Hope For a Bottom?

Gone are the days where the vast majority of us believed that real estate prices can only go up. Unfortunately, in some cases, this has been replaced by an equally unreliable mantra that price recovery is ‘just around the next corner’. One day, of course, it will be true. But this is not a useful platitude to hang your hat on. There is nothing wrong with being an optimist, but if you spend all your time and effort looking only for good news you will miss the big picture.

Have Prices Hit Bottom on Folly Beach?

I noticed a local blog post a few months ago that asked the question “Have prices hit bottom?” It noted that oceanfront properties on Folly Beach led the way up during the boom and down during the bust, and concluded that the last five sales “gives some hope”. Here are those sales…

Date Address Price
4/30/08 223 E Arctic $1,061,150.00
8/29/08 409 W Ashley $975,000.00
9/10/08 505 W Ashley $1,025,150.00
6/30/09 407 W Ashley $1,100,000.00
9/4/09 807 W Ashley $1,200,000.00

What else do we know about these properties?

223 E Arctic is not a full beachfront lot; it is less than 45’ wide. The 2008 sale price is significantly higher than other narrow lots on Folly Beach that are currently on the market (and not selling yet). Also, this home was in disrepair. It has had a facelift and is now back on the market asking $1.38 million.

409 W Ashley is a full lot, 3br 1.5bth, 912sf. Price reflects mostly lot value

505 W Ashley is a full lot, 2br, 2bth, 864sf. Also pretty close to lot value.

407 W Ashley was built in 1993 and has 5 bedrooms and 3 bathrooms (+1600sf). Subtract the value of the house and you are left with a sales price that is below all the 2008 sales

807 W Ashley, although built in 1965, has 6 bedrooms and 4 bathrooms, it is over 2500sf. It is debatable whether the value of the house is enough to imply a lower lot price than all of the 2008 sales (I do not know its condition).

Obviously there is only so much you can conclude from only five sale over 1 1/2 years. With the additional information provided it is obvious that the downtrend continued up until the 5th sale. With no further information, I can see where an optimist might find a little hope with that 5^th sale. But we do have further information, notably a massive inventory of unsold homes, some of which at asking prices well below the level of that 5^th sale. I would be very hesitant to jump to any conclusions based on these sales alone.

What has happened in the four months since?

503 W Ashley is currently for sale, asking price $899k, vacant lot

905 E Arctic is currently for sale, asking price $899k, 2br 1bth 806sf

519 E Arctic is currently for sale, asking price $799k, narrow lot but newer home, 2br 2.5bth 1224sf

1201 E Arctic sold for $818k (Oct. 9^th) old house, full lot, 3br 2bth, 1167sf

1003 W Ashley sold for $900k (Oct. 15^th) vacant lot, lot is 195’ deep (most full lots list 150’

519 W Ashley sold for $775k (Dec 11^th) old house, full lot, 3br 2bth, 1088sf

Well, we certainly didn’t bottom in the Fall of 2008 as the five sales listed above implied at first glance. The best case scenario is that the last sale on Dec 11^th is the bottom. Too see if this is likely, we must take a look at price history, as well as the current supply of homes on the market. It will also be useful to take a look at who the buyers and sellers are in this market compared to a few years ago. If builders, real estate agents, and speculators with easy access to jumbo mortgage financing are not coming back to the market in large numbers (hint: they are not), then who exactly will soak up the massive inventory of unsold homes? How will this affect prices going forward?

In upcoming posts I will attempt to answer all of these questions. Stay tuned