It was supposed to be the slow time of year in the Greenville real estate market, but there was nothing slow about it. Average sales prices in the region had crested to a new record, sellers were receiving an average of over 100 percent of their asking price, and homes in the city’s most desirable locations were inundated with showings and sold within days. And all of it was happening in February of 2022, when market activity was typically as low as the temperature atop Sassafras Mountain.

Nick Carlson doesn’t exactly look back on those days fondly.

“You couldn’t even eat dinner,” said Carlson, broker and vice president at Wilson Associates Real Estate, and vice president of the Greater Greenville Association of Realtors. “If something popped up on the market, you had to leave your house right away and show it and throw something out there. By the spring, you were seeing $30,000 to $40,000 over list price. We will never see that again. I hope we will never see that again. It was just unhealthy.”

The first half of 2022 proved the final gasp of an unprecedented and exhaustive sales frenzy, launched in South Carolina and throughout the nation by pent-up demand that built to a crescendo during pandemic lockdowns. When those restrictions were lifted in the summer of 2020, the market in the Palmetto State exploded. Interest rates were low, people had stimulus money in their pockets, and South Carolina became a destination of choice for cash-rich transplants from more urban areas who wanted space, sunshine, sea breezes, and everything else the state had to offer.

Ultimately, it all crashed headlong into a South Carolina housing market with acute inventory shortages, stemming from difficulties the home-building industry suffered during the Great Recession. And now, as the calendar turns the page into 2023, the Palmetto State housing market finds itself in a very different place than it was a year ago — with interest rates higher, homes sitting on the market longer, sales numbers declining, and everyone wondering when or if average home prices are going to start to come down.

“Since 2010, when we saw the worst of the recession, South Carolina home sales and activity have steadily increased year-over-year,” said Nick Kremydas, chief executive offer at South Carolina Realtors. “I mean, we’re on an unprecedented 12-year growth run in real estate in South Carolina. And I think you can look back in the history, the statistics, and I don’t think you’ll find another period of growth that’s lasted that long.”

Slight price gains forecast

Statewide numbers were trending down in the final months of 2022, with year-to-date closings off 9.4 percent through October, the most recent month that figures were available from South Carolina Realtors. Prices, though, continued to trend upward, buoyed by a lack of inventory. When looking at the national picture, it’s not difficult to find some worrying forecasts — like one from Morgan Stanley that predicted a 7 percent price drop through December 2023, and another from John Burns Real Estate Consulting that envisioned a 10 percent price plummet through 2024, both according to The New York Times.

But experts do not foresee those type of gloom-and-doom scenarios for South Carolina. “We still have an influx of people moving from other states, still have a lot of New Yorkers and Californians and everything,” Carlson said. “And then you’ve got all of this development that’s coming, like BMW announcing that $1.7 billion investment in their EV program, and then Volvo investing $43 million in their other plant that’s going in near Fountain Inn. I mean, if companies are investing here, then people are going to move here.”

That sentiment is echoed in the Lowcountry, where the level of corporate investment, number of available jobs, and continued flow of migration in from other states somewhat insulates the market from potentially dramatic drops in home value, added Jon Stroud, an agent with The Boulevard Company and president of the Charleston Trident Association of Realtors. “You have the desirability and the beauty of Charleston, and the jobs that we need people for,” he said. “I believe, as with all the agents I have talked to, that we are definitely not going to see that crash.”

Yet clearly, average home prices in South Carolina cannot continue to escalate at the rate they have the past few years — 14.3 percent in 2020 and 15.6 percent in 2021, according to South Carolina Realtors. Lawrence Yun, a Lexington native and chief economist for the National Association of Realtors, told attendees at the recent NAR conference in Orlando that he expected prices to continue to climb in 2023, but only by about 2 percent nationally, while sales decline at around 7 percent. “In South Carolina, I think those numbers are going to echo pretty strongly,” Kremydas said.

“The median prices jumped dramatically this year, but we’re probably going to continue to see a 2 or 3 percent price gain (in 2023),” Kremydas added. “We’re a little more uniquely positioned than a lot of other states, in that we’re one of the top move-to destination states in the country. And we’ve got historic levels of underdevelopment.”

Inventory and interest rates

Indeed, so much of what’s happening in the South Carolina housing market is predicated on inventory, or the lack of it. It was easy to get excited in the late summer when the Charleston area surpassed 3,000 units of available housing inventory, after lingering below 1,700 earlier in the year. “But you have to keep these numbers in perspective,” Kremydas said. “A normal six-month inventory in the Charleston area is 17,000 listings, not 1,700. We’re still well, well below any sense of normalcy when it comes to inventory, and inventory drives the rest of the market.”

