The Intelligence Chronicles

Home price cuts get smaller

by Richard Breen

Fewer sellers are cutting their asking prices and when they do cut, it's not as deep, according to a recent analysis of the housing markets in major U.S. metro areas.

California-based ZipRealty Inc. looked at August data in 27 markets. It found that homesellers had reduced their list prices by an average of 9.59 percent, which is 1.67 points smaller than July's average price cuts. Also, there were 12,000 fewer home listings with price cuts than in July.

Raleigh-Durham was one of the stronger markets it tracked. Price cuts there averaged only 4.36 percent. Its North Carolina sister, Charlotte, averaged 6.63 percent.

ZipRealty does not track the Greenville-Spartanburg market. Looking back at Greenville’s August sales numbers in an attempt to make an apples-to-oranges comparison, the median list price was almost unchanged compared to last year: $189,900 (August 2009) vs. $189,970 (August 2008).

There is a difference in sale prices, however. The median was $145,800 this August compared to $157,044 in August 2008.

How much of that has to do with sellers cutting prices? How much has to do with more sales of less expensive, starter-type homes? How much has to do with foreclosures taking up a larger share of the market?

For now, it is hard to untangle those three factors. But I talked to a Realtor recently who reiterated the importance of pricing a home correctly the first time.

She doesn't do a huge volume, but the listings she has had recently all seem to be selling in about six weeks.

“I think the key to that is the right price,” she says.

She adds that making sure the home is well-kept and freshly painted (if necessary) is important, too. It seems that a home with the wrong price, an unruly front yard, or eccentric interior decorating creates a stigma in the minds of buyers' agents.

When they keep seeing that same home pop up in the MLS listings, that poor first impression pops into their minds as well, even if the price has been reduced or the house has been cleaned up.

The Realtor told me that her broker says, “If (sellers) don't want to price it right, let it go.”

It might be painful to give up a listing – and a potential sale – when things are slow. It might be more painful to waste time and effort on a listing that a homeowner isn't committed to properly pricing and marketing.

Unemployment, office space and homes

by Richard Breen

We've talked in the past about the connection between the unemployment rate and the housing market. Turns out there's a similar connection between joblessness and commercial real estate.

I was looking at a chart in The Wall Street Journal recently that compared the national unemployment rate to the national office vacancy rate. The curves are eerily similar.

It stands to reason. If you lay somebody off, or 100 somebodys, you don't need their desks, cubicles, red staplers, etc. anymore.

The Upstate is not immune to this trend. Anderson, Greenville and Spartanburg saw a lot of job losses in the second half of 2008 and early this year. The last several months have been up and down.

“Most markets appear to be riding the bumpy bottom,” says Brian Reed of Grubb & Ellis|The Furman Co.

The result is that there is a lot of sublease space on the market throughout the Upstate. Reed says that local commercial real estate brokers don't expect a turnaround until the end of 2010.

“All of that is contingent on employment,” he says. “First, the economy recovers. Depending on the sector, employment recovers six months after that. And then six months after that, commercial real estate recovers.”

And the job creation/office space parallel can be drawn back to the residential market. Jobs are filled in two ways. People already living here move up the employment ladder and people move here to get jobs.

A lot of Realtors tell me potential buyers and sellers are sitting on the sideline because they are worried about the economy and their jobs. If the job market improves, people will have more financial wherewithal and/or feel a whole lot better about taking the risk involved in being a first-time buyer or in selling a house to move up to a nicer home.

Also, I've written several times about the Upstate relocation market. It depended on it for so long, but then job creation slowed here at the same time people couldn't sell their homes where they were coming from. A better job market will bring more newcomers to the Upstate, creating more opportunities to sell homes.

Business expansion announcements typically precede actual hiring by several weeks. Once you start hearing more announcements, you should see subsequent improvement in home sales and office occupancy.

The recent announcement by BMW that it would be adding two shifts at its Greer plant is a step in that direction. It will create jobs for 700 contract workers, which helps mitigate the 1,000 contract jobs that were lost earlier. The job creation should also trickle down to local suppliers as they get increased parts orders from BMW.

This won't directly impact office space, but there is an entire world of office-based services that revolves around the Upstate auto industry, so there could be further trickle down. And maybe some renters will be able to buy houses now, some homeowners who are a couple of months behind on their mortgages won't go into foreclosure, and some folks you have never seen before will move here now that the Upstate auto industry is picking back up.

