Boeing Lands in Charleston

Boeing has chosen Charleston as the location of it's new factory. It will mean about 3800 jobs for the Charleston area over the next few years. What a great city we have. I was called by the Post and Courier newspaper and asked for my opinion of the impact that this would have on the local real estate market. You can find my quote at
http://www.postandcourier.com/news/2009/oct/30/30usboeing/

Delinquent Tax Sales

There are currently 1437 properties up for auction at Charleston County's annual sale of properties with delinquent tax bills. There were 941 in 2008, 804 in 2007, and only 479 in 2006.

Option ARM Mortgages

This is the next shoe to drop and it seems to be beginning to drop now. The mortgages differ from other ARMs by offering an option to pay only the interest each month or a low minimum payment that leads to a rising balance in the loan's principal. When the balance of the loan reaches a certain level or the mortgage hits a specific date, the borrower must begin making full payments to cover the new amount. The loan's interest rate also may have been fixed at a low level for the first few years with a so-called teaser rate, but then reset to a higher level. Because the new monthly payments can be five or 10 times what borrowers are accustomed to paying, they threaten a much greater hit to the consumer than the subprimes. Many of these are in the higher end market above $400,000. These people were expecting to refinance when the value of their home went up. Sadly, it has gone down instead. Many of them will be mailing in their keys. The banks refer to this as jingle mail.

Cure Rate

You're going to start hearing this term a lot more. It refers to the number of home owners that are delinquent on their mortgages that find a way to cure the problem and continue to make their payments. That rate has been about 45% from 2000 to 2006 for prime mortgages. This has caused banks to not be very negotiable on short sales. Short sales are where the bank agrees to let the owner sell the home for less than they owe the bank for it. The bank usually forgives the difference. Banks have been reluctant to agree to short sales because they figure that most home owners will find a way to make that payment before they have to go into foreclosure. Moreover, the banks have insurance on the loan through private mortgage insurance that they only collect if they foreclose. They don't get the insurance if they allow a short sale. Recently however, the cure rate has dropped dramatically to about 6.6%. Less and less home owners are managing to find a way to stay afloat. Hopefully, this will encourage the banks to speed up the process on short sales. I have one that I've been helping a buyer purchase that we started on in mid-April.

Condo Market

Not good here in Charleston. Earlier this year, the division between single family detached and single family attached(condo's and townhomes) was about 75%/25%. Now it is 67%/33%. Our inventory overall is almost exactly the same, but the percentage that are condos and townhomes has gone up. Supply and demand still works and this is bad news for the condo market. Overall inventory is too high and inventory of both segments of the market is too high. So, prices will have to come down more. But, the inventory of condos and townhomes is getting worse, which means that their price will suffer even more than those of single family homes as we move forward.

Market Turning a Little

We have made an incredible recovery over just the last 2 months. 2 months ago we were off 35% in the number of transactions; now we are only off 25%. 2 months ago, price was down 15%; now we are only off 11%. The numbers are even better if you just look at SFD only.

Activity remains very high. The number of contingents on the hot sheet each week is easily beating numbers from last year. By the end of 2009, I feel very sure in predicting that there will be more contingents in 2009 than in 2008. If we keep up at this pace, closed sales may not be down that much from 2008. The large gap between contingents and closed sales is due to fall throughs from unsuccessful short sale attempts and appraisals. Contract fall outs in some areas are pushing 30% where historically fall outs were 18%. 21% of current contingents are either short sales or lender owned. Appraisals are also causing fall throughs. Even more reason to price a listing correctly to begin with.

Housing Market Stats

There are some very small signs that make the real estate market here in Charleston appear to be headed toward a recovery. However, I think they are too small to really make a difference. There is a lot of buying activity out there right now. A lot of that is due to the $8000 tax credit for first time home buyers, the lower prices, the low interest rates, and the large selection. Sadly, the $8000 tax credit will come to an end on November 30, 2009 and interest rates are probably going to head upwards for quite some time(maybe several years.) Proof of the buying activity, as always, is in the numbers. The Charleston MLS is only off 8% in the number of properties going under contract(contingents) versus the same period in 2008. In fact, the numbers for Sept-Dec ember of 2008 were so dismal, that I’m quite certain that 2009 contingent numbers will surpass those of 2008. It’s amazing, but the Charleston market will actually have more ratified deals in 2009 than in 2008. Yet, 2009 closed sales are 30% down versus the same period in 2008. The reasons that there is such a discrepancy between contracts ratified this year and the number of closed sales comes down to 2 things, appraisals and short sales. Appraisers are coming in much lower than the agreed upon purchase price and causing deals to fall through. Also, short sales and foreclosures are now above 20% of the deals being ratified and they can be a nightmare to close. We just had a short sale that we thought was only a couple of weeks from closing after a 3 month wait, only to get a call from Chase saying that they had lost all the paperwork and we would have to resubmit everything. Many short sales may never close. So, while there are plenty of buyers out there willing to purchase, many of the deals are falling through. Ultimately, I still feel that it will be at least 2 more years before this bottoms out and another 2 years before prices are just back to where they are now. Sellers should sell as quickly as possible to get the most for their home and buyers shouldn’t wait for prices to go lower since interest rates will be going up.