Those low inventory levels, a vestige of when new-home construction in South Carolina stalled out in the wake of the 2008 market crash, have kept many prospective homebuyers — particularly first-time buyers — trapped in the vise of rising prices and rising interest rates, which can combine to add thousands of dollars a month to a mortgage payment. “We’re going to have to see interest rates come down a little bit and inventory go up to see a scenario where prices are going to come down significantly,” Stroud said.

There’s no easy fix to the inventory squeeze in South Carolina; if anything, Kremydas worries it could get worse if slowing sales lead home builders to pull back on single-family development. Interest rates are dependent on the Federal Reserve Bank, which has gradually raised rates throughout 2022 in an attempt to stem inflation. The weekly average rate on a 30-year fixed mortgage reached 7.08 percent in early November, the highest it had been since 2002. Nationally, Yun foresees a return to the normal spread between the government borrowing rate and the home purchase borrowing rate in 2023, bringing 30-year mortgage rates down to around 6 percent.

“I think the industry would be very surprised if interest rates climbed up to 9 or 10 percent. That would signal that there are much bigger problems in the economy than just real estate,” Kremydas said. “Most real estate economists believe that if we if we didn’t have this runaway inflation, interest rates would probably be around 5 percent. And they think if the Fed is able to tackle and slow and shrink inflation, then interest rates should normalize by next summer, to around somewhere between 5.5 and 6 percent by most predictions I’ve seen.”

South Carolina will still have pockets, like Mount Pleasant and downtown Greenville, where price escalation will exceed state and market averages in 2023. Two Palmetto State metros were among the top 10 areas with the largest year-over-year price gains in the third quarter of 2022, according to the NAR: Myrtle Beach at 21.1 percent, and Greenville at 18.9 percent. But “we don’t have any markets like San Francisco that have seen crazy run-ups in prices,” Kremydas said. “We’re talking about 1 or 2 percentage points, for the most part, because of the inventory levels. I’d be surprised to see any major price corrections in any of our markets.”

Adjusting to a changing market

To some real estate professionals, that scenario entering 2023 sounds refreshingly normal, coming off a two-year cycle defined by record low interest rates and record high home appreciation rates.

“The point we’re trying to drive home with all of our agents is, people have forgotten what normal is. And we need to remind them what normal is,” Carlson said. “We’ve been spoiled with low interest rates; historically they’ve been around 7 or 8 (percent), and 6 I feel is going to be the norm for a while. And everything’s appreciating at a more normalized rate. The past two years, you were looking at a 15 to 20 percent per-year increase. Now you’re going on this steady 3 to 5 percent where it should be.”

Buyers and sellers have had to adapt as a result. With the exception of certain sought-after areas, the days when buyers could simply name their price and expect an astronomical figure are gone. “There’s a lot more negotiation these days,” Stroud said. “If your home is in beautiful condition and you price it right, it will still sell even in a less-frenzied market. But I’ve had some buyers try to lowball sellers, because they think the market’s completely changed, and some sellers who’ve needed to come in at a more realistic price. So we are seeing that dynamic of people having to get used to the new market.”

That includes real estate agents, particularly those who have entered the business in the past two years. Carlson said one of his agents recently asked for help with a negotiation, leaving him puzzled — until he realized she’d never had to negotiate a contract. “She’d been in the business three years,” he said, “and all that time, it’s been like, ‘Give me your best and final (offer) and throw it our way.’ I think it’s great that these agents got in. I’m interested to see how they make the transition.”

The NAR has 1.6 million members nationally and 29,000 in South Carolina, Kremydas said, with both those figures being all-time highs. The NAR is expecting a 3 to 4 percent decrease in membership nationally, while “the new normal or normalizing market, however you want to categorize it, is going to require some agents to retrain and upgrade some of their tools in their tool belt,” he added.

Such ebbs and flows within the industry have happened before — there were 24,000 Realtors in South Carolina before the Great Recession, Kremydas said, and 12,500 afterward. Since 2020, the association’s membership in the Palmetto State has grown every year. “We tend to see membership kind of swell when markets are really good, and then tend to shrink a little bit when markets tighten up,” he added. “It’s not unusual. While I don’t expect a major drop in membership, we probably will see a little correction there.”