March 2010 Charleston Market Report

8/9/2019 March 2010 Charleston Market Report

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“The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.” William Arthur Ward

March 2010 Issue

In This Issue

Cartoons

Unemployment aka Unenjoyment

HAFA

Delinquencies

Interest Rates

Charleston Real Estate







The Age We Live In







UnemploymentAccording to the new jobs report from the Bureau of Labor Statistics, nonfarm payroll employment increased by162,000 in March.

It’s not quite as good as it sounds. The increase in jobs includes the hiring of 48,000 temporary workers to

conduct the Census. And the unemployment rate remained unchanged at 9.7%. Plus, long-term unemployment goworse. Of the 15 million people officially classified as unemployed, a record 6.5 million, or 44.1%, have been out owork longer than six months. Lastly, the U6 alternative gauge of the unemployment rate, which includes discouragworkers and those forced to work part-time, rose to 16.9% from 16.8%.

The charts below are disturbing because they show different angles of the ugly truth about unemployment right nowCharleston has some positive developments with job growth occurring but many of these jobs are still over a year away. How many jobs will come from suppliers of Boeing and the Wind Turbine Facility? How many jobs willBoeing bring over the course of the next 5-10 years? These are million dollar questions that none of us know right

now.

The facts are the following: This is one of the worst recessions on record and nonfarm jobs have not returned. Most of the people unemployed have not found work for over 27 weeks. Most of the new jobs are coming from the federal government. The true unemployment rate lies between 17-22% if you look at the last graph from

www.shadowstats.com. Since Charleston mirrors the national unemployment rate I would estimate our local

unemployment rate is also between 17-22%. The minions from the Obama Administration are delusional when it comes to what it will take to

improve the unemployment figures. Why? You can not raise taxes, refuse to reduce spending and have government take over 1/6th o

the economy and expect free market principles to work.










The final graph that does not bode well for housing is compiled by Calculated Risk . This 40 year old historical

chart shows how unemployment and housing starts mirror each other fairly consistently. Boeing may truly bsavior for the Charleston real estate market once the jobs begin to arrive here.




Housing and the economy will not get better until employment figures begin to improve. Between the recentpassages of the health care bill, increased regulation in the financial system, rising taxes and an anti-capitalisticeconomic agenda by the Obama Administration makes any recovery appear to be impossible. I believe the economwill continue to “grind” along and then we are headed for a double dip recession in 2011.

RegulationThe 1,336-page bill, introduced by Banking Committee Chairman Senator Christopher Dodd (D-Conn), has alreadybeen approved by the Senate Banking Committee and is expected to hit the Senate floor for debate in April.

In Dodd’s own words, the critical pieces of his proposal include:

1) It will end bailouts, ensuring that failing firms can be shut down without relying on taxpayer bailouts or threatenthe stability of our economy.

2) It will create an advance warning system in the economy, so that there is always someone responsible looking oufor the next big problem.

3) It will ensure that all financial practices are exposed to the sunlight of transparency, so the exotic instruments likhedge funds and derivatives don’t lurk in the shadows and businesses can compete on a level playing field.

4) It will protect consumers from unsafe financial products, such as the subprime mortgages that led to the financiacrisis.

However, prior to the financial crisis no fewer than seven regulatory agencies were tasked with the exact kind of “consumer protection” proposed by Dodd’s new bill. And they didn’t do a darn thing to help.

TaxesPresident Obama plans to introduce a fee on the largest banks in the country with over $50 billion in assets. The tawill start June 30 and plans to collect $90 billion over the course of 10 years. This tax will certainly be passed on tconsumers and businesses.

For all who doubt the Obama administration will raise tax rates into the stratosphere in the very near future, here ischart created by dshort.com which compares the total level of debt to GDP with Federal tax brackets over the pastcentury. The correlation between the two is unmistakable . Unless the administration promptly finds a way to

reduce the massive amount of debt that it continues to issue (in March alone the US Treasury issued a massi

$333 billion in net debt), tax rates will have no option but to spike to levels not seen since the 50's. And that

means a tax bracket for the highest earners of about 90%... You didn't think socialism comes cheaply now didyou? This is truly frightening stuff whether you are rich or poor. I never understand why the liberals always attachthe rich because at the end of the day who the hell do they think are employing most of the lower and middle class?










HAFA – Let The Short Sales Begin!In 2009, the Treasury Department introduced the HAFA program to provide a viable option for homeowners who aunable to keep their homes through the existing Home Affordable Modification Program (HAMP). The HAFAprogram takes effect on April 5, 2010—although some servicers may implement it sooner, if they meet certainrequirement--and sunsets on December 31, 2012.

HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoidforeclosure on a loan eligible for modification under the HAMP program. Servicers participating in HAMP are alsorequired to comply with HAFA. A list of servicers participating in HAMP (including HAFA) is available at:

www.makinghomeaffordable.com

This program started in early April so it may be what the lenders were waiting for to give them some incentive tounload distressed properties.

