17.6% $493k -1.6%

Peninsula 206 $883k
120 -41.7% $805k -8.8%

Summerville/Ladson 1502 $226k
956 -36.4% $214k -5.3%

Hanahan/G. Creek 1186 $190k
865 -27.1% $179k -5.8%

Daniel Island 90 $831,286
68 -24.4% $824,780 -1%

Cainhoy 90 $450,025
49 -45.6% $345,974 -23.1%

Colleton 126 $147,924
69 -45.2% $184,687 +24.9%

Japan's Lost Decade

Lots of great articles on the net about Japan's Lost Decade. We seem to be following in Japan's footsteps from the 1990's. They had a really tough go of it with liquidity problems and declining real estate values and credit crunches. Hopefully, we have learned some lessons and our problems won't last as long. You can use this link or just google Japan's Lost Decade. http://biz.yahoo.com:80/investopedia/080722/3602.html?.v=1

Market Improving

Below is a list of larger cities where Units Sold have gone up for at least three consecutive months. Happily, there are 42 cities across America!

Anchorage, AK
Austin, TX
Bakersfield, CA
Bay Area, CA
Boston, MA
Chicago, IL
Cincinnati, OH
Corona, CA
Fairfax, VA
Fresno, CA
Galveston, TX
Georgetown, TX
Gillette, WY
Greenville, NSC
Jackson, TN
Las Vegas, NV
Long Island, NY
Manassas, VA
Milwaukee, WI
Modesto, CA
Monmouth, NJ
Montgomery County, MD
Moreno Valley, CA
Nashville, TN
Noblesville, IN
Orlando, FL
Philadelphia, PA
Phoenix, AZ
Pittsburgh, PA
Portland, OR
Prescott, AZ
Rhode Island, RI
Rochester, MN
Roseville, CA
Sacramento, CA
San Bernardino, CA
Stockton, CA
Tampa, FL
Virginia, VA
Visalia, CA
West Chester, PA
Westchester, NY

Home Buyers Poll

Here are the results of a recent poll of realtors nationwide that asked the question "In thinking of your most recent potential buyer in 2008, did the client postpone their home buying decision?"
50 percent said no, and said the buyer bought in the end
23 percent said the potential buyer did not buy, preferring to wait for prices to fall further
6 percent said the potential buyer did not buy because of mortgage difficulties
4 percent said the potential buyer could not locate that 'perfect' home
7 percent said the potential buyer needed to first sell the current home
9 percent said the potential buyer changed their mind due to various personal reasons

What is striking is the second bullet point. There are a measurable number of potential buyers who have the financial capacity and mortgage qualifications, yet are refusing to jump into the market because of price decline fears. These hesitant buyers far outnumber the people who are unable to secure a mortgage.

The implication is that once there are signs of market stabilization then we may see a rush of buyers returning to the market. The recovery could be robust rather than tame. It also implies that the homebuyer tax-credit being discussed in Congress right now as part of the housing stimulus bill could make a big impact in drawing buyers to the closing tables.

12 Ways to Get a Down Payment

Not long ago, no-down payment loans were the height of fashion for homebuyers. But now that lenders have tightened their standards, borrowers once again are expected to "put some skin in the game," to use the industry's favorite catchphrase. That "skin" refers to the borrower's own cash, and it means down payments are definitely back in style.

Here are 12 Ways to Get a Down Payment:
• Set up an automatic saving plan.
• Get a gift from your parents, grandparents, other relatives or friends.
• Sell a car, boat, motorcycle, collectibles or other assets.
• Liquidate stocks, mutual funds, savings bonds or other investments.
• Allocate your income tax refund.
• Take a loan from your 401(k) retirement plan and repay yourself with interest.
• Withdraw funds from your 401(k) plan, subject to taxes and penalties.
• Collect on a loan that you made to someone else.
• Get a bonus from your employer.
• Explore homebuyer programs for public servants, if you qualify.
• Apply for a state or local government homebuyer down payment program.
• Use a private down-payment assistance program.

A down payment needs to be "sourced and seasoned." That means the lender needs to know how you obtained the funds and that you've had control of those funds for at least several months. Gifts and seller's concessions are acceptable, up to the percentage allowed by the loan program, but borrowed money can't be used as a down payment because it is debt that has to be repaid.

