Charleston, SC Real EstateRecently I was responding to some fellow real estate professionals who were deliberating as to whether the market we are currently in in Charleston is an analog to where the market here was in 2008. Here are my thoughts:
The market we are in is nothing like 2008. The only significant change on the demand side is the lack of “First Time” home buyers as many have chosen to rent or have no other option but to rent, or are continuing to live in their parents homes for as long as possible. This is due to much higher levels of student debt combined with poor job opportunities, leading to insufficient opportunities to obtain credit.
New home building rates are way, way below where builders were in 2008. The national rate of new home production of +/- 580,000 annual units is less than half that of the rate of 1.39 million units that represented the high point for new home production in 2005.
Mortgages are definitely much more difficult to obtain now versus what was happening in the market in the 2003-2008 time frame. Rates are very, very low by all historic measure and are likely to remain that way for the foreseeable future. The driver of price increases has fundamentally been a lack of resale homes in inventory, (i.e., demand exceeding supply, therefore prices increase). The better question might be why aren’t more existing homes coming up for sale?
Also rental rates have been increasing at a very steep rate for the last several years. It is entirely predictable that the rate of growth for rental rates will slow and plateau. This is due to a combination of increasing supply of rental units (i.e., new construction and conversion of SFR owner occupied units into rentals) along with the fact that rental rates have gotten to the point where it is now much more logical once again to view the purchase option as a better financial opportunity than to rent. Even considering the “risk of ownership” versus the “safety” of renting, that many millennials claim colored their view of home ownership in a negative way.
My perspective is that going forward, we will see more of a balanced market than a full conversion to a “Buyers Market”. I typically view Sellers in this market to be in two groups: The first are people who need or really want to sell and are pragmatic about how they position their property for sale. The second group are sellers that are effectively indifferent to actually selling, will put something on the market at a high price point, testing to see if they can get anyone to bite on it. But they may not really care if the property sells or doesn’t sell unless they get their over-inflated price (generally investors, second-home owners etc.).
I do think a softening in the rate of growth of prices will actually stimulate longer-term demand from buyers who have been waiting on the sidelines (a lot of baby-boomer retirees and people who have flexibility in their decision making, work-from-home etc.), so I see a bit of a see-saw effect between the pure seller market and the pure buyer market.
Net/net I believe demand for housing in the Charleston metro area will continue to be strong for the foreseeable future, assuming no significant negative events on the macro-economic front. Of course this will encourage more agents to join the trade, and will put pressure on each of our opportunities to generate Sales/GCI.
But no one ever said this was an easy business. What we really need to drive revenue and profit growth at an individual level is for the industry to increase the barriers to entry to becoming an agent and make it more difficult to remain an agent. That is the fundamental reform that this industry needs.