November 2009 Charleston Market Report

8/9/2019 November 2009 Charleston Market Report

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www.charlestonmarketreport.com


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

November 2009 Issue

In This Issue

Cartoons

Charleston Jobs Impact


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Charleston Jobs Impact

This issue of the CMR is going to focus on Charleston residential data and trends along with the economic impactBoeing and the Wind Turbine facility will have on the real estate market.

According to the Washington Alliance for a Competitive Economy Report published in April 2009, Boeing has ajobs multiplier of 3.96 which means each of the companys jobs will support nearly three additional jobs in thestate. Once the Boeing plant is finished and the 3800 employees are hired the state of SC will see approximately anadditional 11,248 jobs brought to South Carolina (mostly in Charleston). I have no idea how many of these additio

indirect jobs will be located in Charleston. However the impact in the next 2-5 years of 15,048 jobs coming toCharleston and/or the state of South Carolina is the equivalent of winning the jobs lottery.

In order to put the economic impact of Boeing into perspective the state of Washington if Boeing moved their entiroperation out of Washington they would lose 285,000 jobs of which 72,000 would be Boeing employees. I feel it isafe to forecast that Boeing will gradually shift more operations to Charleston after 2011 over the next 20 years inorder to move their production workforce to a right to work state that does not have a union.

The charts below will give everyone something to compare the job impact of Boeing and the Wind Turbine Facility


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So what will be some of the economic impact of Boeing coming to Charleston?

Personal income in the Tri-County will increase which will help our local economy. Home prices in certain areas of Charleston will increase as these new citizens begin to reduce inventory lev The job impact will not be fully implemented at the new plant until the middle of the next decade according

many reports. A potential start of an aerospace cluster.


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The billion dollar question is will Boeing implement a phased withdrawal strategy of their manufacturing operationfrom Washington to South Carolina? I believe the answer is yes because of the higher costs to pay union employeeand the extremely high costs that Boeing incurs when these employees shutdown their production facilities due to astrike.

The ultimate best case scenario for this phased withdrawal from Washington to South Carolina would meanapproximately 285,000 jobs would be shifted to South Carolina from approximately 2013 to 2030. If this strategyimplemented by Boeing it would mean approximately 16,784 jobs would be shifted to South Carolina each y

for the next 17 years starting in 2013. This type of job creation would completely change Charleston in a mannercan not even imagine. It would bring tremendous growing pains, such as traffic, but would transform the residentiareal estate market from a current problem of excess inventory due to lack of demand and too much supply andcompletely flip the supply/demand model to a point where this region could face a housing shortage. Remember, tscenario I am speaking about occurs only if Boeing decides on the complete phased withdrawal from the state ofWashington.

I am not sure what the Boeing employees will be paid. Based on the fact that Aircraft Manufacturing employees inWashington were making $91,886 in 2007 I have to believe the future Charleston Boeing employees will make atleast $40,000-$50,000 per year when they start.

In addition to Boeing coming to the lowcountry we also recently got news of a Wind Turbine Test Facility coming North Charleston that could be bigger than Boeings recent announcement in terms of the number and quality of jobThe U.S. Department of Energy said the impact of this facility could bring 10,000 20,000 jobs to SC over the nex20 years. The immediate jobs would include:


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Construction jobs Electrical engineering and development Handling of equipment Jobs related to testing

This $98 million project which received $45 million grant from the U.S. DOE and $53 million in matching fundingdirectly related to a major sector, wind, of new green energy technology to help the U.S. and the world create cleanenergy.

One of the main questions that are impossible to answer is how many of these new jobs which are being created in next couple will hire Tri-County residents versus out of town residents. This will be important in determining the timpact on the Tri-County residential real estate market. I have no idea what this percentage is going to be so we careally only speculate.

In order to determine the impact of these two major facilities and jobs on the Charleston real estate market we needtake a look at a couple of variables. The first one is the impact on the unemployment rate for this area. Currently, unemployment rate in the Tri-County region is 9.7% and has almost doubled from the 5.2% rate a year ago.Obviously, this has been the trend not only in Charleston but in almost every city and town across the U.S. as well.So what does a 9.7% unemployment rate for Charleston mean?


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The important number is how many people are actually unemployed in the Tri-County region? I never have seen thlocal news media really break this number down into perspective in order to relate it to future job creation of Boeinand the Wind Turbine Facility. Why?


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So we currently have 32,000 people in the Tri-County out of work. Many of the foreclosures and short sales are adirect result of this negative economic number. Fortunately, this number is about to improve once Boeing, the WinTurbine Facility and other indirect companies that move to Charleston as a result of these new facilities beginoperations. Clearly the unemployment rate in Charleston is close to the highest point it will be during this severeeconomic recession and yes it could go a little higher but it will not stay high much longer with these high number jobs being created by these new facilities.

According to the stats from these two facilities Charleston will have the following jobs created by 2015:Boeing (Direct) 3800

Boeing (Indirect) 11,400 (3 jobs for each Boeing job)Wind Turbine 4500 (10,000 20,000 over the next 20 yrs.)

Total 19,700 or 4,000 each year over the next 5 years.

If these numbers are accurate and our local unemployment rate does not go up much further from 10% then we cousee the unemployment rate of the Tri-County area drop by 60% over the next 5-6 years! Now, what is the main driof growth for housing demand?Answer: JOBS.Job growth translates into more adults with incomes who can buy or rent homes.

