Reflecting on the 2015 housing market, it was a great year of growth and improvement…..one that sets the stage for a return to normalcy in the months and years ahead according to most financial experts. But “normal” is just a setting on your clothes dryer, after all, and not everything in the housing market was close to “normal”. On the sales front, there were more sales of both existing and new homes in 2015. Judging from the data reported through November, new-home sales were up 13% and existing-home sales were up 7%. Everything showed strong activity….1.4 million households formed in the past four quarters ending in September and another year of solid job creation (an average of 210,000 jobs per month through November). Normal, non-foreclosure sales increased among first-time and repeat buyers, and buyers who were relocating and/or changing jobs. Very typical of what is happening here in Charleston. Distressed sales actually declined. We got more of what we want and less of what we don’t want, so from that perspective, the growth in 2015 was especially good. Home prices rose 5% to 7% nationally in 2015, depending on whose reports you read. This kind of appreciation helped owners see solid gains in equity. Home values are close to being fully recovered nationally! Great news! Normally, such price appreciation and evidence of strong demand would see a substantial increase in new construction, but most of the growth again occurred in apartments rather than single-family homes. Even with more than 20% growth in total new construction, we will have created only 900,000 new housing units, which is less than 65% of the new households we created, according to Jonathan Smoke, Realtor.com.
Most of the new households forming are renting households, and that’s where there is an imbalance between supply and demand. Apartment vacancies are at an all time low, and rents are now rising faster than home prices, as is very apparent here in Charleston. We rank in the top 10 rental market at #8. While it may sound like a real estate agent’s dream to say that it’s cheaper to buy than rent in more than 75% of the country it may not be the best situation for buyers trying to save for a home when their rent is so high. But, if these prospective buyers can save to make the move to purchase, affordability remains strong despite higher home prices, as we ended 2015 with only slightly higher mortgage rates.
For 2016, especially here in the Charleston area, if the market is able to see more new construction that can keep pace with household formation and job creation, then I believe that we are more likely to see sustainable economic growth!