What it will do for sales of red staplers is anybody's guess.

Realtor numbers dwindle in S.C.

by Richard Breen

While national numbers continue to rebound, the ranks of South Carolina Realtors continue to thin.

There were 16,209 National Association of Realtors members in South Carolina as of Sept. 30. That is down from 16,272 in August and 19,344 in September of last year. It marks the fewest number of Realtors in the state since November of 2005, when there were 16,202.

The Greater Greenville Association of Realtors currently has 1,976 members, according to the organization's chief executive, Nick Sabatine. That is off by about 70 members since the start of the year.

Sabatine points out that the renewal period for real estate licenses in South Carolina is June 30. If someone was thinking about leaving the profession, that would be a logical time to make a decision.

“I would say that South Carolina's numbers have probably dropped because of that,” he says.

But even in a tough housing market, there are still people entering the profession as well.

“There's not as many getting in, but there's always people getting in and getting out,” says Charles Wyatt of Wyatt Institute of Real Estate in Greenville.

Wyatt estimates that student volume is 50 percent of what it was during 2004-07. At the time, the number of Realtors was accelerating along with the rest of the real estate market. Some of those folks may be the ones getting out now.

“I've seen a lot of cycles,” says Wyatt, whose school has been in business since 1972. “People who got in at the peak usually don't last.”

Conversely, those who enter real estate now and survive “can survive anything,” according to Wyatt.

“If you can support yourself,” he says, “this is a great time to go into it.”

Others may be heeding that advice elsewhere. The NAR's membership stood at 1,137,033 nationally as of Sept. 30. It was the sixth straight month of membership gains. It follows seven consecutive months of declines. The national peak was 1,370,758 in October of 2006.

Every state in America has fewer Realtors than it did at this time last year. Georgia's deficit is the biggest percentage-wise, down 21.6 percent since September 2008. South Carolina's (16.21 percent) ranks third behind Washington (19.37). Florida's deficit is the biggest in sheer numbers, having lost 12,105 Realtors in the past 12 months.

Some are closing the gap, however. Texas has 80,655 Realtors, up from 76,741 at the end of 2008. Mississippi has added 328 Realtors since the start of the year. And bubble states such as California and Arizona added Realtors in September.

It is one indication that the real estate market is stabilizing. South Carolina, which got into the recession later than the bubble states, has some catching up to do.

 

Industry groups push for more tax credits

by Richard Breen

As the clock ticks toward the Nov. 30 deadline on the first-time homebuyer tax credit, Upstate Realtors tell me they are seeing increased activity. Any buyer seeking the credit should really have a contract by Oct. 15 in order to be sure their closing will make the deadline, and even that may be cutting it close.

Meanwhile, several groups are trying to call “time out.” Some testified Oct. 7 before the U.S. House Small Business Committee.

The Mortgage Bankers Association asked Congress to increase the credit to $15,000, make it available to all buyers, eliminate income limits and make the credit available to borrowers at the closing table. That suggestion is very similar to the bill proposed by Sen. Johnny Isakson (R-Ga.) that I wrote about on Sept. 15.

The National Association of Home Builders asked Congress to extend the $8,000 tax credit and make it available to all buyers. They believe it would mitigate ongoing problems with foreclosures and may help create 350,000 jobs in 2010.

The National Association of Realtors also asked that the $8,000 credit be extended. They cite statistics that up to 400,000 homes have been sold this year due to the credit.

The U.S. Treasury Department reports that 4,684 South Carolina home purchases qualifying for the credit had been made through the end of August.

Essentially, Congress has three choices. It can extend the credit by the current rules. You have to be a first-time buyer, it has to be the primary residence, and if you make too much money, you may not get the whole $8,000.

Or Congress can modify the tax credit. It can be a larger credit. It can cover more than just first-time buyers. It can be taken no matter what your salary is.

Or it can let the current credit expire, see what happens in the real estate market and then offer a new credit sometime next year, if necessary. That credit could be specific to whatever problems in the housing market arise after the current credit lapses.

If the deadline is simply extended, some new homeowners will be upset. They bought their home based on a ticking tax-credit clock. Had they known, they might have waited or been more picky.

If the credit is changed to cover more people, or made bigger, the anti-bailout sentiment among some taxpayers will rise another notch. Why prop up the housing market? They made their bed; let 'em all go bankrupt.

If the tax credit is allowed to lapse, Congress will face the wrath of powerful lobbies in the real estate, banking and construction industries. They don't want the training wheels to come off the housing market just yet.