Two government-run programs are designed to aid homebuyers who haven't saved much for a down payment. The Federal Housing Administration, or FHA, offers mortgage insurance that allows qualified buyers to purchase a home with a 3-percent down payment, all of which may be a gift. The U.S. Department of Veterans Affairs offers a home-loan guarantee program that helps military veterans buy a home with no down payment.

Charleston Single Family Home Statistics

Here are the sales of single family homes so far this year compared to the same time last year. First line for each area is from 1/1/07-7/8/07 while 2nd line is from 1/1/08-7/8/08 and the 3rd line is percentage change from '07 period.

Area # of sales median sales price
All 5411 $222,575
MLS 3610 $212,000
-33.3% -4.8%

James 317 $292,500
Island 185 $274,000
(21) -42% -6.3%

West 549 $247,500
Ashley 365 $249,911
(11,12) -33.5% +1%

Mt. P. 687 $415,000
(41,42) 529 $398,000
-23% -4.1%

Summ/GC 2151 $192,879
(61,62,63, 1480 $175,000
72,73,74) -31.2% -9.3%

N. Chas 440 $157,000
(31,32) 321 $164,700
-27.1% +4.9%

Nearing a Bottom?

There has been a big question among realtors around here as to when the buyers are going to jump back into the market and gobble up all these bargins. The following data may hold the answer. They may be waiting for 20% price reductions from the highs in 2004/5.

Several specific markets experiencing a substantial rise in sales - to the tune of 20 percent or better on a year-over-year basis. The notables include Detroit, Ft. Myers, Las Vegas, Orange County, Riverside, San Diego, and Sacramento. These are also markets that have experienced substantial price declines - to the tune of 20 percent of more. Improved affordability conditions have enticed buyers to pick up properties on the cheap.

Measurable sales declines were in the regions where things were holding up well just last year. Seattle and Portland in the Pacific Northwest, Charlotte and Raleigh in the Carolinas, Salt Lake City, and the Texas markets have seen sales decline. Home prices in these regions are still moving up. So, buyers have slowed their buying.

Here in Charleston, single family homes sales prices are down about 5.1% from this same period last year. Some buyers are taking advantage of this and finding some healthy bargains. Many others continue to wait for more price declines. They may get it. And they may not. Trying to guess the bottom is a difficult and dangerous task. Ever see a really nice shirt on sale and decide to think about it for a couple of days and go back to find that it's no longer there?

Appreciation Rates for Charleston Homes

Looking at the median sales price of single family homes each year since 2000, the following are the rates of appreciation depending on what year you purchased.

Yr
Purchased Total apreciation up to June 2008.

2000 46%
2001 37%
2002 32%
2003 25%
2004 16%
2005 5%
2006 -1%
2007 -2%

Using these numbers you should be able to tell what your appreciation is since you bought the home. For example, if you bought a home for $160k in 2000 and have seen a total appreciation of 46%, it should now be worth $160k x 1.46 = $233,600. This of course would not include any upgrading you may have done to the home. If you have spent $60k on upgrading this home, then it should now be worth $293,600.

Surprisingly, individual neighborhoods differ very little from these overall numbers.

Localized Stats

Here are the stats for certain local areas in the Charleston real estate market. These are for single family homes only. The volume of sales in down about 35% comparing the time frame of 1/1/07-6/17/07 to the same period for 2008. Sales prices are off about 5.1%. Now lets look at some specific areas and see how they compare to these overall numbers. You'll see that there's not that much variation from area to area, with some slight exceptions. Notice the increase in sales price for North Charleston and the larger than normal decrease in number of units for Sullivan's Island, IOP, Wild Dunes. Keep in mind that the 2007 numbers are only from 1/1-6/17 in order to compare to the same time period of 2008.

West Ashley, James Island, Johns Island
2007 - 825 units w/median sales price of $260k
2008 - 551 units w/median sales price of $259,950
That's a 33.3% decrease in number of units with almost no change in sales price.

Summerville, Ladson, Goose Creek
2007 - 1862 units w/median sales price of $191k
2008 - 1257 units w/median sales price of $175k
That's a 32.5% decrease in number of units with an 8.4% decrease in sales price.

