Charleston Housing Price Paradox

Housing Prices and Demand

Nothing can be simpler to understand than the fact that more people means more housing demand. Nationwide, we are gaining about 3 million new people each year through a combination of births and immigration. In order to accommodate the rising population, about 1.5 million new housing units need to be built each year, including the need to replace demolished units. Unfortunately, due in part to a stressed out economy, housing starts have averaged only 766,000 per year over the last seven years. This prolonged under-supply of housing units compared to what is needed has affected the number of available homes for sale and falling apartment vacancy rates. Consequently, rents and home prices across the country are rising by at least twice the wage growth. But that is not necessarily the case in Charleston.

Builders Are Behind

Nationally, housing starts rose 20.2% in April to an annualized pace of 1.135 million, the highest level since November 2007. In Charleston, the permits are on the rise as well, though far less dramatically. Builders that were stung in the great housing recession are not too keen on over-leveraging themselves in 2015. The business has obviously changed since then, especially with regard to financing. Tighter lending standards and stagnant local wages have decapitated the supply-demand price curve, and what would normally evolve as a slow, steady rise in home values across all price ranges.

Housing Starts Are Much Lower in Charleston Region Despite Demand




The Price Paradox and Real Wages

Despite very strong demand and low inventory, the median-sales price in Charleston has not taken off as fast as one might think and the root cause is a simple one. Market-wide, inventory levels were down 19.0 percent. The property type that lost the least inventory was the Single Family segment, where it decreased 17.7 percent. That amounts to 4.0 months supply for Single Family homes and 4.4 months supply for Condos. The number of days on market in Charleston is the lowest ever. It is actually unprecedented in some price segments.



With such an increase in demand and a low inventory of homes available for purchase, you would think that the prices would have surged dramatically across the board. In some cases they have, especially on the upper end toward the luxury market which is insanely good right now. The paradox is that the rest of the market is falling flat or even losing value. The median-price of pre-owned, single family homes peaked at $235,000 in January 2013. Today, the median price of those homes today is $220,000.





More recently, single family home prices in Charleston have increased by a very modest 2.8% over the last year, based on a rolling 12-month median. The reason the median price isn't rising is that Charleston's average personal income is stuck in neutral.

Some areas such as Mount Pleasant and Daniel Island have seen a dramatic increase in sales prices, but they are atypical because they are dominated by buyers interested in the higher-priced, luxury market and such buyers simply have more leverage financially. The rest of the Charleston real estate market is generally tied to personal income, and at present, this market has no leverage to support higher prices.

Qualifying Income and Charleston's Two Real Markets

According to the NAR, in Charleston SC the median qualifying income in 2015 for a median-priced home loan with a 20 percent down payment is $43,756. 10 percent down is $49,225. And 5% down is $51,960.

It is not surprising that home builders in the greater Charleston market appear to be apprehensive compared to the builders in other parts of the country who seem to be going all-in on new construction. It isn't a given that Charleston's economy can support that kind of production. The financing component is the key determinant in the 2015 marketplace, and it is apparent that this is what currently acts as the biggest drag on median sales prices. The qualifying income and down payment required to obtain a loan is holding the market back.

Despite all of the recent hyperbole about an unprecedented housing market, there are actually two sides to the story. One involves higher priced homes purchased by buyers with greater financial leverage. The other involves the larger market of homes that are in high demand, but are often unattainable due to the restraints of qualifying income.

If the local economy improves then it is possible that local wages will also rise, making the financial hurdle of qualified income less of a drag on home prices. Until then, median home prices will remain the same; flat.




If you are interested in finding out where your property fits in this housing market, please contact Doug Hall with Keller Williams Realty.

doug@jdhall.com

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