The New Normal: The Housing Market continues to grow in Columbia, but a downward trend may be on the way
Apr 06, 2018 03:26PM ● Published by Makayla Gay
By Chris Haire
The housing market across the U.S. is showing signs of cooling off, but right here infamously hot Columbia, the industry looks as if it will remain on fire through the year, with indications that the benchmarks of 2017 may be surpassed in 2018.
That’s the good news.
Now for the bad news.
The same factors that are cooling other markets -- higher mortgage rates, a lack of skilled labor, and increased costs for building materials -- are beginning to be felt here in the Midlands. Some in the business are even predicting that the home sales will soon fall back to a new plateau.
One thing appears to be for sure: the boom times of the mid-2000s are unlikely to return.
“We’re not at pre-Great Recession numbers, and I don’t think we’ll ever probably see that again. And so I think this is pretty much going to be the new norm. If not, then maybe just a downtick if the rates go up,” says Stan O’Brien, president of Paradime Construction. “I think we’re probably a little bit above what our average will be moving forward; that’s my gut feeling. If we go any higher, it’ll just be a short-term thing.”
While it’s difficult to base the health of a market on just the first month of the first quarter, pending sales of new and existing homes across the nation were down 4.7 percent in January, according to the National Association of Realtors. As a result, home sales were the worst in three years, while the number of available listings dropped to an all-time low.
“The economy is in great shape, most local job markets are very strong and incomes are slowly rising, but there’s little doubt [January’s] retreat in contract signings occurred because of woefully low supply levels and the sudden increase in mortgage rates,” said Lawrence Yun, chief economist for National Association of Realtors. “With the cost of buying a home getting more expensive and not enough inventory, some prospective buyers are either waiting until listings increase come spring or now having to delay their search entirely to save up for a larger down payment.”
Yun says that home sales in 2018 will largely mirror 2017.
In Columbia, however, sales might even be better this year than last. “I think as a whole, the market is very robust right now in Columbia,” said Mike Satterfied, CEO of Great Southern Homes and the president of the Building Industry Association of Central South Carolina. “We as a company, Great Southern Homes, in February, we had a very good month, January and February both. We’re off to really good starts for the year.”
Satterfied added, “From my discussions with competitors in the market, they’re all doing the same thing.”
In fact, Satterfield said Great Southern Homes sold 122 houses in February, a sizable increase from January’s 88. “February is usually a good month for us,” Satterfield said. “I think some of that may have been driven by the uptick on the rates and maybe pushed some folks to move a little quicker and get off the fence.”
Across the region, the number of new building permits in January hit 290, up from 221 in 2017 and 257 in 2016.
As for Paradime’s O’Brien, he remains optimistic about 2018. “I had a really good year last year. This year is looking to be about the same,” O’Brien said.
The National Association of Home Builders also indicates the signs bode well for the Columbia area in 2018. Housing starts for 2018 are predicted to be up 6.7 percent from last year, with single-family construction up 6.5 percent and multi-family up 8.4 percent. They’re even predicting further, albeit smaller, increases in 2019 of 6.3 percent overall.
But like Yun, Satterfield says that inventory is low.
Which brings us to the negative trends impacting the housing market -- some of which may be exacerbated by Trump administration policies.
“Growth rates have slowed somewhat, and that’s due to multiple factors,” said Joseph Von Nessen, a research economist at the Darla Moore School of Business. “If we look at interest rates, they have been going up for a period of time. We see the Federal Reserve continuing to raise the federal funds rate as the economy continues to improve and do well, and that has a direct impact on mortgage interest rates, of course, and so that makes the cost of buying more expensive.”
Another reason for the price increase: with more and more out-of-staters moving into South Carolina, the Palmetto State is a hot market.
“The other factor that I think is more responsible for the tapering off of growth is the fact that we are seeing such strong demand, which is driving price trends, which is driving prices up,” Von Nessen said, adding that while the surge is particularly strong in Charleston, it’s spread across the state.
The current tariff on imported softwood lumber from Canada is also driving up home prices, a trend that the NAHB believes will increase as Trump’s new aluminum and steel tariffs take hold.
“These tariffs will translate into higher costs for consumers and U.S. businesses that use these products, including home builders,” said Randy Noel, chairman of the NAHB. “Given that home builders are already grappling with 20 percent tariffs on Canadian softwood lumber and that the price of lumber and other key building materials are near record highs, this announcement by the president could not have come at a worse time.”
Another troublespot: a lack of skilled labor.
“I’ve been doing this for 39 years; this is as challenged as I’ve seen it in my entire career,” BIA’s Satterfield said, adding that during the Great Recession many tradesmen left the construction business to find other careers, while fewer young people are entering the industry.
As a result, the void is being increasingly filled by foreign-born workers, with Satterfield estimating that they make up the majority of the labor force.
Because of the vital role the foreign-born labor pool plays in the construction industry, NAHB has also weighed in on the issue of immigration reform.
“Given the chronic shortage of residential construction workers, there has never been a more critical time for Congress to enact effective reforms that would help revitalize the economy and boost the housing sector,” former Chairman Granger MacDonald said in September.
MacDonald added, “NAHB believes that any comprehensive reform should protect our nation’s borders; include a new, market-based visa program that would fill labor gaps to ensure that the nation has a workforce that is sufficient to meet its housing construction and restoration needs; and provide a workable employment verification system.”
Foreign-born or domestic, that lack of a labor force is negatively impacting the industry.
“My construction time has increased because labor is not showing up on time. That’s what I’m telling my potential clients,” O’Brien said. “It’s taking me longer than normal to build on average.”
O’Brien, for one, has seen where the cost of home-building is going: it’s getting more expensive for the builder and as a result more expensive for the potential homebuyer. The price for homes in Columbia have increased by 5.4 percent over the past year, according to NABH, with the median price for homes reaching $160,000.
“Material prices are all going up across the board it seems like,” O’Brien added. “Concrete, roofing, lumber -- lumber is just all over the place.”