Mt. Pleasant
2007 - 593 units w/median sales price of $418,535
2008 - 438 units w/median sales price of $395k
That's a 26.1% decrease in number of units with a 5.6% decrease in sales price.

Sullivan's Island, IOP, Wild Dunes
2007 - 52 units w/median sales price of $1,450,000
2008 - 25 units w/median sales price of $1,380,000
That's a 52% decrease in number of units with a 4.8% decrease in sales price.

Downtown Charleston inside of the Crosstown
2007 - 79 units w/median sales price of $815k
2008 - 56 units w/median sales price of $745k
That's a 29.2% decrease in number of units with an 8.6% decrease in sales price.

Daniel Island
2007 - 68 units w/median sales price of $645k
2008 - 47 units w/median sales price of $655k
That's a 30.9% decrease in number of units with a 1.6% increase in sales price.

North Charleston
2007 - 375 units w/median sales price of $155,900
2008 - 273 units w/median sales price of $163,350
That's a 27.2% decrease in number of units with a 4.8% increase in sales price.

Finally, it should be noted that condo/townhome average sales prices have risen over the same period from $234,007 in 2007 to $336,672 which is a 44% increase!!! Number of sales has dropped from 1291 in 2007 to 871 in 2008, which represents a decrease of 32.5% in number of units. This dramatic increase in average sales price is due to the low end market in condos/townhomes not selling while high end units are selling and pulling up the average.

Media Mistakes

The Post and Courier has done it again. They reported this week that the sales price of homes has risen while the number of sales is off 30%. The mistake they continue to make is to look at all categories of items in the MLS at once instead of reporting on single family homes separately from condos, flats, boat slips, time shares, quadraplexes, etc. The median sales price of just single family homes was $222,900 for the period of 1/1/07-6/10/07 while it has dropped to $211,500 for the period of 1/1/08-6/10/08. This is a 5.1% drop in sales price, not an increase. They only got the increase in sales price by lumping in condos, flats, boat slips, duplexes, etc. For the last 12 months, condo sales prices are UP $106,000!!! That might skew the numbers. For those of you wondering why this is, the sales of lower priced condos is way off while higher priced condos continue to sell. It's not that the all condos have gone up, it's just that only the higher priced ones are selling. This huge aberration in sales price of condos has been lumped in with all the numbers and allows the Post and Courier to tell the story the way they want to. I've talked to Katy at the paper and tried to convince her that she needs to separate the numbers, but they have no interest in listening.

Economic Indicators

Pending Home Sales Index
A flat pattern in home sales activity should continue for the next couple months before improving over the summer, according to the latest forecast. The Pending Home Sales Index edged down 1.0 percent to 83.0 from a downwardly revised level of 83.8 in February.
Existing-Home Sales
Existing-home sales were down 2.0 percent to a seasonally adjusted annual rate of 4.93 million units in March from a level of 5.03 million in February, and remain 19.3 percent below the 6.11 million-unit pace in March 2007.
New-Home Sales
Posted a seasonally adjusted annual rate of 526,000 units in March – a decline of 8.5% from February’s
revised rate of 575,000 units and more than 36% below the rate in March of 2007.
Housing Starts
Posted 947,000 units in March – 11.6% below February’s revised level of 1,075,000 units and 36.5% off the
pace in March of 2007. Current starts are well below the 2 million housing starts during the boom years.
Housing Affordability
NAR’s Housing Affordability Index stood at 130.2 at the end of March – down from the 135.4 level posted for February. The decrease was due primarily to a slight increase (from February to March) in the median sale price of an existing home, as well as an increase in mortgage rates and qualifying income. Still, March’s reading is well above the 113.2 of a year ago.
Mortgage Rates
The 30-year fixed mortgage rate inched lower in April, averaging 5.92% for the month. Rates still remain
historically low, and recent decisions by the Federal Reserve will likely keep mortgage rates attractive.
Employment
The economy lost 20,000 jobs in April – continuing a job loss trend since the beginning of the year. The good
news is that April’s negative employment number was much milder that those in recent months.
Economic Growth
The economy barely eked out a positive GDP growth number in the first quarter of 2008, posting an anemic 0.6% rate.

