Vince Graham’s Market Report for the First 8 Months of 2008

Value

“These days man knows the price of everything, but the value of nothing.”

~Oscar Wilde

Through the first eight months of 2008, the media has been reveling in stories about how we’re in a major disaster because house prices are going down and mortgages are increasingly harder to obtain. Unfortunately, few reporters put these stories in context.

When someone speaks of value, we often jump to the conclusion that person is talking about economic value - price. But value expressed in this economic term of exchange is nothing more than monetary value. There are numerous other types of value - aesthetic, family, and cultural values among them. And people value different things differently. “One man’s trash is another man’s treasure”, as the saying goes.

In recent years, many invested in real estate on the assumption that because prices went up in the past, they would continue to rise in the future. This often resulted in home purchases driven less by the need for a place to live, than it was as a way to make money. Well, if you treat something as an economic investment, it starts to act like one. Priorities shifted to focus on the asset’s trading price rather than whether it’s something that someone actually wanted to possess. Such speculation fed an unrealistic real estate bubble that began to deflate in 2006, and the overall market has struggled ever since.

With price at the center of attention we felt increasingly positive and safe, even euphoric, as the market was notionally going up. As economic values dropped, the public mood turned pessimistic and anxious. Politicians and the media have a tendency to exploit such situations, which contributes to the downward spiral of fear.

Is there a solution? Perhaps not in the short run, though getting through the campaign period should help. The inimitable laws of supply and demand acting over time will also gradually clear the streets of so many “For Sale” signs. In the longer run, changing our perception from one focused on economic value to one focused on values that are arguably more important, such as those that strengthen a sense of community and neighborliness, will help relieve anxieties.

Let’s take stock of our own neighborhood, where value creation is trumping the market’s decline. The leadership of the I’On Assembly Board has done a remarkable job this year. The physical infrastructure of I’On - its streets, parks, and landscaping - looks more beautiful than at any time since the first I’On home was occupied ten years ago this month. Similarly, the I’On Trust continues to advance social and cultural value in I’On. Toss in civic benefits the East Cooper Montessori School, I’On Club, and the Holy Ascension and Holy Cross churches contribute to the neighborhood, and you end up with significant value enhancement.

The above photograph of the Eastlake Road/Prescient Street intersection illustrates another example of value creation. Next time you’re in this area, notice how the branches of the live oaks planted across the street from each other are beginning to touch. Then imagine what the neighborhood will look like in another ten years, as these and hundreds of other street trees continue to grow and intertwine forming a “ceiling” for the “outdoor rooms” that are I’On’s thoroughfares. The appreciating value of its maturing trees will contribute to making the neighborhood an even better place to live.

Market Update

The tables on the following page summarize transactions, median price sold, and average days on market for years 2004 through 2008 in the Tri-County area, Charleston County, and various other areas in the region. These numbers were taken from MLS data.

Total transactions are down about 30% from last year in the Tri-County and most areas of the region. Median prices of homes sold are also down and average days on the market are up significantly in most parts of the region. In contrast, I’On has thus far demonstrated resilience in the market slump. During the first 8 months of 2008, 41 I’On homes changed hands. This is the same number of transaction as occurred in the first 8 months of 2007. Furthermore, in 2007 the median price of all homes sold in I’On was $835,000 and the average price was $936,417. The median price of the homes sold during the first 8 months of 2008 was up 4.2% to $870,000 and the average price of these homes was up 1.2% to $948,079.

At the beginning of the year, I projected I’On would see 63 total sales transactions in 2008 with a median price of $924,518. This projection was based on expected lower interest rates and a belief that prospective buyers who were waiting on the sideline in 2007 were growing impatient and would start making offers to sellers who would be lowering asking prices to reflect the new market reality. As late as three months ago, I continued to hold to those optimistic projections. However, while we have experienced lower interest rates in 2008, I’On, as well as Daniel Island, the Old Village, downtown Charleston, Sullivan’s Island, and the Isle of Palms are saturated with large, expensive homes for sale. Ongoing turmoil in the financial markets and distractions associated with political campaigns make for a challenging environment to sell a home. Unless sellers are able to make bold adjustments to asking prices within the next 45 days, expect to see no more than 52 total transactions in 2008 with a median price similar to last year’s $835,000.

56 of the 88 homes currently on the market in I’On are priced greater than $900,000. 22 of these 56 are priced at $1,400,000 or more. Of the 41 homes that sold in I’On through August, 23 closed at prices ranging from $550,000 to $899,999, 16 closed at prices ranging from $900,000 to $1,399,999, and 2 have closed at prices above $1,400,000 (both of those in the first quarter of this year). Prospective buyers of I’On’s higher priced homes continue to circle, but with so much to choose from and a fear of paying too much, they have no sense of urgency. They have grown increasingly wary and will only consider homes they view as priced at a bargain.