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Housing market is red hot
Newcomers are fueling the demand and construction boom
By Matthew French
Staff Writer
Anyone who has looked at housing prices lately knows that Charleston ain’t what it used to be. Homes can double their value inside of five years and first-time homebuyers have less buying power than at any time in recent memory.
But is it a bubble? Is there the chance that the regional housing market will see the bottom drop out from under it and people left holding property that they might otherwise have sold? Most agree not.
The Charleston market, while not entirely insulated from the rest of the country, has a lot of significant factors working in its favor, most notably, supply and demand. The region has seen a massive influx of newcomers over the past decade and that has fueled building growth.
Add to that the national trend of lower interest rates and a high interest in real estate investing after the dot-com bubble burst, and you have a rise in home prices.
“I continue to be surprised by how much the prices have gone up,” says C. Boyd Loadholt, president and chief executive of AgentOwned Realty.
“We saw a huge change, particularly east of the Cooper River, when the Mark Clark opened up. Now, with the new bridge close to opening, I suspect we’re going to see more of the same thing. With transportation and access continually improving, we’re going to see property values increase, particularly on this (east) side of the river.”
Loadholt has been involved in real estate in the area for 30 years, and has only seen comparable appreciation once.
“Going back to a period in the late ’70s and early ’80s, we saw properties sold at an appreciation of about 1 percent per month,” he says. “We’re pretty close to seeing that now. What stopped it in the ’80s was the rising interest rates, when (they) hit 17 percent. With our rates under 6 percent for fixed 30-year mortgages, we’re going to continue to see this be a good market.”
And that sentiment is echoed across the board. Nationally, homes appreciated about 8.3% last year, according to government statistics. In many local regions, it exceeded that. But even that doesn’t scare lenders off.
Bradford Mortgage Co. vice president Dan Butts says a general rule that indicates strong and steady growth, without getting what he calls “ridiculous,” is within 5% to 10% of the national average.
“So if we see 15 percent or even in some cases up to 18 percent, we won’t get too scared,” he says.
Butts dismisses the talk of a real estate bubble, because the current trend doesn’t have the earmarks of the real estate collapses of the early 1980s and early 1990s.
“Real estate phenomena called bubbles are usually joined with double-digit unemployment rates, and the country isn’t seeing gains in unemployment right now,” he says.
“Some people think rising interest rates could cause a slowdown, but that’s just not the case. People stop buying houses when they’re afraid they can’t make payments because they might lose their job. That’s when the housing market stops. If interest rates alone were the cause, we wouldn’t have sold any homes in the early ’80s and that didn’t happen.”
Short-term interest rates will most likely be going up 1.25% between now and the end of the year. Fed Chairman Alan Greenspan, who has indicated he will end his tenure as chairman in January 2006, has said he wants to leave a neutral Fed policy when he leaves. A neutral Fed rate, also called a neutral federal funds policy rate, is the level at which the Fed monetary policy is neither stimulating nor slowing economic growth.
“Even with rates going up, it will be in measured increments and won’t affect the housing market,” Butts says. “April 2002 had the highest rates we’ve seen in a while, and those were at seven and a quarter.”
In short, buying real estate in the Lowcountry is a pretty safe investment.
“I tell my clients that if they buy a house and hold it for five years, they can’t lose money,” he says.
Patty Scarafile, president and chief executive of Prudential Carolina Real Estate Co., says that as long as Charleston is a popular place for people to move, the housing market will stay strong, regardless of what happens nationally.
“If you look at an area of the country with comparable housing prices, like midstate New York in the Rochester and Syracuse areas, their prices are flat historically, even though the prices are affordable,” she says. “You don’t have the demand of people moving into the area like you do here, and that’s one of the main things that fuels the Charleston market.”
Charleston has long been a popular city for people to move to. The reasons are obvious: weather, beaches, golf and the quality of life. And unless one of those things goes away, the demand for housing will continue to excel in the entire area.
“You can find affordable housing if you’re willing to move farther out,” Scarafile says. “But even ‘farther out’ isn’t farther out any more. Park West (in Mount Pleasant) used to be considered too far away from town to be valuable property. Now Mount Pleasant for a first-time home buyer, if not prohibitively expensive, is at least cautiously expensive.”
Even the possibility of large employers, such as the South Carolina State Ports Authority or the remaining military contingent, going under or leaving the area wouldn’t be severe enough to suppress the hot market.
“When the Charleston Naval Base shut down in 1995, it definitely softened the market, but it didn’t kill it,” Butts says.
“It actually served to diversify the region. Nothing around here has the jobs impact the Navy base did, so if we can weather that, we can weather just about anything.”
Matthew French is a staff writer for the Business Journal. E-mail him at mfrench@crbj.com.
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