Carolina One Real Estate

Big Day!!! Our real estate company will no longer go by the name Prudential Carolina. We will now be called Carolina One Real Estate and Mortgage. It's the same company with the same agents and offices and market share leadership. The biggest change is simply the name. We decided not to renew the franchise agreement with Prudential. Instead, we are now an independent locally owned and operated company. We were locally owned and operated by the same owners as we are now. We're just not affilliated with the Prudential name anymore. We have joined a new affilliation with a company known as The Leading Real Estate Companies of the World. It will actually give us more exposure than Prudential did. Of the 90 biggest markets in the US, the leader in 41 of those markets is affiliated with The Leading Real Estate Companies of the World. They have a network of over 700 independent companies in 35 countries that does more real estate business than any franchise worldwide.

The landscape of Charleston will change. Each and every one of those blue and white Prudential signs will be replaced with blue and gold Carolina One signs. We still have all the same listings we had. Prudential will probably no longer exist in the Charleston real estate market.

Loan Underwriters

The loan process starts off with a person called the loan originator. This is the only person you ever real deal with. Unfortunately, they are not usually the final say on the loan. I've seen plenty of approved loans get shot down just a day or two before closing because of the underwriter. The underwriter has final say on the loan. We are lucky to have in our office a loan originator, Katie Mahoney, who is also an underwriter. We just had a buyer last week use Katie to obtain their loan. The buyer needed to close in less than a week on an FHA loan. Her first mortgage broker told her that it couldn't be done. But Katie came in and took over the loan and got it done very smoothly. It's a hugh advantage to have a loan originator who is also an underwriter. Katie's website is www.katieshomeloans.com

Tipping Point

Wow! It's been a month since I blogged. Shows how busy I've been. Jackie and I have closed 8 homes in the last 2 months!! That's just incredible in this market. 4 of our most recent listings have gone under contract in less than 30 days and have sold for more than 95% of the list price on average. The key seems to be in pricing them right. I have turned down listings that refused to trust me on the price. They simply won't sell. That's not going to do anyone any good.

As busy as we've been, the market in Charleston has really slowed. The number of transactions is way down so far this year. It's about 35% below last year and last year was about 20% below 2006. I think we've reached a tipping point in the housing market. Either all the fence sitting buyers are going to wake up and realize how great the opportunities are or they're going to completely stop buying and drive our injured economy into a depression. We've been following a scenario laid out by Japan in the 1980's. I was hoping that we would veer off that ill fated path at some point, but so far, we have followed it step for step. Japan still hasn't completely recovered. I was really hoping that our Federal Reserve might save us somehow, but I really knew better.

If buyers continue to wait for prices to go lower, they may drive the national economy into such a depression that only the richest will be able to take advantage of the bargain basement prices.

Interest Rates

Interest rates are under 5.5% right now. Just had a buyer get a 95% loan on a $170k home with no PMI(private mortgage insurance). This caused their interest rate to be a little higher. Banks usually like to have you put at least 20% down to avoid PMI. Paying a higher interest rate is another way to avoid paying PMI if you don't have 20% to put down. But, they got a special type of loan where the lender paid most of their closing costs. Since we also had the seller paying their closing costs, we were able to use the closing costs money from the seller to buy down the interest rate. So, they ended up with a 5.75% interest rate with no PMI and all their closing costs and pre-paid items paid for by someone else! Having the right lender can make a hugh difference. A good realtor should have at least 3 lenders to recommend to you. Then it's up to you to get the best deal.

Fastest Growing Areas

In a recent report that showed several areas in Texas to be the fastest growing areas in the nation, the Myrtle Beach area ranked 6th in the nation for fastest growing metro area. Charlotte and Raleigh also made the top ten. Atlanta was in the top ten for biggest gain in population.

Listing Prices

Last year saw a median SALES PRICE for single family homes of $217k in the Charleston MLS. Now keep in mind that homes that actually sell, average selling for 95% of their LIST PRICE. This would seem to say that active listings should have a median LIST PRICE of $230k to support the $217k SALES PRICE from last year. Of course, that would be a perfectly priced market. Certainly, we never have a perfectly priced market. There are always sellers trying to get much more than their home is worth. If we are overly generous and pad the $230k figure by 20%, we might expect the median LIST PRICE of active listings to be aroung $276k.

