March 2010 Charleston Market Report

www.charlestonmarketreport.
com
“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
www.charlestonmarketreport.com
The Age We Live In
Unemployment
According to the new jobs report from the Bureau of Labor Statistics, nonfarm payroll employment increased by
162,000 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 got
worse. Of the 15 million people officially classified as unemployed, a record 6.5 million, or 44.1%, have been out of
work longer than six months. Lastly, the U6 alternative gauge of the unemployment rate, which includes discouraged
workers 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 now.
Charleston 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 will
Boeing 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 of
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 be a
savior 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 recent
passages of the health care bill, increased regulation in the financial system, rising taxes and an anti-capitalistic
economic agenda by the Obama Administration makes any recovery appear to be impossible. I believe the economy
will continue to “grind” along and then we are headed for a double dip recession in 2011.
Regulation
The 1,336-page bill, introduced by Banking Committee Chairman Senator Christopher Dodd (D-Conn), has already
been 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 threatening
the stability of our economy.
2) It will create an advance warning system in the economy, so that there is always someone responsible looking out
for the next big problem.
3) It will ensure that all financial practices are exposed to the sunlight of transparency, so the exotic instruments like
hedge 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 financial
crisis.
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.
Taxes
President Obama plans to introduce a fee on the largest banks in the country with over $50 billion in assets. The tax
will start June 30 and plans to collect $90 billion over the course of 10 years. This tax will certainly be passed on to
consumers and businesses.
For all who doubt the Obama administration will raise tax rates into the stratosphere in the very near future, here is a
chart created by dshort.com which compares the total level of debt to GDP with Federal tax brackets over the past
century. 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 massive
$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 did
you? This is truly frightening stuff whether you are rich or poor. I never understand why the liberals always attach
the 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 are
unable to keep their homes through the existing Home Affordable Modification Program (HAMP). The HAFA
program takes effect on April 5, 2010—although some servicers may implement it sooner, if they meet certain
requirement--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 avoid
foreclosure on a loan eligible for modification under the HAMP program. Servicers participating in HAMP are also
required 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 to
unload 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. I
would expect this trend to increase as more banks need to raise capital and will continue to sell non performing assets
and mortgages reset as interest rates rise. The big question for the lowcountry is how many jobs produced by Boeing,
Wind Turbine Facility and future new businesses coming to Charleston will offset the distressed sales. I honestly do
not know because getting accurate data on the local housing market is very difficult to get unless you do some heavy
duty research. MLS statistics are often misleading and do not show much of the shadow inventory and future non
performing bank properties about to hit the market. I still believe Boeing is going to shift a large number of union
jobs 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 again
due to union strikes. So I continue to be optimistic that the < $300k home market will improve once the jobs arrive.
All the other price points will continue to feel pain via falling prices and increased distressed sales for years to come.
What could become very problematic for the local residential real estate market is that the double dip recession hits at
the same time we expect all these new jobs to hit Charleston. If this occurs then confidence will be weak and many of
these 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 recommend
buying unless you plan on living in the home over 10 years so you can avoid losing value to future distressed sales
that 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 best
place 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 lowcountry.
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 would
match the highest level since Oct ‘08. Today, the 30 yr bond yield at 4.79% has broken above its key June ‘09 level of
4.76% and is now matching the highest since June ‘08 which is the most since Oct ‘07. The yield spread today
between 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 385
bps 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 ended,
it'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 more
Treasuries 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. Does
anyone really believe that Treasury yields are headed lower? As Treasury yields move higher from their current
levels, mortgage backed security coupon yields will also need to move higher in order for investors to want to
purchase them.
Charleston Real Estate
The current residential market in the Tri-County remains soft despite major incentives from the U.S. government
which include the $8k First Time Homebuyer tax credit set to expire in April and the nationalization of lending via
the GSEs, Fannie Mae, Freddie Mac and FHA. The problems remain the same and it appears the stabilization of the
market 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 homes
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 homes
sold, 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 last
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 the
majority 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 and
inventory/absorption rates are down.
However when you take a look at the chart below created by Doug Holmes of Carolina One you will notice
that 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 12
rolling 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. With
this much data inaccuracies will occur. Care is taken in gathering and processing the data and information within this
report is deemed reliable. IT IS NOT GUARANTEED. The real estate market is cyclical and will have its ups and
downs. Past performance cannot determine future performance. The purpose of the Charleston Market Report is to
educate 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 other
professional services. If legal, tax or other expert assistance is required, the services of a competent professional are
recommended. This is a personal newsletter reflecting the opinions of its author. It is not a production of my
employer. 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 effort
has been made to make this report as complete and accurate as possible. However, there may be mistakes. Therefore,
this report should be used only as a general guide and not as the ultimate source for making money in real estate.

March 2010 Charleston Market Report

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March 2010 Issue

The facts are the following:

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

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