Thousands of Families Want to Move; What’s Choking Things Up?

There are three theories right now about why, with all the people wanting to move, why homes are sitting, and sales are slumped.  Ever had a big hairball clogging your drain?  Once you get it loose the water rushes through.  Is there pent up demand out there ready to rush through?  I hope so for my sake and for that of my clients.  I know many of you are ready to come to Charleston once your home sells.  Sellers are waiting for their homes to sell so they can get on with whatever their plans are.  Anyway, the three theories are:

1)  ARMS are coming due, so people are hoping to change homes and get a new loan all in one fell swoop. 

2)  The subprime market fallout is causing foreclosures, and many buyers with marginal credit can no longer buy, because they can no longer get financing.

3)  New construction, after the blazing 2005 pace, have not let up and are continuing to build with little slow down.  I know many people who have their home on the market, with a contract on a new home, that are having to let the new home go because their current home hasn’t sold yet.  This new home then becomes another listing. 7531 of the 9971 homes for sale are new meaning that 2440 new homes have been or are being built that have permits and are on the MLS.

What about ARMS’s.  There are people that say that the ARM situation is quite severe, and is going to reak havoc on the economy.  I’ll have to leave that discussion to the lenders, and any of you homeowners out there, feel free to jump into the discussion with a blog comment or email.  I did get one response from an earlier post.  This reader just commented that they were going to have to look at refinancing.  I’m not sure what the panic is about, as long as the ARM borrowers can refinance.  If they bought a home they couldn’t afford with a fixed loan, I guess that could be a problem.  I just find it hard to believe that there are that many people out there that bought beyond their means, and set themselves up to have to sell in three or five years, whatever period their hybrid ARM. 

 Subprime Once again, I know their are defaults out there.  But can’t imagine it would explain having double and triple inventory, and sales off so dramatically since October. 

New Construction I think is the culprit, honestly.  At least it’s the only explanation for which I can find hard evidence.  I’m certainly openminded about other explanations, if someone can make a decent case.  I just took a look at the MLS area in which I live, which also happens to be the same area where Wescott Plantation is located, and here’s what I found:

For MLS Area 61, “Dorchester Rd Corridor Out to Ladson Rd.”:

There were 172 homes sold so far this year.

Of those, 91, or 53% where new homes, 81 used.

There are currently 516 homes for sale

Of those, 374 are used or resales and 142 new

So, 81 used homes sold since January 1, and there are 374 on the market currently.  If you call the period since January 1 till now 3.5 months, that means there are 16 months of used inventory and 5 1/2 months of new.  The 374 used homes, one would think would nearly all represent potential buyers.  The new homes, of course do not. 

So, what’s the solution?  Real Estate trends are very localized in my opinion, at least if you discard or minimize the affect of the first two theories.  2005 was a phenominal year, and sales are still brisk if you compare them to 2003.  One solution is that Charleston could have an influx of Summer buyers from outside the area.  If a family with children is going to change towns, they have to change schools.  Once some of our local sellers become buyers, we could see a release on the choking affect all these homes are having on the market.  Unfortunately, we don’t really know if this will happen.  We can only hope. 

Sellers, know your competition.  If you’re competing with less than 6 months of inventory, then sold comps are a good measurement.  With less than 6 months of inventory however, there is no upward pressure on pricing, it’s pretty neutral.  However, With over six months of inventory, there is theoretically a slight downward pressure on pricing.  So, if there is over six months of inventory, you need to know your competition to price your home effectively.  With downward pressure on pricing, you want your home to sell in the upcoming three hot months, or you could be in a declining market.  Perhaps not, if there happens to be pent up demand out there.  If there is over 12 months of inventory, are sold comparables really relevant if you’re trying to find a buyer?  Possibly not.  With this much inventory, and with the timing of the upcoming summer buying season, if you need to sell your home, this is the time to price it to sell.  And that means, the price and condition need to be superior to your competitors.  And since your competitors may be new, your home needs to be immaculate if you’re going to get the same dollar. 

You may want to actually go out and look at your competitors to determine how you’re really priced.  It’s impossible to determine from  listing information the condition of the home.  And it’s also difficult to really see how all the features and upgrades really add up.  It may be very worthwhile to call your agent and ask them to help you pick out three or four competitive homes and go schedule some showings.  Once you’ve seen against which you’re competing, you may adjust your price, or perhaps the remarks in the listing to highlight your strengths. 

More on new construction.  While there are 2440 new homes in the MLS, many times that are potential new homes….new home sites that the builder has ready to sell, with a variety of floor plans available, that can be built to suit the buyer.  How many thousands?  I haven’t figured out a way just yet to get to that number, but I’ll look into it.  I would say that 5000 would be a safe bet, meaning that there are about the same number of new home opportunities as used. 

Know your competition is the watch word for the day!  There are over 7000 potential buyers out there right now living in the Charleston Area, so watch for what happens when things break lose and start to flow.  So be ready, and stay tuned here for the market watch. 

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8 responses to “Thousands of Families Want to Move; What’s Choking Things Up?

  1. My own personal opinion based on what I have read is that in some locations nearly half of homes purchased in the last couple of years were not primary residences. These are probably the same people who got into the NASDAQ in the late 90s, and now they are doing it again in real estate. At the first hint of a slow down, they created their own destiny by all trying to sell at the same time.