Well, here's the shocker: The median LIST PRICE of active single family listings in the Charleston MLS is $319,900!

The good news is that the new listings that have been taken recently show a much better trend. The 1500 new single family listings taken over the last month have a median LIST PRICE of $270k. Still seems a little much, but it's better than $320k. Hopefully, we're moving in the right direction.

Home Ownership as an Investment in Your Future

The media has been pretty doom and gloom on real estate during this buyer's market. They should be telling buyer's what a great opportunity it is. Here are the facts:

1. For 43 years, real estate values have risen on average more than 6% annually. 2007 was the first year that we ever had a decline in the national median home price and that was just a little over 1%.

2. The average return on a 20% down payment is more than 28% per year.

3. The media has sensationalized the "bubble" idea. Actually, values have not exceeded their historical trend line. Values did rise quickly, but that was after 20 years of below average growth.

4. Mortgage Rates are near all time lows.

5. Inventory is higher than normal but nowhere near historical peaks.

6. The US population continues to rise and with it, so does the need and demand for housing.

7. Housing values have risen through all six recessions in the past 43 years.

8. Housing values have risen through wars, stock market crashes, terrorist attacks, corporate scandals, oil embargoes and even when mortgage rates peaked over 18%- rates are now below 5.5%.

The list goes on..

We live in a great country. What other investment can show such historical success for increasing one's net worth? And you get to live in it!!! If you don't own a home, you are missing out on the component that can most effectively increase your net worth.

Median Price of Charleston Homes Since 1991

Buying a home has got to be the best investment you can possibly make. Just look at these numbers. I could only check back as far as 1991, but I do know that nationally, 2007 was the first year ever that the median price of single family homes decreased since they starting keeping records in 1950. And that was only by around 1.5%.

yr median
1991 $82,755
1992 $85,900
1993 $92,500
1994 $93,500
1995 $96,500
1996 $98,000
1997 $109,650
1998 $123,500
1999 $135,000
2000 $144,900
2001 $154,244
2002 $161,000
2003 $169,900
2004 $183,066
2005 $202,000
2006 $214,010
2007 $217,000

That is incredible. Nothing more needs to be said. If you don't own a home, you are missing out on probably the biggest opportunity to increase your net worth that is available to you.

Lawn Care

If you haven't done so, it's time here in the south to weed and feed that lawn. There are several good companies that provide granular weed and feed and can be found at Lowes, Wal-Mart, etc. Best to buy a spreader for under $50 that you can push around the yard to dispense the granular. It will take about half an hour for a standard sized yard. The directions are on the back of the bag. It also tells you when to do it. Generally 3 to 4 times during the year from February to September in the south. There are 2 primary kinds of weed and feed; the kind for bermuda, centipede, etc and the kind for St. Augustine grass. Make sure you get the right kind.

A lawn is a work in progress. Each year you hope to kill a few more weeds and grow a little more grass. Eventually, the grass will choke out the weeds. It takes a while for the chemicals to accumulate. It's a year over year process.

Protect Your Home

Your home is likely the biggest investment you have. You should protect it in every way you can. One of the easiest and least expensive is to caulk the exterior. Water intrusion is a major problem. If you can prevent it, you will have a lot fewer headaches later. Really good caulk is fairly inexpensive and it's really easy to apply. If you're not that handy, hire a painter to do it for you. The 3 C's of real estate: caulk, caulk, caulk!

Are We at the Bottom?

In my last post, I noted that inventory was finally moving in the right direction to help the market correct. But, we have a ways to go. Our biggest problem is too much supply and a lot of it is overpriced. If we could just remove all the overpriced listings from the market, it would correct itself in a hurry. However, just because there are a lot of overpriced listings doesn't mean that buyers shouldn't be buying. There are also lots of well priced and undervalued listings. It's a tremendous time for buyers to get into the market. Buyers just need help from their realtor more than ever to sift through the chaff.

Here's the proof that there are still a lot of overpriced listings: The median price of single family solds in 2007 in Charleston was $217,000. Listings are always priced a little higher than they will sell for. Generally, we sell homes at an average of about 95% of their list price. Let's be generous and use 90%. This would mean that current listings should be priced at a median price of $241,000 so that 90% would be the $217,000 from last year. Well, here's the shocker. Our current median price of single family listings in Charleston is $315,000!! That's around 30% too high.