June Sales in Charleston

June was a great month. We had been about 35% off the number of transactions from 2008 before June. After June, we are only 29% off. That's a lot of ground to make up in one month. Price is still down about 15%. As I noted in an earlier blog, ratified contracts are only off about 10%. And I foresee that the second half of 2009 has to be better than the dismal second half of 2008. Ratified contracts may end up being about equal versus 2008 by the end of the year. However, price should continue to go down. Supply and demand still works and we have way too much supply. Price will continue to go down until we get some of this inventory off the market. As prices go down further, it will be more and more difficult to get a deal to appraise at the contract price. We are already seeing lots of problems with this. The lesson to be learned is that you need to price the home correctly to begin with. Time is not on your side. To get the most money for your home in a declining market, you need to sell it as quickly as possible. It will only be worth less a few months from now. Furthermore, if you overprice it and someone actually buys it and it doesn't appraise, you've just wasted a lot of time. And more so than ever, time is money. Jackie and I have sold 16 homes in less than 30 days for 96% of the list price over the last 2 difficult years. That is just a remarkable statistic. No other realtor can claim anything near that.

Market Activity

The number of buyers out there is almost as good as last year. Here is a number to support that: while sales are off 35% versus 2008, contingents(properties going under contract) are only off about 10%. Why the drastic difference? You would think that the two numbers should be almost equal. This large difference shows how much more difficult it is to get a ratified contract to closing. Banks are causing fall throughs due to financing and appraisals. The appraisers seem scared to death. Also, there are a lot more contingents that are short sales. They may not be closing for several months because of the nature of short sales. Again, it is a problem with the banks. They don't want to do a short sale, even though they should prefer it to a foreclosure. So, they drag their feet hoping the owner will come up with the payments.

New Homes

Total housing starts increased 17% in May to an annual rate of 532,000, reversing a 13% April decline. Building permits, an indicator of future construction, also increased in May, by 4% to 518,000. Construction of new single-family homes rose 7.5% in May to a 401,000 annual rate, the third straight monthly gain for this series, while new work on multifamily units jumped 62% to 131,000.

Increasing inventory in this economy is not a good thing. There are lots of new home communities out there that already don't list all their inventory. They throw more on the market as they sell some. I call this the shadow inventory. There are too many homes for sale and there are actually more for sale than we actually see. This is a problem. Supply and demand still works. There's way too much supply for the current level of demand and that's why it's a buyer's market. And it's unhealthy. A more balanced market is healthier and better for everyone.

2 Amazing Numbers

The real estate market here in Charleston is seeing a great increase in activity. I do a lot of statistics for my company, Carolina One Real Estate, and I keep an eye on the number of properties going under contract on the MLS each week. We bottomed out in late February at 120/week. Then we slowly increased into the 160's by late March and early April. Then in the 3rd week of April, we saw an explosion to 186. Since then, the last 6 weeks have seen 194,182,196,180,199, and 197 this past week. These are very strong numbers. However, we are not yet seeing a reduction in inventory. We still have a little over 10k active listings in our MLS and have been at that number for well over a year now. Supply is still much higher than demand and that law still rules. 65% of what is going under contract right now has both list price and $/sqft price under the median for the subdivision. Another 28% has one of these 2 numbers under the median. Only 7% of homes that are going under contract have both numbers above the median. Pricing it right is still the most important thing you can do and the number one service we offer. We have sold 10 properties in the past year or so in less than 30 days for 98% of the list price.

Mortgage Rates

The Fed said at a policy meeting several weeks ago that it would purchase up to $300 billion in Treasuries, and it didn't alter that target at this Wednesday's gathering. Thirty-year mortgage rates are still hovering in the high 4 percent area, but they'll climb if bond prices continue to tank. So the bottom line is if you are a buyer or refinancing in this market then I would recommend locking in on a mortgage rate asap in case they rise in the coming weeks. If you are a seller then price your home correctly because if rates potentially increase this makes your current overpriced home even more expensive to any buyer who is going to use financing.

Short sales/Foreclosures Increase

The number of homes in jeopardy of foreclosure increased by 27.1% statewide in South Carolina when compared with the fourth quarter of 2008, according to RealtyTrac data. The number of homes across South Carolina in some state of foreclosure increased to 7,016 in the first quarter of this year, from 5,520 in the fourth quarter of 2008. Charleston County bank owned properties increased by more than 150% from the Q4 2007 to Q1 2008, going from 119 to 304. This is not the total number; this just represents what happened in those quarters.

Right now there are about 1250 active listings amongst our inventory of over 10,000 active listings that are either short sales or foreclosures. This is a hard number to get a hold on since many short sales and foreclosures are not listed this way. This number of 1250 is my educated guess based on my knowledge of the market. I expect that number to continue to increase to about 25% of the active market by August. That will present a problem when only about 25% of the active listings are selling.

recessions

The National Bureau of Economic Research, NBER, is a government body whose sole function is to keep track of the country's economic expansions and contractions and determine which month was the peak of an expansion and which month was the bottom of a contraction. For instance, they have announced that December of 2007, was the peak of the last expansion. If you look at the general pattern of expansions and contractions on their website, you will notice that expansions generally last from 3-5 years while contractions generally last about 1-1.5 years. So, about 3 times as much expansion as contraction. What's interesting is the period from 1982 until now. In those 27 years, we have had 24 years of expansion and 3 years of contraction. That's 8 times as much expansion as contraction. There is a price to be paid for that and we are paying it now.

