South Carolina Real Estate - Quarterly Housing Market Report - 4th Quarter / Fall 2009

Although offi cially the recession is not over, the latest GDP

shows economic growth for the fi rst time since July 2008. Th e

growth—3.5% in the third quarter—not only exceeded the

expectations of most economists, but also represents a major

turning point for the U.S. economy. Although many key economic

indicators point towards economic recovery, this increase in GDP

is the most promising sign that the economy is again on track for

long-term economic growth.

The popular defi nition of a recession is a period of negative

economic growth (GDP) lasting at least two consecutive quarters,

which would place the start of the recession at the fi rst quarter

of 2009 (see National Gross Domestic Product, next page). Th e

National Bureau of Economic Research (NBER), one of the leading

authorities on recession activity in the United States, dates the

recession’s start to December 2007, using a broader defi nition

that incorporates more macroeco- nomic variables. Regardless of

the defi nition used, this has been an historic contraction. To put

it into perspective, the third quarter growth in GDP represents an

end to the largest drop in GDP since 1949.

Of course, one quarter of GDP growth by itself does not

guarantee that the economy has turned around for good. What,

then, are the additional signs that the increase in GDP represents

the beginning of long-term economic growth? On a national

level, consumer confi dence and consumer spending are slowly

being restored. Since January of 2009, consumer confi dence has

risen 7.4 percent, and consumer spending has increased by 2.3

percent (see Consumer Confi dence Index and National Consumer

Spending). These two go hand-in-hand, as consumer confi dence

helps drive consumer spending. Consumer spending, in turn,

helps to stimulate the housing market, which it has done. U.S.

housing starts are up 22.5 percent in 2009, and 24.8 percent

since April (see U.S. Housing Starts). Similar upward trends are

evident in the stock market, which is based in part on rising confi

dence in the U.S. financial system. Dow Jones Industrial Average

tracks the statistic for 2009. Notice that after a drop of 11.6

percent in the 1st quarter, there has been a consistent rise in

stock prices since April of approximately 21.3 percent. Overall,

the economy is looking healthy. Th e U.S. Leading Indicators—a

composite index of macroeconomic variables—is also up 2.7

percent since April.

Housing markets are regional, so any

meaningful analysis must be done at a local

level.

Looking within South Carolina at the county

level, the Charleston market is leading the

state with its relatively low unemployment

(10% as of September) and high construction

levels (up 61% year-to-date).

Though the Charleston tri-county area

(Berkeley, Charleston, and Dorchester

counties) was among the coastal regions of

the state hit hardest by the decline in housing

demand due to high house prices, it is leading

the state in recovery in 2009 (see Regions of

SC Leading the Way to Recovery in 2009).

The South Carolina housing market is doing well compared

to the rest of the nation. Th e next fi gure ($150K House - Avg.

Appreciation Value - Q308-Q209) shows an example of the

appreciation of house prices in South Carolina when compared

with the erosion of house prices nationally. House prices in South

Carolina have continued to appreciate since 2008 (rising 0.2%

in the last twelve months), while nationally they have fallen 0.6

percent over the same time period. South Carolina is also keeping

up with neighboring markets. Rank of Growth in Housing Starts

displays the percentage increase in housing starts in 2009 in

several major South Carolina metropolitan areas.

Charleston, in particular, outperforms major markets in Georgia

and North Carolina. South Carolina also outperforms both states

in the appreciation of prices, with average house prices down

in both North Carolina and Georgia since 2008 (down 0.7%

and 0.9%, respectively). South Carolina is in a relatively strong

market position.

Still, there are areas of the economy that have yet to turn and

that are going to keep growth in housing to a minimum through

much of 2010; namely (1) the commercial real estate market

and (2) unemployment and foreclosures. While there is evidence

that the residential housing market is turning around, the same

cannot be said for commercial real estate.

Banks have been very to absorb losses on commercial real estate

loans and the banks are only now beginning to fully deal

with the loss of commercial property values. To-date, many

commercial real estate borrowers have been able to pay their

mortgages due to programs such as interest-only loans, which

allow borrowers to take advantage of low interest rates and to

delay payment of the principal.

Once loans become due, however, the banks have to take losses

from companies that are defaulting. Th e number of commercial

real estate loans is just beginning to decline, down 1.6 percent

since May (see U.S. Total Commercial Real Estate Loans.)

This drop in loans will likely rise in the coming months and

slow the recovery of the residential housing market because

it prevents banks from being able to loan money to builders

working in a sector of the market that is beginning to grow.

The other problems going forward into 2010 are rising

unemployment and foreclosures.

Unemployment leads to home foreclosures because consumers

cannot pay their bills. National unemployment, at 9.8 percent as

of September, is at its highest level in 26 years. In South Carolina,

the jobless rate is at 11.6 percent, with the biggest losses over

the last 12 months coming from construction (down 11.9% or

18,900 jobs) and manufacturing (down 12.3%). Information,

education, and professional services were up (3.1%, 0.87%, and

2.5%, respectively—see % Change in Employment by Job Sector

- Last 12 Months).

Unfortunately, the unemployment rate is not likely to drop

before 2010. Unemployment is typically a lagging economic

indicator. Because labor costs are among the highest for

businesses, hiring additional workers will be unlikely until

businesses are convinced the economy has recovered. Even

President Obama recently stated that “. . . unemployment is

going to be a big problem for at least another year.”

As a result, both foreclosure rates and housing vacancy rates

are likely to remain high, which will add to housing inventory

and depreciate housing prices on a national level. Mortgage

Delinquency Rates (page 1) displays changes in the percentage

of homes with a mortgage delinquency across the country in

the last year. As expected, west coast states with the largest

decreases in house prices have also seen the highest increases in

mortgage delinquency.

Notice, however, that throughout most of South Carolina,

mortgage delinquency has not become substantially worse

(an average of a 1.4% increase in the Greenville, Columbia, and

Charleston MSAs).

Coupled with the fact that permit activity in South Carolina

has increased continuously since January by an average of 0.2

percent, this suggests that much of the excess supply of housing

inventory in South Carolina has been eliminated, which will

help spare South Carolina of some repercussions of upcoming

foreclosures on the housing market.

Counties Unemployment Rate Percentage Increase in Construction

Berkeley 10.7% 63%

Charleston 9.0% 50%

Dorchester 10.3% 71%

Georgetown 12.5% No Report

Greenville 10.2% 64%

Lexington 8.3% 43%

Pickens 10.6% 35%

County Unemployment Rate

Allendale 22.5%

Chester 21.1%

Marion 21.0%

Union 20.6%

Marlboro 20.2%

County Unemployment Rate

Lexington 8.3%

Beaufort 8.7%

Charleston 9.0%

Saluda 9.4%

Aiken 9.4%