Mixed market still strong Area real estate cools, but stays sturdy

There's a slowdown this year in the number of homes sold in southern Beaufort County, but those that have sold fetched prices only slightly lower than last year's -- and villas and lots are selling for more.

Statistics compiled by the Multiple Listing Service of Hilton Head show that during the first seven months of this year, the average sales prices of single-family homes declined 1.9 percent, compared to selling prices during the same period in 2005. But sales prices for villas and lots increased 26 percent and 13.4 percent, respectively.

Several factors are driving the cool-down, real estate experts said, including higher interest rates, insurance costs, overreaching investors, increased property taxes, fear of hurricanes and more competition in the market.

The effect has been twofold: Prices that once seemed immune to gravity are feeling that force, and homes that might have sold in a few days or a few weeks might stay on the market longer.

Some segments of the market seem to have remained strong this year. Specifically, lower-priced homes and the high-end luxury homes seem to be selling well, while those in the middle have slowed the most, Realtors said.

Houses under $400,000 still are selling quickly without getting backlogged, said Andy Twisdale, president of the Hilton Head Area Realtors Association and a Realtor with Charter 1 North Realty and Marketing.

Many of those homes are off-island in Bluffton, where the market is strong, Realtors said.

"Today, Bluffton has all the amenities except for the ocean," Twisdale said. "You didn't have that five years ago."

On the high end of the market, Bobby Sandell, a Realtor with Re/Max Island Realty, said he's made some of his most expensive sales ever this year, and the luxury market is selling briskly.

Nationally, existing-home sales were down in July to 6.33 million from 7.12 million in July 2005, an 11.2 percent drop, according to the National Association of Realtors.

ON THE MARKET

Realtors in southern Beaufort County acknowledge that the market -- red-hot in 2004 and 2005 -- has cooled. Then, the market was exceptional. Now, it's more in line with historical norms, they say.

"Prices just can't keep going up in a straight line," Sandell, a veteran of the real estate market, said of the supercharged 2004-05 market.

Buyers "weren't even negotiating," he said. "They'd just say, 'I'll take it.' That's how good it was in '04 and '05."

Realtors also say -- and the numbers bear them out -- that almost any property bought more than two years ago is worth significantly more now than it was when purchased. Property values have appreciated -- handsomely in many cases -- just not at the pace that propelled the 2004-05 market.

Fewer sales means more properties on the market.

Several Realtors agreed that the roughly 5,000 total properties on the market in southern Beaufort County are between two and three times the number available at the same time last year.

IN THE BEGINNING

The origins of this year's tougher market started a couple of years ago, when investors ran from the shaky stock market to the relative safety of real estate, spurred on by low mortgage rates, said Bob Clarkson, general manager and partner in Re/Max Island Realty.

Investors rushed to buy housing seeking big returns, often acting as if every home for sale was their last chance to get into the market.

"People were buying homes for the wrong reasons the past few years," Clarkson said.

People saw real estate as a get-rich-quick scheme and not as a place to live, he said.

Those who missed selling at the crest of that wave now are discovering that an asking price that would have been reasonable last year is unrealistically high in the existing market, Clarkson said.

Some people who bought homes on the island between 2000 and 2002 saw values more than double during the frenzied buying in 2004 and 2005. To sell their homes now, they may have to give 20 percent of those profits back, Clarkson said.

It doesn't mean they're losing money; they're just not making as much, he said. He broke it down to a simple example of a stock: Someone who bought a stock at $5 per share and saw it go to $20 per share can view a price of $15 per share two ways -- as losing $5 per share from that high value or as making $10 per share from the starting price.

Slowly, sellers in this real estate market are coming around to that second view, he said.

Bruce Wolff, for example, thought his one-bedroom villa in Brighton Bay, near the Palmetto Bay Marina and on Broad Creek, would sell quickly when he put it on the market in early April.

On June 30, after putting in new floors and countertops and lowering the price to $200,000 from $220,000, Wolff sold his villa, which he bought in 2002.

