Dedicated Golf Community Reviews reader Elliot deBear, who also contributes reviews and photos of golf courses he plays, wrote me the following the other day. I appreciate the kind words and hope I have answered his question thoroughly. If others want to weigh in on the subject of home prices in Charleston and elsewhere in the southeast, I welcome and will be happy to post your comments.
"Larry," Elliot wrote, "I've been enjoying your recent and spot-on articles regarding the price shifts, opportunities and pitfalls in second-home purchases throughout the south, in general,
Are these published prices," our reader writes, "accurate or realtors' wet dreams?"
and for golf communities in particular. I recently picked up a copy of
Charleston Magazine where the majority of beach, golf and island homes still are all in the $1-million-plus price range. This is not different from the prices listed in the same magazine months ago. Is Charleston that insulated from this financial meltdown? I can't believe they are holding prices that high and that there is that much demand there. There have to be a ton of retirees or near retirees who are getting slammed right now, not to mention how the credit crisis has to be killing builders who went out on the limb with spec houses. Are these published prices accurate or realtors' wet dreams?"
My response to Elliot:
You ask a great question about Charleston. Overall, Charleston market prices are down about 6% or so year over year, depending on whose charts you are looking at; that is one of the most stable performances in the nation. So, yes, there is a little insulation market wide. The top end of the market is typically the last segment to suffer price erosion. Given all the headlines, we can sometimes lose sight of the fact that many, many people made a lot of money in the equities markets run-up before the crash, and many of those were as smart about conserving their money as they were in making it. They weren't the ones who got caught up in the irrational exuberance thing and bought three or four spec condos in Miami with loans they could not pay back if prices leveled off, let alone dropped.
So, one response is that there is still some money out there chasing a few choice properties, some of which are in the
Charleston Magazine listings you reference. I do know that
Tremendous wealth was generated in Atlanta, and much of it was used to buy second homes in the Charleston area.
tremendous wealth has been generated in Atlanta over the last two decades, and Kiawah Island and the higher end golf communities around Charleston have been second-home magnets for the newly rich from Atlanta (magnets for magnates, I suppose we could say). Many of these are professional people who probably did not see fit to make reckless investments in real estate and probably had a good amount of cash sitting on the sidelines when the spit hit the fan. They may be inclined to list their second homes now, but they probably don't have the urgent need to dump them that those of more modest circumstances are feeling.
That leaves the vacation homeowner a little vulnerable to local real estate agent "puffing," a term of art in the industry. It means real estate agents tend to paint a better picture of a property than it deserves. So these agents, who are scrambling for listings more than ever in this ugly market, are pitching over-inflated prices to these potential clients to win them over. (Note: I wrote a piece a few months ago about taking the middle of three estimates when it comes time to sell my own house.) The second homeowners don't understand the local market as well as the local agents do, so they trust the estimates. I think this may be inflating those listing prices in
Charleston Magazine as well, and keeping the properties from selling.
If my assumptions about the high end of the Charleston market are correct, then the key
Those who paid cash for their second homes are probably in no great rush to unload them.
question is how much debt the second homeowners may have acquired to buy their homes. Those who paid cash probably will float their vacation homes at the higher prices you see, not caring too much whether someone bites or not. But most of them probably assumed some debt, and I expect they are starting to get nervous about now (if they hadn't been nervous already). I will hazard a prediction that if you pick up
Charleston Magazine in a few months, you will see anecdotal evidence that prices have begun to drop on the high end. I have been looking at the Sunday
NY Times real estate pages for most of this year, and only a few months ago -- after Lehman -- did I notice prices eroding in the Big Apple. Like NYC, Charleston has much to recommend it to a wide range of people, but I think the insulation will begin to wear away shortly.
