Charleston: Among Top 7 Regions with Overvalued Home Prices

14 Replies

I own in Summerville, which Im not sure it technically fits into this, but it's close. Values have been rising slightly in that neighborhokd, but I don't think it really fits this trend too much. The neighborhood my rental house is in is an older established neighborhood with no new construction. I haven't followed prices in Charleston really though so I don't know. I think it's probably pretty accurate though. Jay Heinrich would be a good one to ask.

There are  a few arguments as to why it's not like a bubble or at least not like the last bubble...  for one, the banks aren't lending money to just anybody anymore.   If people are buying a house with a mortgage these days, they can generally afford the payments even if there's a downturn.  

Second, the housing supply is still tight.   During the bubble, there was more and more supply coming on line and while this could still happen in the near future it's not the case yet.  

The price increases feel like a bubble but the underlying scenario is different.   Note, I'm not an economist and can't predict the future.

I heard a blurb on NPR today that suggested the rental market might be slowing down.  As more people can qualify for a home purchase, and as rents increase making that home purchase seem more logical, more people are starting to purchase as opposed to renting.   So said the radio talking head...

I am with @John Semanchuk on this one.  The 2000's bubble was almost entirely artificial. Nationwide lending standards were very different and the "real estate ALWAYS goes up!!" mentality was running wild (I drank the kool-aid as many others did). 

 Everyone has his/her own perspective on the 2007-2008 bubble.  I was living and working on Hilton Head Island when the bubble was expanding, and moved to STL in 2006 just before it burst.  Hilton Head had an entirely artificial economy.  People were building vacation homes & Spec homes they could not afford, on the assumption that property values would go up, and those homes would always sell for more next year than this year.  Dumb luck caused us to sell the 2 houses we owned at good profits and move to the boring, stable midwest just ahead of the downturn.

 The difference in 2015 is - Charleston's current "Overvaluation"  has some sturdy structural underpinnings.  Jobs, Jobs, and more Jobs, #1 tourist destination, best place to live, etc, etc.  Lending standards are pretty tight, yet inventory is very low.  I believe that we will see some value adjustments in the near future, but not a precipitous drop.  From my perspective, Charleston is a beautiful city with a vibrant economy, not "Fantasy Island" like Hilton Head in the 2000's.  I am not blindly optimistic, but I am certainly not worried about our long-term prospects in Charleston real estate.

I am curious to hear other perspectives.

Depends what the basis for the conclusion is. The article itself wasn't that clear. If it's based mostly on pricing models, inflation and national trend charts, then possibly. However if the actual prices in Charleston are driven more by growth and expansion, rather than pure speculation, and unless you anticipate growth slowing and jobs being lost, then probably not. If a market is bubbling over based on speculation and cheap funding alone then it has a problem. This was the case during the dot com boom and the RE run up pre 2008. Conversely, if prices are rising based on solid growth patterns and trends then it has a far more solid basis for sustainability. It's up to you as an investor to decide which it is.

Price run-ups, even rapid ones, are not automatic indicators of a 'bubble' per se, though this definition seems to be trending over the last few years, rather a bubble is significant price appreciation without the fundamental substance to support it. That's what Greenspan was talking about when he coined the phrase.

@Melissa Searing   as @Russ Scheider   states financing is still tough there.. so no under capitalized builders are going to be using bank money to put up massive amounts of spec homes... so I think growth is very much controlled.

with median price @ 200k that's still VERY affordable given rates and job growth.. I think Charleston has massive legs.. what it does have as well is Massive competition for deals.

And lot prices on the peninsula have about doubled in 12 months.. based on new builds basically all pre selling. At this time I have about 10 going but I had to finance them in house I have yet to get a bank to loan me a dime in Charleston.

