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Single-, multi-family homes to lead growth in 2006
By Dan McCue
Staff Writer
The tri-county region’s real estate market is continuing to grow at record levels, a positive sign for the local economy as a whole, despite rising mortgage rates and an anticipated spike in construction materials costs due to the ongoing recovery from Hurricane Katrina.
“We’ve been discovered; we’re not in a bubble,” said Al Parish, director of Charleston Southern University’s Center for Economic Forecasting.
Parish was a speaker for the 2006 Economic Outlook Conference, an annual event hosted by the Charleston Metro Chamber of Commerce on March 30. The keynote speaker for the event was Ray Owens, senior economist with the Federal Reserve Bank in Richmond, Va.
Assessing the Charleston market’s vigor in the face of a national slowdown in home sales, Parish noted, “Construction of multi-family units will continue their strong growth, including apartment conversions.”
In fact, the forecast said the region’s residential real estate market is growing rapidly, more than tripling the number of permits issued each year in the past 10 years.
The average value of new residential permits also rose last year to $154,000, an increase of almost 13% from 2004.
The region also experienced record-breaking growth in the number of homes sold, with more than 15,400 homes sold through the Trident Association of Realtors MLS system, an increase of 12.8% from 2004.
The forecast for 2006 and 2007 is for continued expansion in both the number of new homes and the number of homes sold. The local forecast also bodes extremely well for the non-residential construction sector.
Parish explained this is due in part to the construction of the new 600,000-square-foot Global Aeronautica LLC aircraft manufacturing plant in Charleston County and to vendors relocating to the Lowcountry.
“Permits for non-residential construction are also very strong, thanks to business investment,” Parish said. “That growth is expected to continue through 2007.”
Parish said as land prices in the Charleston area continue to climb, developers are moving farther from the urban core.
To illustrate that point, he said nearly 22,000 homes are planned for Berkeley County over the next decade, most of them to be built near the junction of U.S. highways 17A and 176.
“This is a clear indicator that the rapid growth we’ve seen the last few years is going to continue. It may slow down slightly, but it will continue,” he said.
The surging residential market will also lead to a marked expansion of new construction of shopping centers and office buildings throughout the region.
Owens, a senior economist with the Federal Reserve Bank in Richmond, Va., said while some economic indicators declined sharply last fall, in part due to the effects of Hurricane Katrina and in part due to the elimination of sales incentives offered by automobile manufacturers, they were more than offset by business investment that far out-performed predictions and grew by nearly 16%.
As a result, although the U.S. economy expanded at an annual pace of 1.7% in the fourth quarter of last year, the slowest pace in almost three years, the Federal Reserve expects growth to bounce back robustly in 2006, Owens said.
“All the data seems to be pointing in the right direction,” Owens said. “We’re looking at another good year.”
In the past four months, about one million new jobs were created nationwide, and Owens said he expects the nation’s unemployment rate to fall from its current rate of 4.8%. “There’s no slowdown in sight,” he said.
Increased job stability and better employment prospects, in turn, are expected to boost consumer confidence and spending.
Owens also predicted increased business spending on equipment, software and expansions. “Business conditions are currently very strong,” he said.
In fact, he predicted the economy will heat up so robustly that businesses and investors should expect another interest rate hike when the Fed meets in May. That will bring the Federal Reserve’s interest rate to 5% and will likely be the last rate increase for the foreseeable future, Owens said.
Scott Moore, manager of the chamber’s Center for Business Research, said the region’s jobless rate fell from 5.3% in 2004 to 4.9% last year, and the area is adding about 1,000 new jobs a month.
Parish said he expects job growth to continue, thanks in part to local business expansions and new companies locating in the area.
The region’s growth has also fueled retail sales, which hit a record $16.4 billion last year.
Local retail sales should continue to grow with the addition of major shopping destinations such as Tanger Outlet Center under construction in North Charleston, Parish said.
Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@charlestonbusiness.com.
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