Having said that, the median price of new listings in February was only $269,000, so, we are moving in the right direction. We simply need to remove all of those overpriced listings from last year.

Inventory Reductions

There has been an across the board reduction in inventory of single family residential units in Charleston from the highs of 2007. The following percentages are the drop in inventory since the high month for each area in 2007 compared to the inventory in Jan 2008.

James Island - 13%
West Ashley - 20%
Mt Pleasant - 23%
North Charleston - 15%
Peninsula - 15%
Ladson/Summerville - 17%
Hanahan/Goose Creek - 19%
Daniel Island - 15%

This is a move in the right direction. For this market to normalize itself, we need to continue to move in this direction. To do this, sellers need to continue the most recent trend of pricing properties correctly. Realtors will do well to walk away from overpriced listings.

Step 10 to Purchasing a Home

Celebrate!! You did it! You're going to get a big tax break now. You get to deduct the interest that you pay each month off of your federal tax return. In the first few years of your loan, the majority of your payment is interest. This can be a lot of income tax savings. You may also get to deduct some of your closing costs and property taxes.

Keep any and all paperwork for your home. When you go to sell it, you won't have to pay any income taxes on the gain as long as the gain is less than $500,000 for a married couple($250,000 for a single person) and you have lived in the home for at least 2 of the last five years. It's the only thing I know of where you can make that kind of profit and not have to pay any income taxes. You can buy a home, sell it in 2 years, and make a huge profit without paying income taxes on the profit!!

Congratulations!!

Step 9 to Purchasing a Home

After the closing, you can move into your new home. In step #7, you should have already set up the transfer of utilities and change of address. Once you move in, you may want to change all the locks. Who knows how many people might have keys to your home!?

Finally, if you are going to live in the home, make sure to apply for the 4% property tax rate. Many times the county will just charge you the 6% rate for renter occupied property if you don't make this application. That makes your taxes 50% more than they should be. Many people forget to do this. If you are over 65 years old, you can also apply for the Homestead Exemption which also reduces your property taxes.

Keep all your paperwork for your home in one place so that you can retrieve it when necessary.

Step 8 to Purchasing a Home

After we get a ratified contract, many of these steps will have to worked on simultaneously. This step involves hiring the closing attorney and actually setting up the closing. I don't recommend you do this until you are past the home inspection phase. You don't want to put the attorney to work until you are past that phase. Once both sides have agreed on the repair addendum, call your attorney and set up a closing date and time. They get busy toward the end of the month when most closings occur and you want to go ahead and book an appointment. Of course, you should have already called a few and found out their prices and found who you were most comfortable with. They will probably be providing you with title insurance as well, so ask them about that. Most closing attorneys own a title insurance company. It seems like a conflict of interest, but apparantly it's not. It just makes things easier. Title insurance is required by your lender. They are going to want to make sure they have title to the property even if the attorney missed something in the records.

The attorney will do a title search and make sure that there is a clear title to be conveyed. He will also record the sale in the court records after closing. His fees are part of that 3% of purchase price for closing costs and prepaid items. Attorney fees and lender fees make up most of the closing costs.

The attorney will coordinate to pay your chosen insurance company and the property taxes. He will also prepare the HUD settlement statement that shows all final costs to both the buyer and seller. You should receive this HUD statement for review at least 24 hours before closing, but it depends on how well your lender gets the closing instructions to the attorney. On the HUD statement, you will find the final amount that you are supposed to bring to closing. This will have to be in certified funds usually made out to the attorney. You also need to have your driver's license at closing.

Your realtor doesn't have to be at closing, but should make every effort to be there in case there are problems. Finally, you should make sure you get all the keys to the property and any instructions about security alarms.

Step 7 to Purchasing a Home

As soon as you get a ratified contract in step #5, you can begin working on the mortgage in step #6 and preparing for the closing in step #7. As well as obtaining a mortgage, you need insurance and a closing attorney. The bank will require a certain level of insurance on the home. You should certainly shop around for insurance. Their rates will vary widely. A new thing that has started recently is that they charge you now based on your credit score as well as the cost to replace the home. You do not have to insure the land of course, but you will need liability insurance as well as hazard insurance. Liability insurance covers you in case someone gets injured while on your property. Hazard insurance covers fire, wind, hail, etc. You may need separate flood insurance as well depending on what flood zone the property is in. If you are buying a condo or townhouse, the insurance may be included in the regime fee. If so, you will still need a policy to cover the personal property contents you have inside the condo.

