Charleston Area Foreclosures Growing
I guess it's not a surprise to see the increase in the number of properties in some stage of foreclosure. But the total is quite staggering. According to RealtyTrac.com the total number in the Charleston area has exceeded 2500. This presents a variety of problems for the local market.
The primary issue, aside from the obvious fact that people are losing their homes along with substantial equity, is the use of foreclosure sales as comps. In the past, appraisers working for banks would footnote or discount a foreclosure when appraising a property under contract to determine market value. However now it is common for appraisers to use these distressed properties as comps. Why, because there are so many of them, they are setting the basis for the market (what a buyer is willing to pay for a property). Of course buyers are keying off of this as well to determine what they believe is an appropriate value. All of this has the effect of bringing property values down.
This phenomenon is great for buyers however it is reeking havoc on sellers. Property values in the Charleston area dropped about 30% last year and an additional 15% so far in 2009. Unfortunately this decline is not likely to hit bottom for a while. The reason is that our real estate bubble was so large. To give you some history, between 1980 to 2000, the average increase in the value of real estate was 5% per year. However between 2001 and 2007, real estate increased a whopping 89%. That was great, but now we are paying for it.
Looking ahead, we are not likely to see the bottom until some time in 2011. And prices will likely not return to todays level until 2014! So the longer you wait, the lower prices will be dragged down. The bottom line is, if you are in a positon where you must sell your home, you need to get very agressive with your pricing to sell it quickly.
The primary issue, aside from the obvious fact that people are losing their homes along with substantial equity, is the use of foreclosure sales as comps. In the past, appraisers working for banks would footnote or discount a foreclosure when appraising a property under contract to determine market value. However now it is common for appraisers to use these distressed properties as comps. Why, because there are so many of them, they are setting the basis for the market (what a buyer is willing to pay for a property). Of course buyers are keying off of this as well to determine what they believe is an appropriate value. All of this has the effect of bringing property values down.
This phenomenon is great for buyers however it is reeking havoc on sellers. Property values in the Charleston area dropped about 30% last year and an additional 15% so far in 2009. Unfortunately this decline is not likely to hit bottom for a while. The reason is that our real estate bubble was so large. To give you some history, between 1980 to 2000, the average increase in the value of real estate was 5% per year. However between 2001 and 2007, real estate increased a whopping 89%. That was great, but now we are paying for it.
Looking ahead, we are not likely to see the bottom until some time in 2011. And prices will likely not return to todays level until 2014! So the longer you wait, the lower prices will be dragged down. The bottom line is, if you are in a positon where you must sell your home, you need to get very agressive with your pricing to sell it quickly.
posted by Chris Haviland at
11:41 PM
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