If you want more details on this new program from the Gooberment click on the link below:http://www.realtor.org/government_affairs/short_sales_hafa

Delinquencies

I would estimate approximately 20-25% of all home sales are short sales or foreclosures in the tri-county right now

would expect this trend to increase as more banks need to raise capital and will continue to sell non performing assand mortgages reset as interest rates rise. The big question for the lowcountry is how many jobs produced by BoeinWind Turbine Facility and future new businesses coming to Charleston will offset the distressed sales. I honestly dnot know because getting accurate data on the local housing market is very difficult to get unless you do some heavduty research. MLS statistics are often misleading and do not show much of the shadow inventory and future nonperforming bank properties about to hit the market. I still believe Boeing is going to shift a large number of unionjobs to Charleston because we are a right to work state (Non-union.) In this new era of increased taxes and tighter profit margins a company like Boeing will need to make these adjustments so they do not fall behind in orders agaidue to union strikes. So I continue to be optimistic that the < $300k home market will improve once the jobs arriveAll the other price points will continue to feel pain via falling prices and increased distressed sales for years to com

What could become very problematic for the local residential real estate market is that the double dip recession hitsthe same time we expect all these new jobs to hit Charleston. If this occurs then confidence will be weak and manythese potential homebuyers will rent.

If you are planning on buying make sure your price is in line with the current rental prices. I would not recommendbuying unless you plan on living in the home over 10 years so you can avoid losing value to future distressed salesthat will be occurring over the next few years.

Our government is following the same path as Japan did in the 1990s with regards to real estate so it is not the bestplace to invest right now. The housing market is and will continue to be deflationary in many segments.

The charts below are on a national scale not local but the trends are in line with what is happening in the lowcountr













Interest Rates




The key yield level of 3.95% in the 10yr that we were fast approaching which is the highest since June ‘09 and woumatch the highest level since Oct ‘08. Today, the 30 yr bond yield at 4.79% has broken above its key June ‘09 leve4.76% and is now matching the highest since June ‘08 which is the most since Oct ‘07. The yield spread todaybetween the 2 yr and 30 yr is at 375 bps, the highest since March 10th and is just 10 bps from the record high of 38bps reached on Feb 17th.

During the past fifteen months, the Fed purchased $1.25 Trillion in MBS, which represented 80% of the

mortgage market. Prior to this program, mortgage rates were above 6%. Now that the Fed program has endedit's reasonable to assume that mortgage rates will rise back towards those levels.

What does a trillion dollars look like? Those are Ben Franklins stacked up not George Washingtons!

The US is spending at an unprecedented rate and its spending money it doesn't have. This means that more and morTreasuries will continuously need to be auctioned off. And in order to entice buyers to keep absorbing this supply,

yields will very likely need to continue higher, just as they have for over the past year.

Our government currently spends $1.49 for each $1.00 it brings in. Our debt is now 57% of GDP...and rising. Doeanyone really believe that Treasury yields are headed lower? As Treasury yields move higher from their currentlevels, mortgage backed security coupon yields will also need to move higher in order for investors to want topurchase them.




Charleston Real EstateThe current residential market in the Tri-County remains soft despite major incentives from the U.S. governmentwhich include the $8k First Time Homebuyer tax credit set to expire in April and the nationalization of lending viathe GSEs, Fannie Mae, Freddie Mac and FHA. The problems remain the same and it appears the stabilization of thmarket will take years.




Here are a couple of bullets on my thoughts: We still have three distinct markets which are the lower end, upper end and short sales/foreclosures. A troubling trend seems to be sellers have no room to price their homes correctly as about 80% of the home

listed on the MLS are still overpriced based on today’s market. The active inventory as the end of February was 9532 homes. Home sales have increased in all three counties from Feb. 2009 vs. Feb 2010.

Home sales in Charleston County increased 60% over February 2009. During the month, 288 homessold, and the median price increased 5% to $235,950.

Sales in Berkeley County increased 16% to 108. The median price was $157,495, down 3% from las

year. Dorchester County home sales increased 5% to 91. The median price declined 15% to $145,000.

What will be the impact of the end of the Homebuyers Tax Credit? I believe it could be significant since thmajority of sales in the Tri-county are from first time homebuyers who have been conditioned to expect an$8000 freebie from the gooberment.

Since 2010 the Charleston residential market has performed better than the previous year. Sales are up andinventory/absorption rates are down.

However when you take a look at the chart below created by Doug Holmes of Carolina One you will noticethat the numbers tell a different story when you look at them on a 12 and 6 month rolling time frame.

SFD are virtually flat in sales volume comparison and the median home price dropped -7.5% for 12rolling months.

All home types are up 20% (sales) and down -4.9% (median price) on 6 rolling months.







Berkeley County




Charleston County




Dorchester County




Daniel Island




Historic Downtown

Source:

www.charlestonrealtors.com



Disclaimer

The research done to gather the data in The Charleston Market Report involves examining thousands of listings. Wthis much data inaccuracies will occur. Care is taken in gathering and processing the data and information within th

report is deemed reliable. IT IS NOT GUARANTEED. The real estate market is cyclical and will have its ups anddowns. Past performance cannot determine future performance. The purpose of the Charleston Market Report is toeducate you on current and consistent market conditions by reporting leading market indicators with the support oftraditional real estate data.

This information is offered with the understanding that the author is not engaged in rendering legal, tax or other professional services. If legal, tax or other expert assistance is required, the services of a competent professional arerecommended. This is a personal newsletter reflecting the opinions of its author. It is not a production of myemployer. Statements on this site do not represent the views or policies of anyone other than myself.

Investing in real estate is not a get-rich-quick scheme nor is there any guarantee you will make a profit. Every effor

has been made to make this report as complete and accurate as possible. However, there may be mistakes. Thereforthis report should be used only as a general guide and not as the ultimate source for making money in real estate.

Documents

March 2010 Charleston Market Report