Building Permits Rise

Housing starts surge 22% on apartment building and Single-family building permits rise 11% in February.

Boosted by an 82% increase in construction of apartment buildings, U.S. housing starts surged 22% in February to a seasonally adjusted annual rate of 583,000, the Commerce Department estimated Tuesday. It was the largest percentage gain in 19 years and was the first increase in eight months in the sector that was at ground zero in the global economic recession. The housing data in winter months are especially volatile because of the weather. Construction of new housing units had plunged 38% in the previous three months before February's unexpected jump. Economists surveyed had forecast a further drop to 456,000, despite an expected surge in multifamily construction. February's annual rate of 583,000 was the highest since November. January's starts were revised higher to a 477,000 pace, a record low dating back to the 1940s.
Building permits, which are less volatile than the starts data, rose 3% in February to a 547,000 annual rate. Permits for single-family units rose 11% to a 373,000 rate, the largest percentage gain in 18 years.

But despite February's gain, housing starts are down 47% from a year ago, and are down 74% from the peak in early 2006. Permits are down 44% in the past year. Builders are trying to reduce their inventories of unsold homes as they face relentless competition from older homes thrown on the market by foreclosures or short-sales. The mood of home builders' has rarely been worse. The National Association of Home Builders reported Monday that its sentiment index was stuck at 9 on a scale of 1 to 100 in March.

Story by Rex Nutting, MarketWatch, Wall Street Journal

Mortgage Rates may be Headed Lower

U.S. industrial production dropped 1.4% in February. Production has now been down for four straight months, in five of the past six months and in 10 of the past 12 months.
Capacity utilization fell to 70.9% in February from 71.9% in the previous month. This matches the lowest level on record, set in December 1982. The drop in production was larger than expected. Economists had been anticipating that February's production would fall 0.9%.

Both of these drops should produce downward pressure on mortgage rates.

Charleston Market Stats

For the period of January and February 2009 compared to those same months last year, we have seen the number of sales drop by 45% and the sales price drop by 12%.

Only about 20% of the current market is priced correctly. Some of that 20% is priced very well. The other 80% can sometimes be very overpriced. While some of the sellers still haven't figured this economy out, about 20% of them seem to be ahead of the curve. My company has actually hired me to create a list for the company of the best 20% the market has to offer. Don't buy or sell without seeing this list first.

While the number of new foreclosures might peak this year (if everything goes right), we’re still going to be dealing with near-record numbers of foreclosures being processed and then with a massive inventory of bank-owned properties throughout 2010 and into 2011. Only 28% of the available listings sold in 2008. Soon, probably August of 2009, 20% of the available listings will be short sales and foreclosures. It will become extremely difficult to compete with their prices once this occurs. The ordinary home seller won't have a snowball's chance of getting his home sold.

Stimulus Refinancing Initiative

Under current rules, those families who own less than 20% equity in their homes have a difficult time refinancing and taking advantage of the historically low interest rates. This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth.
According to the plan, "credit-worthy" or "responsible" homeowners can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan, however, cannot include prepayment penalties or balloon payments. For many families, this low-cost refinancing may help reduce their mortgage payments by up to thousands of dollars per year.
As with the rest of the plan, details about this initiative will be released at a future date--including what, if any, credit score requirements will be included.

January 09 vs January 08

The Charleston MLS was off about 42% in number of transactions in Jan 09 compared to Jan 08. The average price was off about 12%.

This follows the year of 2008 that saw a decline of 32% in number of transactions and a decline of 2% in price compared to 2007.

2008 Percentage of Listings Sold

About 28% of the available residential listings in 2008 actually got sold.

James Island Sales Error

Katy Stech published an article this morning in the weekly business section that compared 2006-2008 prices.

In one paragraph, she stated that James Island sales volume was off by 85% since only 104 homes sold in 2008. The correct number according to the MLS is 444 homes sold on James Island in 2008. This is a significant error on the part of the Post and Courier.

Unemployment, Housing Starts, Mortgage Rates

• Last week, national housing starts fell 15.5% to the lowest since records were kept.
• The number of people continuing to seek unemployment benefits rose to 4.6 million. A year ago 2.7 million people were receiving unemployment checks.
• While mortgage rates are still incredibly low, they did creep back up over 5% after being below that for several weeks.

Charleston Real Estate Market 8th Strongest in Country

Charleston ranked 8th in the country on a list of the strongest real estate markets according to Forbes.com. Forbes.com had Moody's compile a list of the 25 strongest real estate markets in the U.S. You can read the article at http://www.forbes.com/2009/01/07/housing-cities-realestate-forbeslife-cx_do_0107realestatestrong.html