By Ashley Fletcher Frampton
aframpton@scbiznews.com
Published July 29, 2010

Job growth is key in the residential housing market’s recovery, a University of South Carolina research economist told a crowd of real estate agents today.

“We’re going to see really strong improvement in the market once we get year-over-year job growth,” Joseph Von Nessen, from USC’s Moore School of Business, said to more than 350 people at the Charleston Trident Association of Realtors’ Residential Market Update.

Recent state employment data show that South Carolina lost 3,000 jobs from May to June. But as of June, the total number of jobs was up 14,100 from a year earlier.

Aside from the “blip” in home sales seen in recent months, which was driven by the federal government’s homebuyer tax credit, Von Nessen said demand for homes will remain depressed as long as potential buyers lack confidence about the future, including their job status.

Confidence, in turn, is also important to job growth, he said. Even if employers are seeing higher demand for products or services, they will be reluctant to add jobs until they are sure the demand will last.

Von Nessen spoke about statewide and national trends, including the after-effects of the tax credit and differentiation between home depreciation and changing buyer preferences.

He said The Boeing Co.’s construction of a final assembly facility for its 787 Dreamliner in North Charleston is already helping the region and the state rebound by creating jobs.

“Boeing, in South Carolina, is going to be our single greatest creator (of jobs) in the coming year,” he said.

Tax credit
The federal government’s homebuyer tax credit fueled a dramatic year-over-year jump in sales in the first part of this year, Von Nessen said.

“It really helped a lot of local housing markets across the country stabilize,” Von Nessen said.

Now that the tax credit has expired, effectively raising home prices for some people, Von Nessen said the housing market will likely lack stability for a few months.

Home sales will drop off, in part because the recent spike included sales that, without the tax credit, would have closed later in the year.

“We’ve essentially borrowed sales from a few months out,” he said.

Earlier this month, the Charleston Trident Association of Realtors reported that 1,022 home sales closed in the tri-county area during June, the highest level since August 2007. Through June, 31% more homes had sold than in the first half of 2009, the Realtors said.

Von Nessen said the expected drop in sales will be a short-term trend, but he said he couldn’t project how many months it would last.

In terms of new home construction, Von Nessen said the tax credit’s expiration is expected to mean a 4% reduction nationwide in the homes that were forecast to start this year.

But that expected decline could be offset by an improving economy, he said.

Home values
Von Nessen warned that changes in median and average sales prices should not be confused with price depreciation.

For example, he said the median home sales price statewide fell 8.4% between 2008 and 2009. But depreciation in that time period was 0.2%.

He said median sales prices, as reported by the Multiple Listing Service, do not represent price depreciation because they are based on the sales of different homes. By contrast, the house price index from the Federal Housing Finance Agency tracks the sales of single-family homes, showing how the same homes gain or lose value as they are sold.

According to the federal agency’s first-quarter report, the most recent data available, homes in the Charleston-North Charleston-Summerville metro area had dropped in value by about 8% compared to the first quarter of 2009.

The Realtors association recently reported that the area’s median sales price of $185,612 in June was 4% lower than last June’s median price of $192,626. Von Nessen cited statewide data showing median sales prices are up 1.4% this year over last year, while home depreciation was 3.1%.

He said the federal index captures foreclosures’ effect on prices.

Meanwhile, a factor in the decline in median sales prices is a trend toward fiscal responsibility among buyers, Von Nessen said, which is leading some buyers to purchase lower-priced homes than in the past.

The fact that buyers are looking for homes that are more affordable based on their incomes is a good sign for the market, he said.

Buyers are getting back to the practice of buying homes that cost about three times their annual income. Earlier in the decade, that rule of thumb had gone out the window as people bought pricier homes, he said.

“That’s not the sign of a healthy market,” Von Nessen said.

Reach Ashley Fletcher Frampton at 843-849-3129.