The Bottom Line – There will be time while sales are picking up, but inventories are still high enough to find opportunities to buy low. So if you’re looking to invest in the under $600,000 market in Charleston, you have time to get in and buy low. Prices are not going to get any lower unless interest rates go back up. If you’re looking to move here, buying now is fine. Since you’re going to be living in the home and the small things can really matter, it’s a good time to take advantage of the great selection. I don’t think prices are going to go down.
The biggest con right now is that there has not been a corresponding increase in rental prices to go along with the appreciation in home prices. It should follow in time with the decrease in buying power resulting from the 18% increase we’ve had in the cost of money. The market here was red-hot when interest rates were at 5 1/4. Now that they’re over 6, things are much cooler. Rental rates are always limited by what renters can purchase for the same amount, and buying is much more difficult now. You can’t purchase squat right now for the current rental rates, $900 -$1000 month, unless you have a large down payment. So we should see an increase in rental rates to $1100-$1200, but so far, this hasn’t materialized.
The big question is, “What is going to happen to home prices in Charleston?” My opinion is, anyone that says they know the answer is full of it. The reason I think this is that we don’t know yet what the real fallout is going to be from the increase in the cost of money. We don’t know if there is pent up demand from people waiting. If there is, then we should quickly see a return back to 10% annual appreciation. If there isn’t, then prices could stay flat. And if inventory continues to rise, then we could actually see them come down. December was our first month where unit sales were signifantly below 2004 unit sales for the same month. (1060 in Dec 2006 vs 1238 in December 2004) October and November2006 were about the same as 2004. (2005 was super hot, so no one is too surprised to be off 2005, that’s why I’m comparing 2006 to 2004) For a chart showing all three years, click here http://images1.e-net.com/pruosha/marketstat/mlssoldhomes.pdf.
We’re in the process of compiling January sales and inventory figures so be on the lookout for our next update. I already know that January 2007 is way off of January 2006. The thing you need to decide, is do you want to wait for the word to get out that things are improving before jumping in? Or do you want to buy now to avoid the rush? I would probably suggest keeping a very close eye on things and here’s why. It’s going to take some time for the inventory to go down, even after sales go up. So there will still be opportunities. What I’ve seen is that, for people willing to do the work so they have multiple candidates, motivated sellers are accepting offers where we were expecting them to counter. We’re finding that there are more and more motivated sellers…and the only way to find out how motivated a seller is, is to put in an offer. Homes that are 5-15 years old are particularly good targets, where the seller is the original owner.
The flip side to that is, if you’re selling a property, do not allow yourself to end up in the position where you’re running out of time. Price it where it needs to be to start. You may find that starting $10,000 lower now will save you from having your back up against the wall later on.
What will prices be doing six months from now? I suspect they’ll be going up again. Being on the southern coast continues to attract people from all over the country. Across the country, people are having difficulties getting their homes sold, which is affecting the supply of buyers in the South East. And lowering their selling prices is affecting their buying power. If interest rates will stablize in the high 5 low 6’s, we’ll start to see more movement. And if there is pent up demand, the sell/buy cycle will get unstuck, and it will be a great time to get in and start buying.