Home sales typically dwindle during this time of year. But compared to a dismal end of last year, sales figures for September and October may look comparatively rosy. Will that have any impact on what Congress decides?

 

Tighter FHA standards could squeeze consumers

by Richard Breen

A recent tightening of credit policies by the Federal Housing Administration are mostly aimed at lenders. It could have a trickle-down impact on consumers seeking to finance a home purchase, however.

“Competition breeds good things – and this is taking away competition,” says Eddie Sternberg of Northwest Mortgages Services Inc.

FHA announced a number of policy changes it is enacting or seeking approval for. One is an increase in the net-worth requirement for mortgagees. Since 1993, mortgagees have needed $250,000 in net worth. FHA is proposing that the requirement be $1 million as of Jan. 1, 2010.

“These changes will help to ensure that FHA lenders are sufficiently capitalized to meet potential needs, thereby permitting HUD to mitigate losses and decrease risks to the FHA insurance fund,” read an FHA statement announcing the changes.

While it may theoretically protect FHA from a rogue operator writing bad loans, Sternberg is skeptical as to how much it would benefit consumers.

“Net worth is not an indicator of how corrupt you are,” he says. “Look at Bernie Madoff, Ken Lay.”

Sternberg speculates that the new requirement will concentrate the power to write FHA loans among the nation's largest banks.

“It's an awful thing for consumers,” he says. “As there's less competition, it becomes more expensive.”

There is another side effect if fewer lenders are doing FHA loans.

“You're obviously going to see pipelines grow and turn times grow,” says Billy Davis of BankLine Mortgage Corp.

He doesn't expect it to be harder for individual consumers to qualify for an FHA loan, however.

“FHA has always been a program that has been very accommodating,” Davis says.

Sternberg says he doesn't write FHA loans due to the current net-worth requirements, but of his loans insured by Freddie Mac, he has only had one foreclosure.

“I personally should be the poster child of who FHA wants to do business with,” he says.

Many of the moves announced by FHA are designed to ensure that it maintains Congressionally mandated reserves to cover bad loans. With FHA taking a greater market share, the reserve requirements have grown. But with foreclosures increasing, its reserves have been more frequently needed.

Other changes include hiring a chief risk officer, requiring mortgagees to turn in audited financial statements and reducing the time appraisals are valid to four months from 6-12 months.

Davis recommends that homebuyers not wait before hooking up with a lender.

“I don't need to see them the day they get here” to look at houses, he says. “I need to talk to them the week before they get here.”

Mortgage brokers typically provide checklists of the paperwork consumers need to get preapproved (pay stub, bank statements, etc.). Realtors and their clients “need to read it, and listen,” Davis says.

To read FHA's announcement of the changes, visit here:

http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2009/HUDNo.09-177

Caledon Wood looks to keep pace with market

by Richard Breen

With the $8,000 tax credit continuing to lure first-time homebuyers from apartments, some rental communities are having to make sure they are still a viable option. I recently visited Caledon Wood in Greenville, which is undergoing a renovation.

The 350-unit community opened in 1998. It has one, two and three-bedroom units with monthly rents ranging from $613-$932.

“We're 96 percent occupied currently,” says Caledon Wood's Whitney Shaw. “We always shoot for 100, but anything over 94 is good.”

Caledon Wood's occupancy falls in line with the 95 percent rate that local real estate consultant Bill Crawford says is common among higher-end communities as a whole.

Renovations began in 2008. Units are updated as they turn over. New features include black appliances, faux granite countertops and brushed-nickel fixtures, as well as updated hardware, lighting and flooring.

Located on Pelham Road near a bevy of multifamily developments, Caledon Wood faces a great deal of competition. Shaw says they do not get into rent wars when other complexes offer discounts, however.

“We do market surveys on a weekly basis,” she says. “But we're not going to devalue our property to match something down the street.”

Bell Partners owns and manages Caledon Wood. The company is based in North Carolina and its investment/management portfolio includes 55,000 apartment units. It owns and/or manages six Upstate communities: Alta Brookwood, Alta Crescent, Ashmore Bridge Estates, Caledon Wood, Estates at Bellwood, and Walden Oaks.

Bell purchased Caledon Wood in 2007. Shaw says it is looking to make additional investments in the Greenville area.

“They're looking to purchase in several areas of the Upstate,” Shaw says.

Crawford speaks highly of Caledon Wood and Bell Partners.