Starting in 2010 Charleston should see consistent job growth with higher than average wages that will have a positi

impact on the local residential housing market. Now the question is which part of the housing market gets affectedIn order to keep these stats simple I am going to break out the current state of the Tri-County housing market forHomes (Single Family Detached) and Condo/Townhouses (Single Family Attached) selling between ($100-$350k)versus ($350k and up). The reason I am breaking down the market in this manner is that based on the type of jobsbeing created and tighter lending standards will only allow most of these new employees of Boeing and the WindTurbine Facility to afford homes that are selling for less than $350k. I am using $350k as the max amount thesefuture employees will purchase based on a combined income of $100k per year and the fact that DTI (Debt toIncome) runs around 45-50% for most loans. Once you factor in Principal, Interest, Taxes and Insurance themaximum mortgage payment is going to be around $2300-2500 based on what a reasonable couple can afford aftertaxes are taken out of their paycheck. This is not an exact science and there will be special cases but I am using thenumbers to try and project what the average new employee in Charleston will be able to afford.

The Charleston MLS currently shows 1277 homes, condos and townhouses active for rent for less than $2500 permonth.


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Houses ($100-$350k)


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Condo/Townhouses ($100-$350k)


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Houses (Greater than $350k)


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Condo/Townhomes (Greater than $350k)

Depending on how many of these new employees move to Charleston and want/need to buy a home over the nextcouple years the previous four charts tell a very simple story. Since most of these employees will probably havefamilies I see the $100-$350k housing markets inventory declining and really flipping into a strong buyers marketwhile everything over $350k will improve somewhat but still have inventory and pricing issues.

Based on this scenario lets breakdown the $100-$350k SFD Housing Market a little more based on each county.


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SFD - Berkeley

SFD - Charleston

SFD - Dorchester


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We could easily see the lower to mid market become a strong buyers market while the upper end of the marketremains a sellers market because it was simply overbuilt over the past 5 years. Keep in mind I am just basing thisanalysis on the impact of two new industries in Charleston without accounting for other future opportunities that marise in the future. So I am very bullish on the affordable housing market in Charleston, just as I was last April whI made my presentation at the College of Charleston and I remain bearish for the upper end of the market inCharleston due to excess supply and tighter mortgage guidelines.

Charleston- North Charleston, SC (MSA) Unemployment

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UnemploymentRate%

Charleston U.S. 13 per. Mov. Avg. (Charleston) 27 per. Mov. Avg. (Charleston)

Source: Bureau of Labor Statistics

Created by: Brad Rundbaken



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Vital Sign Market Momentum Chart

Tri-County Existing Residential Sales

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MarketMomentumReadi

ng

Above "0" Line: Favorable market conditions.

Below "0" Line: Unfavorable market conditions.

Nov. 2009 = - 23

Recession

Mar 1990- Feb 1991

Recession

Mar 2001- Feb 2002

and 9/11

NASDAQ Correction

Top of the real estate market.


Based on past, current and future local circumstances I now believe the bottom of the overall Charleston housingmarket was reached in April 2009 where you see the blue arrow. These important trend charts should continue to

improve as the job market changes over the next couple of years.

The real wild card for the entire local residential real estate market will be the eventually increase in interest rates.The Fed is supposed to discontinue purchasing bonds in 2010 which would lead to interest rate risk. If this occurs depending on the severity of the volatility and increase many sellers may have to drop prices further in order to selltheir home to prospective buyers. The interest rate risk will have the biggest negative price impact where there ismore inventory and less demand which is the upper end of the market which is most on the coast and in CharlestonCounty.


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Vital Sign Market Momentum Chart

New Building Permits

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MarketMomentumReading

Above "0" Line: Favorable market conditions.

Below "0" Line: Unfavorable market conditions.

NASDAQ Correction

Recession and 9/11

March 2001-February 2002

Oct. 2009 = -34www.charlestonmarketreport.com

In conclusion, none of you have probably ever read anything so bullish from me since I started the CMR. I am n

aware of any city in the country as fortunate as Charleston is at the current to be on the verge of gaining so many hiquality jobs over the next 20 years. Although the influx of all these new jobs will present growing pains on ourinfrastructure and communities most business people in Charleston want the growth. I have mixed feelings about iand honestly miss the Old Charleston but considering the problems in real estate and the local economy these newjobs are wonderful news and a nice Christmas gift for the lowcountry.

There is still one set of circumstances that could effect my recent bullishness on Charleston. Our country is stillsuffering from an increasing deficit, an economy that still has a bad case of credit cancer, a capitalistic system builtcredit and debt that is literally ponzi-financing, a global economy running on stimulus funds that were created ouof thin air via printing presses, and gold now trading at $1159 per ounce.

All of this global stimulus and manipulation of economies by governments and central bankers has created otherbubbles that could bust in 2010 or later and present speed bumps to our local economy just like what occurred in 20so be careful. Fortunately, good paying jobs will trump most of the negative economic situations that may pop upover the next several years. It really does appear that the Post & Courier was correct when they coined Charleston Boom Town with the recent jobs announcements.


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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 threport 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 of

traditional real estate data.

This information is offered with the understanding that the author is not engaged in rendering legal, tax or otherprofessional 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 efforhas 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

November 2009 Charleston Market Report