After you have negotiated the home inspection repairs, you should arrange to hire a closing attorney. This should be someone who does a lot of real estate closings. They will search the court records of the property, record all the documents involved, set up a survey if a recent one doesn't exist, coordinate with your lender and create the HUD settlement statement that shows all of the costs involved. Many times, the closing attorney will also have a title insurance company that will provide you with title insurance. This covers you and the bank in case there was something overlooked in the court records. Many of the attorney's fees are negotiable as well. Don't forget to actually make an appointment with the attorney for the closing. They get booked up near the end of the month.

As you get near the closing date, make sure to set up the transfer of utilities and change your address with the post office.

On the day of closing, you should do a final walk through of the home with your realtor to make sure everything is alright before you go to closing.

Step 6 to Purchasing a Home

Once you have a ratified contract on a home, you must start working on obtaining your loan. Actually, you should have laid some of the groundwork for this in step #2. There will be dates on the contract that will restrict your time frame for obtaining the loan. Try to obtain your loan directly from a bank. Using mortgage brokers can lead to all sorts of problems and extra fees and should be avoided if possible. There are many types of loans. The most popular is a 30 year fixed amortized convential loan. Your monthly payment will include interest to the bank for the loan and some principal payment that lowers the amount of principal that remains to be paid. At the beginning of the loan, an extremely large percentage of your payment is interest while only a very small portion goes to paying down the principal. This will change every month. Over time, you will finally reach a point where your principal portion is larger than your interest portion. Another type of loan is one with an adjustable interest rate, also known as an ARM. Initially, the interest rate is lower than a convential loan, but after a predetermined time(3-5 years), the rate fluctuates within certain guidelines. Since the rate can go up and change your monthly payment, this can be quite risky. However, it can be the right thing if you know that you're going to sell your home before the rate changes. Even risker is the interest only loan that does not include any amount to reduce the principal payment. This is only of interest for those willing to bet that the value of their home is going to significantly increase while they own the home.

Generally, banks like for you to make a down payment of at least 20% of the purchase price. However, with homes at $200k and above, this would mean a $40k down payment. Since most people don't have that kind of money to put down, we are seeing loans for as much as 100% of the purchase price. In the case where you have less than 20% to put down, the bank will penalize you by forcing you to pay an extra monthly fee added to your payment that is called Private Mortgage Insurance(PMI). This makes them feel a little better about the fact that they are loaning you such a high percentage of the purchase price. This extra fee will go away once you have made enough payments to reduce the amount of principal left on the loan to 80%. If you make your payments on time, you can possibly apply to have the PMI removed before that point. Some banks have programs that reduce or waive PMI if you meet certain restrictions or if the property qualifies. One of these is called the Community Committment Program.

Who the bank gets the money from can be important. They may be a local bank and have the ability to make the loan themselves, but more likely, the money will actually come from higher lending institutions such as Freddie Mac, Fannie Mae, or FHA. FHA has become a very popular type of loan in the last year. In the past, it has been reserved for those with less than stellar credit and had lots of restrictions and fees. However, FHA has relaxed many of the restrictions and you can usually get a lower interest rate.

Now, here's the hard part. All lender fees are very negotiable. If you don't make them compete with each other, they will charge you far too much. It's unfortunate, but that's the way it is. They will reduce their fees and possibly their rates if you have them compete with each other. Here's how you're going to do that. Go to one and get prequalified and then they will give you an estimate of the costs and the monthly payments. Once you have that Good Faith Estimate, you take that to 2 other lenders and you ask them what they can do for you. They will beat the numbers given to you by your first lender, even if your first lender is your best friend. You then take the new good faith estimates back to the first lender and the first lender will reduce their price to beat these new estimates. You can do this about 2 or 3 times until they won't budge anymore. Then you select the best deal that works for you, keeping in mind who you are most comfortable with. Everyone hates this part of the process, but it will save you money.