    A lot of those same people are the ones who took out ‘risky’ loans – interest only loans, etc. Also never forget that the average American doesn’t save a penny. That means that even a small tick to you and me of $200 a month could be terrible for a lot of people…and then another tick and another and now they’re paying $600 a month more.

    Nobody wants to catch a falling knife. We are moving to the area next week when we close on our home here in Charlotte. We have watched the comps in the neighborhoods of our interest drop from over $200 per square foot two years ago down to the $180s, $170s, and the last few homes have sold for barely $160/sqf. (Editor’s comments, I have not been able to find a past sale in Whispering Marsh Subsection of Dunes West for $200 sqft.) Unless we find something perfect, we’d rather take the money from our current home and let it pay our rent while we watch. Average DOM is nearly a year now in many places in the low country. No mortgage payment, less cleaning and yard work, AND interest in the bank account paying the rent is not a bad deal.
    So we’ll wait and in the meantime continue to watch people relist their homes another $20,000 lower every 3 months.

  2. not sure what you mean regarding your comment about Mt. Pleasant. Please explain. Thanks.

  3. When I mentioned that I would be less surprised if prices fell in Mt. Pleasant, I was referring to the fact that average days on market has been over 100 since November. So I would be less surprised to see prices drop there. I would still be surprised to see the kind of drops Brett is talking about.

    Brett just emailed me that Whispering Marsh section of Dunes West is what he’s talking about. He’s been using Zillow for his information, and the information about $200/sqft is just wrong. Brent has actually done some pretty savvy analysis, he just needs a better information source; like the actual MLS; which he…and you… can get from me, or any other Realtor that knows how to do this kind of research. The average price per sqft in 2005 in Whispering Marsh was $158. From Jan. 06 till now, it’s $172. Be careful the conclusions you draw are coming from accurate information. Two homes sold in that area since the beginning of the year, averaging $164 sqft. And you can’t draw any meaningful conclusions from two home sales. So Brett, what do you say we go house hunting…or at least sit down together behind a computer. You’re obviously very good at analysis, let’s get that spreadsheet of yours populated with accurate information, and then, you can make this very important decision whether to rent or buy now based on good info.

    Brett and I had a nice conversation on the phone as I was driving to a meeting, and he’s obviously good with numbers and facts. It also looks like he’s done his homework on this subdivision, actually a subsection inside of Dunes West.

  4. Here’s Brett’s email copied with permission:

    We’ve been focusing in on the Whispering Marsh section of Dunes West. See attachment, I only went back 15 months…I didn’t include the MLS numbers. It may take a piece of work to get this but if you look I tried to smooth the sqf numbers in the last column and you can clearly see the trend down. Using Zillow, you can also wander around the neighborhood and find homes in 2005 in there that sold at very high prices…I remember some in a tiny cul-de-sac at the entrance that sold for over $200/sqf. One was like $525,000 for a 2500 sqf home.

    I don’t have comps for other areas because we haven’t zoomed in on them a lot but I can tell you I have seen some homes in Rivertowne lower their price twice since last fall.

    Still, I wouldn’t doubt choppiness. If we found a home we liked we wouldn’t worry is it $160/sqf, $180/sqf so much – its a home not a NYSE stock.

  5. Yes Jim, that spreadsheet I sent you was 100% from MLS. Average $/sqf has been steadily dropping from around $180 in early 2006 to around $160 as of the last 3-5 homes that have sold. It was a total of approximately 15 homes from the Whispering Marsh section of Dunes West.

    But thats not illogical – if the supply is growing while demand is dropping, you’d expect to see days on market growing fast, which it is. Inventory in the last year has doubled, days on market has doubled, and months of inventory has tripled.

    The only thing I used Zillow for was trying to find tax records for home sales from 2005. I certainly know their home value estimates are near worthless, but I figured their tax record information should be better.

  6. There’s no question that things got a little crazy in 2005,especially in Mt. Pleasant following the moratorium on building permits and now we’re seeing some fallout. Honestly, I’ve never really appreciated what it is about Mt. Pleasant that makes it worth what people are paying, and maybe some of the luster of the Mt. Pleasant brand name is wearing off. We’ll see. Brett, you mentioned the $200sqft comp again, and I haven’t been able to find it. If you can provide the MLS number, I can shut up about it. You’ve made your decision and have decided to rent. So you’ll definately be in a position to have great selection without paying top dollar in six months or whenever you decide to jump in. It’s not what I would do or recommend to my friends, but I hope it works out for you. Thanks for pointing out that Zillow is not the most accurate tool. I was thrown off by your claim of a $200/sqft listing in Whispering Marsh, which I still have yet to find. That’s what made me question your data. I hear everything you’re saying…I guess it just goes to show you that there are different perceptions depending on how you look at the numbers. I say, this is a good time to take advantage of the terrific selection of homes, do the work to find a motivated buyer, and get the best of all worlds. Right now, you can get your choice of neighborhood, lot, elevation, and floor plan in Mt. Pleasant with the best schools in South Carolina, without having to pay top dollar. Or, you can move into a rental or apartment, unpack half your stuff, live out of boxes, just so that in six months, you can pack up and move again. Been there, done that.

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