The Charleston Trident Association of Realtor’s (CTAR) Residential Market Update was a virtual event this year on January 19, with over 700 industry professionals listening in via Zoom.
Rusty Hughes, Carolina One’s Broker-in-charge led the 2021 virtual Residential Market Update with speaker Dr. Joseph Von Nessen. Provided.
Rusty Hughes, Broker-in-Charge of Carolina One opened up the meeting by commenting that Dr. Joseph Von Neesen’s prediction in May was spot on: “We may see an uptick in homebuyers moving here from metro areas where can they live, work and play here,” Von Nessen said earlier in the year.
“We have certainly seen that his forecasts have come to light in the record-breaking months of activity that followed,” Hughes said.
Von Nessen, a research economist and CTAR’s annual keynote speaker for several years talked about where we were during the second half of the year in the country and in South Carolina, what’s changed in our local economy and where that has landed us now.
Ups and downs
“South Carolina’s recovery has been strong during the second half of the year and if we look at it again across many economic metrics things are looking pretty strong right now in terms of the recovery,” Von Nessen began.
The government mandated shut down between February and April of 2020 resulted in South Carolina unemployment rates rising to nearly 13 percent, or 276,000 workers across the state out of work. It’s important to note how the second half of 2020 brought about some “pretty strong” recovery in other employment sectors of the state and in Charleston.
We experienced a “sharp rapid recovery” which happened during the late spring and early summer months, what economists call a V-shaped recovery pattern, as some businesses reopened and some people went back to work. That pattern was followed by a U-shaped recovery, a much slower, steady growth.
“That’s where we are today,” he said, “A slow and steady recovery.”
That steady recovery means South Carolina is still down about 3-1/2 percent in terms of employment levels. That’s a positive trend and a significant uptick, and one that looks even better – without the leisure and hospitality sector factored in. Take that sector out and that number is lower, with unemployment levels only down about 1.5 percent compared to where we were pre-pandemic, Von Nessen explained.
“This shows the dichotomous nature of the recovery we have been experiencing,” he said. “To a certain extent it’s what we have been experiencing across the US, but especially in South Carolina and that is reflected clearly in the data. We have almost fully recovered in terms of our unemployment levels, except for leisure and hospitality.”
This crucial element of our employment sector has been, by far the hardest hit during the shutdown, has seen the most losses and it’s still down about 17 percent compared to where it was pre-COVID. The bulk of unemployment insurance claims in South Carolina are coming from these individuals. The service industry, as a whole, has suffered – throughout the country, South Carolina and even more so in Charleston.
“As we continue recovery in 2021, that really means recovery of leisure and hospitality and that’s really where it needs to happen,” Von Nessen said.
Trends nation-wide are reflecting a surge in durable goods spending – a direct opposite of what’s happening in the service goods industry – for obvious reasons. Durable goods (autos, appliances, home goods, etc.) have increased significantly. Disposable income has actually gone up in 2020 because of the stimulus efforts and people staying at home with more money to spend.
The housing market – demand and migration patterns
“We expect demand to remain strong in 2021,” Von Nessen said. “2021 is likely to be a very good year in South Carolina and in Charleston. Looking back at trends in 2020, and as we track the trends over the last decade, sales have been fairly consistent in terms of total sales activity going back to 2012.”
The typical seasonal home sales trends factored into that data. Sales data follows trends of employment as indicated during the recession of 2008 and in 2020 right after shutdowns. But, a dramatic shift happened in 2020 – a sizeable uptick in overall sales once demand hit for homes here in the south and in the Lowcountry.
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“We have seen the best activity, we saw records set all throughout 2020 in the residential housing market in Charleston,” he said. “Residential sales in the winter of 2020 matched sales in the summer of 2020 and that’s never happened before.”
The demand also stems from fewer employment losses among potential home buyers in this market.
“Whereas the bulk of the unemployment is coming from the leisure and hospitality sector, which are typically geared toward rental markets, we can still see an economy that continues to really hurt and yet residential housing continues to do very well, so it’s all about the customer base and who that customer base actually represents,” he said.
Migration patterns are favoring South Carolina, as well, another factor driving demand. The south, in general, is realizing significant migration. Data regarding projected migration patterns from 2020 to 2040 are estimated at 58 percent of population increases occurring in southern states.
“If you restrict this (growth) to the southeast, the population gains coming to the southeast – it’s 35 percent and that is the biggest category form the US,” said Von Nessen. “These migration patterns are going to continue to benefit South Carolina. More people will create more demand for housing and more people moving to the south and South Carolina. That also creates a new market for consumer goods and when you have a port nearby, it becomes a more valuable asset for companies. Companies are looking to locate in the south and southeast where they can easily distribute goods to a larger customer base.”
Add very low interest rates to that mix and you’ve got the perfect storm for dramatic demand. “The Federal Reserve lowered the interest rates back in March to shore up the economy and aid in recovery efforts,” Von Nessen said. “The Fed has been very clear that interest rates are likely to stay low, close to zero at least until 2022 and that helps to keep housing more affordable and create more demand.”
Local real estate professionals saw low housing inventory prior to the pandemic. Now, inventory is at a record low. Growth rates of home sales activity have been constant over the last several years. From 2016 to 2019 the median annual house rate was about five percent per year.
“We’ve gone from five percent per year to 16 percent,” Von Nessen said, referring to the last 12 months. “A major shift as a result of this heightened demand we have experienced.”
If we continue to see very high demand and all signs point to that, can we keep up with supply?
Von Nessen said: “The answer is maybe, maybe not. But we are getting to a point where supply constraints are going to be more and more of an issue so I think it’s likely we’ll see a reduction in the growth rate – year over year (YOY) growth rate in sales later on in 2021. Whether that means an overall flattening of growth or possibly slightly negative, we don’t know yet.”
Von Nessen reiterated, “It’s important for everyone to keep in mind strong demand coupled with limited supply can still create a lower overall growth rate in sales activity without meaning anything negative about the market environment. When interacting with customers just because they may see a headline about YOY being down in a particular month, it’s important to keep that in context and what that really means. I think we are more likely to be on the optimistic side of the projections – it’s likely full employment recovery will happen in 2021, but that’s all depending on the vaccine rollout.”
What to track in 2021
• Number of COVID-19 cases: Direct relationship to impacts on the service sector.
• Vaccine dissemination: We won’t see full recovery until it’s widely distributed.
• Stimulus results: $900 billion stimulus package passed in December serves as a bridge to where were in December until we get state and national vaccine rollouts.