Finally, once you have a ratified contract, don't finance any major purchases such as furniture or cars during the approval process. This could have a negative effect on your qualification for a loan.

Step 5 to Purchasing a Home

Once you have finally chosen a home to make an offer on, you will need to sit down with your realtor and fill out a contract. Most of it is standard, but filling in the blanks is an art best dealt with by a highly competent realtor. Many things are negotiable. Most important may be price. Where you start may depend on many factors. How badly do you really want this particular home? How well is it priced? What can you afford? What kind of market is it, how many other people are looking at this home, and how many other homes would you be satisfied with? It's possible that making a strong price offer will help you acquire other negotiations such as closing costs.

The next negotiable item is the amount of earnest money. This will be held in a 3rd party escrow account until closing and credited back to you then. If anything out of your control causes the contract to fall through, you will be refunded your earnest money. The amount depends a little on the price of the home. The more you put down, the more serious you seem to the seller.

Most of the time, there are many contingencies put in the contract to protect the buyer. Examples of these include contingent upon financing, appraisal, inspection, termite letter, and your ability to obtain insurance. You certainly don't want to be forced to buy the property if the bank won't give you a loan, or if it doesn't appraise for as much as the bank will give you, or if the condition of the property is much worse than you thought, or if it is found to have termites, or if you cannot obtain insurance at a reasonable price. Of course, your contract looks weaker to a seller as you increase the number of these contingencies.

Another very important negotiable item is closing costs and prepaid items. These generally costs a buyer about 3% of the purchase price. Closing costs include money to the bank for the loan and money to an attorney for title searches, title insurance, and paperwork. Prepaid items include insurance and taxes. The bank wants you to pay for your insurance a year in advance and 3 more months on top of that. They also want you to pay some of your property taxes in advance. In fact, part of your monthly payment will include a portion to be set aside by the bank so they can pay your T&I for you at the end of the year. This is called an escrow account. The amount of extra prepaids that they collect at closing for T&I will be held in this escrow account to protect the bank. On a $200,000 home, 3% would amount to $6000. That can be a lot of money for buyers to come out of pocket with at closing. One way to alleviate this burden at closing is to have the buyer get a loan for $206,000 and have the seller pay for the buyer's closing costs and prepaid items. Essentially, the buyer has financed these extra costs into the cost of the home.

Another negotiable item is a home warranty. Many sellers offer this upfront. Most others are willing to buy one for one year for the buyer.

Another item that some sellers offer is a buy-down. For a certain amount paid to the bank, the seller or buyer can buy down the interest rate for the either one year, two years, etc. This can be important to a buyer that really needs to keep his monthly payment down for the first year or two.

Once the contract is written up and sent to the listing agent and the seller, they can either accept your terms or make a counteroffer. You can then accept their counteroffer or make one of your own. Once both sides have agreed to all items on the contract, we say that it is ratified and it becomes a legally binding agreement. Once this has been achieved, you can move on quickly to step 6 of purchasing a home. That will be obtaining a mortgage. Hopefully, you have already laid some of the groundwork for this.

Step 4 to Purchasing a Home

Once you have expressed your wants and needs to your realtor in step 3, he can set up an autosearch for you on the MLS. This will automatically email you listings that match your criteria. This is a much better tool than the average internet search. Unlike the average internet search, it will sort out the active listings that are currently under contract. It will also notify you of price changes on properties that match your criteria. As you look through the listings, you can decide which ones you'd like to take a look at. Your realtor will then set up appointments for the showings. It's best not to look at more than 5 in any one day. It gets a little confusing if you try to do more than that. After each home you look at, you should decide whether or not you like it better than the best one you have seen so far. That way you're only comparing 2 homes, the one you just looked at to the best one you've seen previously. Once you've decided on a home, your agent will get you a copy of the Seller's Disclosure Statement and, if applicable, the Lead Based Paint Disclosure. The Seller's Disclosure Statement is required from all sellers. It is a list of any defects in the property that the seller has knowledge of. The Lead Based Paint Disclosure is only necessary if the home was built prior to 1978. The agent should also check to see if there are any regime fees or Home Owners Association(HOA) fees or covenents. Condo regime fees may include things such as insurance, pest control, cable, etc. Once you have decided to make an offer on a home, we can move to step five which is writing the contract and negotiating the offer.