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Wednesday, March 22, 2006 - Last Updated: 7:21 AM

Economist: Housing boom not a bubble

Economic growth spurring demand


The Post and Courier

Relax, Charleston. The housing bubble won't burst because there isn't one.

That's according to Mark Vitner, a senior economist with Wachovia Securities. He said housing bubbles are far more rare than people realize.

But with 113,000 homes on the books for Berkeley, Charleston and Dorchester counties, some are concerned with the market value of their properties and whether developers are overbuilding.

"A lot of people assign the surge in prices to some sort of bubble phenomena," said Vitner, who spoke Tuesday to about 150 members of the Charleston Trident Home Builders Association at the Omar Shrine Auditorium in Mount Pleasant. "The demand for housing is derived from the underlying growth in the economy, which is doing much better than people realize."

A housing bubble is an unsustainable run-up in home prices or an increase in residential construction that is not driven by underlying economic price increases, Vitner said. Homeowners fear that the bubble will burst, and they will get less money for the sale of their homes than what is owed.

Jonathan Whaley of Charleston said the talk was "encouraging." He said the media always talk about housing bubbles, but he never thought it was a concern.

"Popular opinion is not always reflective of what is going on out there," he said.

Vitner, whose hour-long talk focused on the local and national economy, told the crowd that the supply of new homes is catching up with the demand here.

Low mortgage rates, stronger job markets, higher incomes and baby boomers are the main reasons for the housing boom, Vitner said. While construction here lagged behind, it created more competition for homes, he said.

"In the next coming months, supply will be rising to meet demand, and price increases will begin to return to normal," he said.

The Office of Federal Housing Enterprise Oversight reported that housing prices in the Charleston area are up 17 percent in the past year, totaling a nearly 30 percent increase in the past two years, Vitner said. The normal rate of increase is 5 percent to 6 percent.

Last year, 10,000 residential building permits were issued in the three counties, which saw the population increase by 12,000, according to U.S. Census figures.

The market was stifled by smart growth - when municipalities limit suburban sprawl and require developers to have more open space in subdivisions - which accelerated price increases, Vitner said.

"That is tough to talk about," Vitner said. "If you tell the truth, you get everyone mad at you. The truth is, there is a cost to growth management."

It is an effort to maintain the quality of life in Charleston and to slow down traffic, Vitner said. Smart growth is not bad, but the public needs to be aware of its costs, he said.

Having enough people to buy the homes planned for the Charleston area should be no reason for alarm, Vitner said. There will be more than enough demand.

Based on the idea that one new home should be built for every two new residents, the area demands at least 150,000 new homes to be built to accommodate growth, he said. It is projected that 300,000 new people will move to the Charleston area by 2031, he said.

Phillip Ford, director of the home builders association, said Vitner's findings were not a surprise. They are in line with what local economists say, and builders know, he said.

"What happens is, people are concerned that there are so many houses (planned) out there," Ford said. "Nobody builds a house and invests millions of dollars in the hopes someone will buy it.


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