“They're well managed,” he says of Caledon Wood. “Management is the name of the game right now.”

Caledon Wood's Web site is www.caledonwoodapartments.com.

Awaiting the $8,000 stampede

by Richard Breen

Lately I have been asking Upstate Realtors if they are noticing any kind of surge in first-time homebuyer clients. After all, the Nov. 30 deadline to take advantage of the $8,000 tax credit is looming and if homes are not under contract by Oct. 15 or so, there's a good chance they won't close in time.

Some tell me they have noticed an uptick. One told me they have a house listed at $99,900 and it's “showing like crazy” while their $250,000-plus listings are quiet.

Others think the first-timer market is close to being tapped out. If they haven't bought by now, the theory goes, it's because they have bad credit or can't make the downpayment.

It will be a few weeks before we can see locally who is right, but the National Association of Realtors is already weighing in on the subject. It recently released its pending home sales statistics for August, which continued a streak of growth that has lasted almost the entire year.

“No doubt many first-time buyers are rushing to beat the deadline,” said the NAR's chief economist, Lawrence Yun.

He also points out that sales are taking longer to close. It serves as another reminder for first-timers to either fish or cut bait. A 30-day close is a thing of the past.

However, longer closings don't artificially inflate the NAR's pending sales index. It is based solely on newly signed contracts from that month.

The NAR index rose to 103.8 in August. It was 97.6 in July and 92.4 in August 2008. An index score of 100 equals the average level of activity in 2001. That was the first year in the record-setting runup that created the national housing bubble, so if pending sales are better than they were in 2001, they're pretty good.

The NAR is concerned that losing the $8,000 tax break will hurt sales and possibly cause a double-dip recession. They want it extended until home prices stabilize.

On the other hand, a Realtor I talked to recently expressed concern that the tax credit is “stealing” first-time homebuyer sales from the next two years. They think sales will go down no matter when Uncle Sam takes the training wheels off the real estate market.

And you may have read my interview recently with Sen. Johnny Isakson (R-Ga.). He is proposing a $15,000 tax credit that would be available to any buyer. He thinks the problem now is in the resale market and at higher price points, not with starter homes.

What should a potential first-time homebuyer do? If they can afford it and can find something they like, get it under contract and take the tax credit.

There's no guarantee that waiting will result in a better tax break later. There is also an expectation that interest rates will be rising soon. And finally, if they wait for home prices to start going up again, it only means that they have missed out on potential appreciation.

Economic development leads to home sales

by Richard Breen

Jennifer Noel and Kym Petrie – two people who spend more time than just about anybody marketing Greenville and the Upstate – shared their strategies today during a luncheon sponsored by the Greater Greenville Chamber of Commerce's real estate group.

Noel is vice president of marketing for the Upstate Alliance, an economic development organization that is responsible for marketing the 10-county region. Petrie is executive vice president for the Downtown Greenville Development Initiative, a public-private group that specifically recruits businesses to downtown.

I asked Petrie what kinds of real estate questions she hears in her one-on-one meetings with out-of-town prospects. She said they are “shocked” by the quality of downtown office space but mostly ask about the housing market.

“They're asking about costs,” she said. “They're asking how the market's doing.”

They apparently like what they hear. Petrie's organization recently hosted a group of 19 Canadian business executives and their spouses in an effort to sell downtown Greenville as a business location. While corporate relocations are still being pondered, the housing market was attractive enough to draw immediate interest.

“We sold a ton of condos,” she said.

Noel hears more about commercial real estate needs. A big obstacle for the Upstate is the lack of industrial sites that are shovel-ready or move-in ready.

Since both Noel and Petrie work for nonprofits, marketing dollars are stretched tight, which is a concept many Realtors are familiar with. Both organizations rely heavily on Internet marketing.

“The Internet allows you to focus really specifically on your target audience,” Noel said. It also provides a lot of statistical measures to track success.

The Upstate Alliance has used a Web site, www.iwasblownaway.com, to help brand the region. The idea is that despite the stereotypes South Carolina, the Upstate and Greenville are tagged with, visitors are “blown away” by all the positive things they encounter.

The site was mostly promoted through television commercials on The Golf Channel during the BMW Charity Pro-Am. It has had more then 33,500 visitors and more than 6,000 click-throughs to partner sites, according to Noel.

