Current Market Conditions

The under $1,000,000 segment continues to bear the brunt of the downturn in Myrtle Beach, as evidenced by more dramatic volume (unit) reductions as compared to both 2005 and 2004. The influence of investors in this segment who purchased late in the game is significant and price deflation continues to occur in selected communities. In the over $1,000,000 segment, volume reductions are less severe as compared to 2005 and are now more or less in line with 2004 levels. This is largely a function of sellers with significant equity in their properties who are under less compulsion to sell, and who recognize that current market weakness will turn to strength at some point. In addition, there are far fewer speculator-owned properties in this segment of the market.

High and growing inventory levels are such that days-on-market continue to exceed early 2005 and 2004 levels. For the 4th quarter, 68% of all sales were on the market for 91 days or more, actually a slight improvement over last quarter. This improvement likely represents a heavy weighting of distressed sellers whose time-on-market necessitated selling at prices well below their initial expectations.

Median sold prices have declined in each of the last three quarters. At $367k today, the median selling price in Myrtle Beach, Grande Dunes is $71k below the 2006 first quarter peak. It’s worth noting that today’s median price still exceeds the fourth quarter 2004 median by $67k, but is lower today than in every subsequent quarter. Given the numbers and the clear trend, we have to accept that true price deflation has occurred in certain price ranges and communities.

All of the downturn in median selling prices has occurred in the under $1,000,000 segment. Although it varies by community, the over $1,000,000 segment is flat to up, with properties closer to the shore and Old Myrtle Beach performing the best. To put this in perspective, fourth quarter median sale prices in the over $1,000,000 segment are up 17% over last year. Below $1,000,000, median prices are down 15%.

So how best to interpret these facts? While I can’t cite hard statistics, anecdotal evidence indicates that there is no shortage of buyers interested in Myrtle Beach properties who are waiting on the sidelines for fear that prices will be lower in three to six months. Buyers will get active when they conclude that prices have little risk of falling further and when they perceive that home purchases represent good value.

Forecast

While the exact date of a bottom is hard to predict, there is a critical outside event that will push prices higher. In January the Governor and legislature dealt with the crisis in home insurance rates – rates are likely to drop 20% as a result. In June, when the legislature returns it will take up the Governor’s call for portability of the Save Our Homes tax break. Portability means that if you sell your house you can take your favorable tax treatment to your next house. If this passes the legislature it will go before the votes in September. Both a June passage by the legislature and the eventual passage by the voters will be strong signals of a market upturn. Portability means liquidity (more money available to buy houses) and liquidity is what this market needs.

The portability issue will be the driver of real estate activity in 2007.


Recommendations

Buyers remain in the driver’s seat. If you find the perfect property at a great price today, waiting to purchase later is risky as the best values will sell first this season. On the other hand, if you find many acceptable homes (as in a community with high inventory levels of virtually identical properties), you run little risk in waiting until later in the season when prices may go lower yet. Investors must remain focused on cash flow while recognizing that the rental market is soft, with many frustrated sellers offering their properties for rent. Buyers and investors should protect themselves by including a contingency clause in any offer such that they have an out if insurance cannot be obtained at an acceptable premium.

Sellers are now in the peak selling season. Your property must be priced in the lowest quartile of comparable homes to have any hopes of attracting buyer interest this season. Gimmicks such as bonuses to selling agents or including cars or vacations in the deal won’t work. Offering to pay a portion of the buyer’s closing costs can stimulate additional interest in your property. Demand that your agent provide full exposure to the market and make sure your home shows like a model. The web is far more effective as a marketing tool than print advertising, so be sure you are getting maximum exposure on as many websites as possible. Investing a few dollars in a staging service can also be productive.