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Report: Charleston area home prices overvalued
By Rachel Pleasant
Staff Writer
A recent study of housing markets across the country estimated that homes in the Charleston area sell for about 7% less than they should, creating a collective “you’ve got to be kidding me” moment for some who’ve considered buying a house here recently.
As it turns out, that 7% figure was incorrect—at least for this Charleston.
The report, generated by National City Corp., a financial holding company, and Global Insight, a financial information provider, included a mistake in which the data for Charleston, W.Va., and Charleston, S.C., were switched.
In fact, homes in the Charleston area, which includes Berkeley, Dorchester and Charleston counties, are about 28% overvalued, according to the report.
The report said homes here sold for an average of $159,948 in the third quarter of 2005, way above the appropriate $124,803 average, based on population density, interest rates, income and long-term supply and demand trends.
Average home sale prices are calculated using a number of sources, said Philip Hopkins, managing director for U.S. regional services with Global Insight.
Homes in Charleston, W.Va., meanwhile, are 7% undervalued, with homes selling for an average of $89,615 when they should be going for about $96,129.
But while the discrepancy may have been cleared up as far as this particular report goes, the South Carolina Association of Realtors has its own opinion when it comes to the claim homes in the Charleston area are overvalued, as the report said.
“Absolutely not,” said Jim Peters, CEO of the association, referring to the claim that homes in the tri-county area are overvalued. “If you looked at the median prices, there are homes that are very high priced, but there are also homes that are very affordable.”
According to Multiple Listing Service information, the median price of homes in the tri-county area was $180,000 through November 2004, compared with $189,000 through November 2005, an increase of 5.25%, a healthy but not out-of-control rate increase, Peters said.
The state median through November 2005 was $146,000.
If the median price of $189,000 is correct, then the level of overvaluation in Charleston is even higher than originally thought, Hopkins said.
“Our analysis would indicate some degree of overvaluation in the Charleston market,” Hopkins said. “It’s not extremely overvalued, like some of the California and Florida markets, but it suggests some degree of overvaluation.
“Our estimate is based on long-term supply and demand trends that work very well in areas across the country. The question is: Is there something unique to Charleston?”
Hopkins doesn’t think home prices in the Charleston area are in danger of a “catastrophic drop, but a slowdown wouldn’t surprise me,” he said.
In areas across the country, the real estate market is already experiencing a shift, as indicated by slipping pending home sales in November, according to the National Association of Realtors.
“We are clearly experiencing a market transition, moving from a prolonged boom to a more balanced period of sustainable sales,” said David Lereah, NAR’s chief economist, in a press release.
“In other words, home sales have been peaking for the last five years, and we will land on a high plateau in 2006—a market that will be healthy for both buyers and sellers.”
The number of residential homes sold in the tri-county area through November 2005 was 11,833, up 24.7% from 9,487 during the same time period the same year.
“(2005) was an incredible year,” Peters said. “It was a year that broke every record.”
Peters expects the Charleston market to remain strong throughout the year, but a slowdown, either here or in other areas of the state, isn’t bad news, he said.
“Instead of encouraging speculative investment, you’ll see a market where more properties will come on and there will be more inventory, more choices and more stability for the long term,” he said.
Another report looking at home values will be completed in March, Hopkins said. While there are no definite plans to look at Charleston more closely and examine other factors that may be playing into home values, it is not out of the question.
“Each time you do this, you learn something new,” Hopkins said.
Rachel Pleasant is a staff writer for the Business Journal. E-mail her at rpleasant@charlestonbusiness.com.
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