Wednesday, March 22, 2006 - Last Updated: 7:21 AM
Economist: Housing boom not a bubble
Economic growth spurring demand
BY YVONNE M. WENGER
The Post and Courier
Relax, Charleston. The housing bubble won't burst because there isn't
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
"Popular opinion is not always reflective of what is going on out there,"
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
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.
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
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
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.