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.