@Jay Hinrichs Competition is definitely stiff.  We are stepping "outside the box"  over and over in order to keep our pipeline full.  A year ago I said "NO fire damaged properties"  We have bought/wholesaled 3 fire-damaged houses so far this year.  A year ago, I said "No downtown properties"  We have one under contract right now. (preliminary title search in process).  Instead of trashing leads, I am calling colleagues to help me think creatively about how we can squeeze a dollar out of every lead.  No more skimming the cream, we are having to WORK for our supper. LOL!

@Russ Scheider   what do you mean work !  I thought we just hang out shingle out and we all get rich and spend out days drinking umbrella drinks while the rest of the fools sit in their cube working for the Man...

I hear ya on Inner city Charleston though the main issue there is so many buggered up title issues you can spend all the money on marketing get what you think is a screaming deal and the title is so fouled up it will cost 5 to 10k to clear up and take years. I have 3 in that scenario right now I know we will close them some day and of course we have the money to pay for the sellers title work.. not all do or will... but we are a little more risk tolerant than most I think that the good ole CA RE upbringing were we have been dealing with these markets since the early 80's... LOL.

So your not going to believe this one.  I was just over in Singapore... And was at a family dinner with my host  .. I sit next to his cousins wife and she says she is an exec for GITI tires .. and they are building in SC  ( new factory).. So we talk about how great SC is for business's to locate to and how people love living in the low country ext.. ( somewhat like Singapore HOt and bloody humid ) LOL...

Well I funded one of my old clients up in Rock hill on a deal in July and we are pending on to a exec from GITI and he goes on and on to tell me about how we need to get in with these guys etc... I said NO problem.. I will have that fixed for us... If they need housing we will get set up there and provide it... The chairman of the company is Mr. Tan.. My Business partner is Mr. Tan  LOL... looks like I fell into another one... keep you posted.

You may need to get out ahead of me and collaborate on brining us deals

JLH

Hi all. Well this is good info. I was thinking about making an investment in a commercial building, using a loan. Surprisingly, perhaps, both would be new experiences for me. Any advice, feedback or whathaveyou would be welcome. I am literally at the point where I am reading books on commercial. Haven't really even spent much time on loopnet, or met with a broker yet. I want to try to use my residential knowlege to try to understand commercial so that I don't step in it. 
At the end of the day, I want to make a decent passive income in a very safe way. Consider this me handing you my business card!

Interesting perspectives.  Its my very inexperienced opinion that you cant look at the Charleston market as a whole.  I'm living in the Old Village and I'm not sure we can sustain this level of appreciate much longer.  It has to level off soon.  I'm talking with others though who's opinion is that other areas will be seeing continued appreciation.  It will be interesting to follow. 

I find it interesting that they consider Austin an oil and gas boom city.  There is not much oil industry in Austin.  As of the late '80s, Austin is more of a tech center.  With the new med school coming on line over the next year, I anticipate a biotech boom and hopefully it has a similar affect as the new fab plants did around 1992 when they came on line here.

I've gotta agree with @Hugh Ayles . Austin is most definitely a tech hub over a gas & oil city. Along with the UT Med School, tons of well-paying jobs are being created with all the new headquarters and campuses being built by tech giants. For example, Oracle is building a next-generation technology campus 5min from downtown, and plans to increase their Austin team by 50% over the next few years.

There should be tons of safe growth with REI, at least for the foreseeable future.

I completely agree with @Russ Schneider and @John Semanchuk . We are certainly experiencing very consistent appreciation, but it is not superficial. People just stop buying when homes inflate beyond a certain point. Largely because everyone has a mortgage limit. The real problem here is that we're going to face a huge shortage of available properties. Any one helping retail buyers in the Spring/Summer will concur that it is a serious battle to get qualified buyers into homes during peak season. If that happens, we may start to see more of a problem with appreciation. But even then, it won't necessary be superficial. That would be based on a low inventory. And because our geography is so disjointed from the various islands and waterways, we're going to experience some jarring suburban sprawl in the coming years. I expect builders to make hay in the next couple of years. 

Also, @Russ Schneider, I meant to call you today. I'll give you a call in the morning!

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