A tourism-specific ad campaign has also been conducted by the Upstate Alliance and Greenville Convention & Visitors Bureau. Noel said Google pay-per-click was the most effective online method they used. She also said ad networks are a good way to get on premium Web sites.

Petrie's organization has branded downtown Greenville as “The Intellectual South.” It uses the site www.thrivedowntown.com, which Petrie said has been viewed by Web surfers in 19 different countries.

I think Noel's and Petrie's experiences are a reminder that Web marketing is cost-effective and can actually be measured to see if your strategy is working. That should resonate with Realtors who know they need to market themselves but feel a lot of their money is wasted.

Also, economic development and real estate development go hand in hand. Business executives don't move their companies to communities where they wouldn't want to live.

It is a good idea for Realtors to involve themselves in local economic development activities so they can offer their input and see what is being done to promote the region as a whole. Take advantage of the work that others are doing and use the Upstate Alliance and Downtown Greenville Development Initiative Web sites as resources for your own marketing.

South Carolinians become less mobile

by Richard Breen

I was talking to a homebuilder today who said that he really started to notice the warning signs of a housing slump back in 2006. While he has gone through financial belt-tightening and survived where other builders have not, he says that looking back, he wishes each round of cuts had been made a year earlier.

There may be some evidence to back him up in data released by the U.S. Census Bureau today. The statistics have to do with mobility and are updated for 2008.

South Carolina has more than 4.4 million residents. In 2008, 8.3 percent of them moved within the same county. That is about the same as in 2007, but in 2006, 9.4 percent of South Carolinians made an intra-county move.

Also, 3.4 percent moved to South Carolina from a different state in 2008. That compares to 4.0 percent in 2007 and 3.8 percent in 2006. It may not seem like a big difference, but 0.6 percent equals more than 26,400 people.

One of the big drivers for the Upstate housing market has been newcomers – people moving here because their company moved here, because they got a new job here, or because they think they can get a better job here. Some of those folks move here, rent for a year of two and then buy a home, so they would turn up as movers in this survey in two different years.

Fewer people moving to South Carolina, either due to a slowdown in job creation or because they couldn't sell their existing home, set off a chain reaction that has a lot to do with the problems that builders face now. The industry ramped up construction when demographic trends were headed the other way.

Census Bureau data usually takes so long to be released that you can't do anything about it except make a hindsight judgment. It is speculated that right now, South Carolinians are even less mobile than in 2008, leading to even fewer opportunities for Realtors and homebuilders.

That builder I talked to says that 2010 will likely see the housing market continue to bump along the bottom before finally picking up in 2011. For now, he is adjusting to the lower price points that are in demand.

There was more data released by the Census Bureau today. Here are some highlights:

In 2008, 19.4 percent of South Carolina renters moved within their county of residence. Another 5.7 percent of renters moved here from out of state.

There were roughly 1.7 million housing units in South Carolina in 2008. Owner-occupied housing made up 1.2 million units.

More than 77 percent of South Carolina households in owner-occupied housing are white, compared to 55.2 percent of renter-occupied households.

More than 43 percent of owner-occupied households are age 45-64, while 39.3 percent of rental households are under 35.

Forty-six percent of owner-occupied households have moved into their home since 2000, compared to 86.3 percent of rentals.

Finally, 7.7 percent of South Carolina households in owner-occupied housing have lived in the same home since 1969 or earlier. That means approximately 131,000 South Carolina homes have had the same owners since Lyndon Johnson was president.

 

Census sees affordability in S.C.

by Richard Breen

South Carolina is one of a handful of states where monthly housing costs for homeowners went down in 2008, according to a recent data release by the U.S. Census Bureau.

The bureau's American Community Survey looked at payments for mortgages, taxes, insurance, utilities and other monthly housing expenses. It found that in South Carolina, monthly expenses totaled $1,142 in 2008 compared to $1,160 in 2007. The state ranked No. 10 overall. It, along with Florida, Michigan, Missouri, North Carolina, Ohio, Texas and West Virginia, were the only states to show a decrease.

Monthly expenses rose in nine states. The highest monthly expenses were in California ($2,384); the lowest, West Virginia ($878). The national median was essentially unchanged, going from $1,518 in 2007 to $1,514 in 2008.

What will 2009 show? If home values have decreased, monthly mortgage payments may also decrease, thus shrinking monthly expenses. Also, people with huge mortgage payments who lost their homes and became renters won't be part of the 2009 survey.

Bottom line? The monthly expense numbers are another statistic that demonstrates South Carolina's affordability.