"When I first put it on the market, I thought it would move very quickly because of the location, the price and the desirability of the area," Wolff said. "But I realized you had to be a bit more competitive."

MYRIAD FACTORS

The costs associated with owning a property -- insurance, mortgage payments and taxes -- have increased recently for many people.

The prime interest rate, which mortgage rates are loosely pegged to, has increased from 4 percent to 8.25 percent since June 2004. That means mortgage costs are up for those who took adjustable-rate mortgages in the past three years.

After a period of time -- usually one, three or five years -- adjustable-rate mortgages face the prospect of a rate adjustment. An adjustable-rate mortgage that hit its anniversary this year probably saw the full 2 percent increase allowed under the terms of the mortgage, said Jim MacLeod, director of the mortgage division at CoastalStates Bank on the island.

That increase could be enough to influence a person's decision to put a house on the market or keep paying for it, MacLeod said.

While adjustable-rate mortgage increases this year might have led some to sell, the current rates on 30-year fixed-rate mortgage are slightly more than 6 percent, making them low in a historic context and good for buyers, said Ric Hollifield, mortgage division manager for the Lowcountry for National Bank of South Carolina/Synovus.

Homeowner insurance costs also are up, on average 6.5 percent to 7 percent in the state this year. But coastal areas have seen a 20 percent to 25 percent rate increase, said Allison Dean Love, executive director of the South Carolina Insurance News Service.

Insurance costs are up for a number of reasons, including increased population in coastal regions, higher property values along the coast, rising construction costs, and catastrophe models predicting more and stronger storms, according to the South Carolina Insurance News Service.

Homeowners who've been able to stay with one insurance company for the past few years have seen less of an increase than those coming into the market as new property owners, said Bill Thomas, president of Carswell Insurance Services on Hilton Head.

Those buying into the market often must turn to excess- and surplus-line insurance companies, which sell coverage at higher premiums in higher-risk areas. Some of the big-name insurance companies have limited the policies they'll write in coastal areas or stopped writing new policies altogether, Thomas said.

To some investors, those higher costs mean it's time to cash out. And those same costs also slowed luxury buyers from entering the Hilton Head market.

"It's not an 'I need' kind of market," Twisdale said. "It's an 'I want' kind of market."

ADVANTAGE: BUYERS

The current market reminds James Wedgeworth, a Realtor with Charter 1, of the market after Sept. 11, 2001, just before interest rates started to fall and help promote economic growth.

"Actually, it's a fantastic time to buy," he said.

And people buying now have choices, said Allan LaCoe, who is part of a husband-and-wife Realtor team at Dunes Marketing Group with his wife, Gloria.

In the past two years, inventory was so tight that many houses had multiple bidders, which was great for the sellers but brutal for buyers, LaCoe said. Now buyers can find a few choices in any neighborhood on the island; make offers on their first, second and third choices; and negotiate a sales price.

Realtors say it's tricky predicting when the market will pick up.

Wedgeworth said a quiet hurricane season would help sellers in the market. That could reduce the fear created by a year of bad news that followed Hurricane Katrina's devastating blow to the Gulf Coast.

Previous hurricanes, even the devastating ones, were what Wedgeworth calls "30-day problems." They were off of the front page of newspapers and out of the nightly newscasts after a month.

Hurricane Katrina, which rocked New Orleans last August, wasn't a 30-day problem. It has stayed on people's minds for far longer, Wedgeworth said.

A quiet season this year could reduce insurance costs, he said.

"Even a wealthy person doesn't want to pay more for insurance," Wedgeworth said.

Sandell predicted that it might take a while for the market to improve because the number of homes for sale is building. Just 5 percent of the homes on the market are being sold in any given month, Realtors said.

"The market is probably healthier than people think," Sandell said. "But there is a ton of inventory, and prices have not hit the bottom yet."

LaCoe expects some improvement in the market soon as rental properties, empty for the off-season, will be easier to show to prospective buyers. Some properties that are listed might be pulled off the market next spring, when owners can charge peak rental rates, he said.

"What's happening now is that the market is taking a breath," LaCoe said. "It is coming back to normal."