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Housing market slowed but prices will continue to rise
By Lindsay Danzell
Contributing Writer
Remember Economics 101? Something about supply and demand, right?
At the root of the home-building industry is that simple theory. According to BB&T Corp.’s Capital Markets division, the national housing trend will be for supply to shrink and demand to grow, causing prices to inflate by 2008. And Charleston will follow, said L. Todd Vencil, vice president of Capital Markets.
On Sept. 21, Capital Markets sponsored a seminar that looked at current home-building market trends and predicted the market’s outlook. Vencil hosted the event.
According to Vencil’s research, the current market data overshadows his price-inflation prediction.
“The data looks pretty tough,” Vencil said.
Charleston is the 46th largest housing market in the nation. In its research, Capital Markets’ research found both new and existing inventories of homes on the market are up. Homes in the area are taking three months longer to sell than in 2005.
The market may look bleak now, but Vencil thinks this slowdown is an adjustment period. Capital Markets’ research found that as markets readjust from the real estate boom, areas with high rates of appreciation, such as Charleston, slow down more quickly.
“That’s all the bad news,” said Vencil, laughing.
The good news is that Capital Markets found home prices are continuing to rise nationwide, and the Federal Deposit Insurance Corp. found more markets booming than ever before.
Even with a large standing inventory of homes, Vencil said the market is still under-built. Home-ownership rates are at an all-time high of 68%, causing a gap to form between housing starts and population increase. Vencil thinks that imbalance will correct itself and demand will increase.
According to Capital Markets, the supply of homes has been artificially limited by increasing levels of anti-sprawl regulation on available land, slowing the development process and increasing expenses.
The supply of homes will continue to be short of the need because of banks increasing regulations on lending, capital-restraints on privately owned homebuilding companies and less speculative building by public-owned homebuilding companies, Vencil said.
Also, Vencil noted the link between new home construction and the local economy; stronger economies offset negative impacts from higher rates. Research showed home-building demand will continue strong in Charleston because of population growth and the stronger economy.
Because of the healthy economy coupled with the short supply and the increasing demand of homes, Capital Markets predicted the Charleston market will be back in mid-2007 and healed by 2008.
Bottom-line? Capital Markets expects prices to continue to rise, although not as fervently as in the past.
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