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Charleston's Top Local Real Estate Experts Predict Continued Real Estate Demand.


Charleston County Real Estate Growth Remains Strong


Thursday, June 16, 2005 - Last Updated: 7:03 AM 


Housing bubble may stay afloat

Experts say local demand, prices will remain strong


BY JOHN P. MCDERMOTTOf The Post and Courier Staff




George Reavis and Craig Comer have been paying particularly close attention to all the hand-wringing over whether the real estate  bubble will burst.

Their company, Reavis-Comer Development, recently razed a former gas station at Coming and Cannon streets downtown, where over the next couple of years it plans to build 23 single-family homes, three duplexes and a handful of condominiums.

"We're betting $12 million that the bubble is not going to burst in Charleston," Reavis said Wednesday.

The partners, whose 1.4-acre development is called Cannon Place, said they know the steady rise in property values can't go on forever. At the same time, they and many other real estate observers in the region are confident that the local market is not in any danger of collapsing.

"People are still coming to Charleston," Reavis said. "We may not see prices continue to increase at 20 percent a year like we've been seeing, but I certainly don't think they would decrease or depreciate, by any means."

The once-pedestrian subject of real estate values -- and the possibility that they could drop after a long run-up fueled by rock-bottom interest rates -- is now part of the national conversation, from chatter at cocktail parties to official hearings on Capitol Hill.

Federal Reserve Chairman Alan Greenspan last week openly fretted that prices in some U.S. housing markets are "frothy" and overvalued. Regulators this week warned banks about the potential dangers of risky loans and relaxed lending standards. Time magazine chimed in on the feverish market rush with a cover story titled "Home $weet Home: Why We're Going Gaga Over Real Estate."

All of this attention has some homeowners asking whether the Charleston real estate market is on the so-called bubble.

Broadly speaking, the answer is no, numerous experts agreed. But that's not to say there won't be pockets of pain in the event of a downturn. Most at risk are the highly leveraged, short-term buyers who are betting that local property values will continue to appreciate.

Real estate bubbles typically form when speculators and other buyers pump up property values well beyond the median income levels of a particular area. When demand slows -- perhaps because of rising interest rates or a localized economic catastrophe -- the bubble pops, the market corrects itself and prices decline.

As they survey markets around the country, bank regulators increasingly are worried about that scenario playing out.

Just this week at a convention on Kiawah Island, a Federal Reserve official said the "remarkable bull market" in real estate is fueling a rise in speculative buying that could lead to deep financial losses. Federal Reserve Governor Susan Bies said she was worried about the banking industry's growing use of exotic "affordability" financing products, such as interest-only loans and second mortgages with unusually high loan-to-value ratios.

Echoing previous assurances by the Fed chairman and other economy watchers, Bies said real estate prices are not in any danger of collapsing across the board. The fallout, if any, will be dictated largely by local economic conditions, namely job growth and population trends, she said.

In the Charleston metro area, the median home price in the first quarter of 2005 rose 7 percent year-over-year to $189,300, slightly more than the national median of $188,800, according to the latest statistics from the National Association of Realtors.

First-time homebuyers Jennifer Harris and her husband, Evan Harris, got a taste of the local bull market when they started house hunting in West Ashley and on James Island last summer. "If there was a good house, there might be three offers before it was even listed," she said. "That was frustrating."

The Harrises, who bought a two-bedroom, two-bath house in West Ashley last September, think they have made a good long-term investment, she said.

"The buying process can be difficult here, but once you get into a house, if you chose the right location and right house, there will be price appreciation and a market for it," she said.

Tanya Emerson also isn't losing any sleep over the possibility of declining property values, though she is watching interest rates closely.

Emerson, who works at Middleton Place, bought a three-bedroom starter home in Summerville last July, after determining she would get more for her money there than in Mount Pleasant, where a smaller house was $30,000 more. She bought with plans to trade up.

"I got a five-year adjustable rate on my mortgage, but within five years I'll probably turn over this property and get the house I really want," she said.

Emerson estimated the value of her home has risen about $20,000 in the past year, based on sales of comparable houses nearby. "I was excited about that," she said.

Al Parish, an economist and business forecaster at Charleston Southern University, said local real estate values should continue to hold up, barring the effects of a devastating hurricane or other unforeseen disaster.

Parish bases his bullishness mainly on the 15,000 new residents he estimated are flocking to Berkeley, Charleston and Dorchester counties each year. It's those buyers, not short-term speculators, who account for the bulk of local real estate sales, he said. "We are experiencing population growth, which is driving our housing demand. ... We're creating a town the size of Mount Pleasant about every two and a half years," he said.

Many of these buyers, he said, are flush with proceeds from homes they sold in pricier real estate markets, such as cities in the Northeast. That gives them more purchasing power when they relocate to or purchase a second home in the region.

"That's not a bubble; that's true demand," he said.

Parish predicted the relocation trend will continue, keeping pressure on property values.

"I don't see demand slowing up for decades," he said. "I think it's a fundamental long-term demographic change. As the U.S. population ages and baby boomers retire, they're going to be moving from colder climates to the Southeast and the Southwest."

Housing markets throughout the state are in good shape to weather a downturn, said Ron Rogers, director of the University of South Carolina's Center for Applied Real Estate Education & Research.

"In South Carolina, in general, we don't have the characteristics of a bubble," Rogers said.

But that's not to say a real estate slowdown won't cause problems, especially in the coastal resort markets where rapid gains in property values have attracted speculative buyers. For instance, short-term investors in a beach home or apartment-turned-condo might not be able to charge enough in rent to cover their mortgages if demand sours or if interest rates climb sharply.

Also, Rogers said, bank regulators now are talking about clamping down on riskier adjustable-rate loans, such as the proliferating interest-only mortgages, and policing lending standards more closely to curb speculation. "Is that going to cause prices to collapse? I don't think so, but it is going to cause prices to soften or not increase as rapidly," he said.

Speculation is less of an issue in the typical suburban neighborhood where most buyers in the region live, said developer Ben Gramling, who hopes to break ground this summer on the 5,000-home Cane Bay Plantation near Summerville.

"In all of the communities I'm involved in here, there are cars in front of the homes, bicycles in the yard and not that many 'For Rent' signs," he said. "That's a good thing."




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