2010 Luxury Charleston Real Estate Market

Posted By Joe Eddleman @ Jan 1st 2011 3:17pm In: Mount Pleasant SC Real Estate Market

January 1, 2011

I have just finished an analytical report of the high end real estate market in the town of Mt. Pleasant, SC that you may find interesting.

The State Of The Luxury & High-End Real Estate Market In Mt. Pleasant, SC.

 

Luxury Charleston Homes

The objective of this short study based on “mls” data, is to evaluate the upper end real estate market in Mt. Pleasant, SC for the 6 month period prior to September 20, 2010. An emphasis will be placed on current inventory of single family homes in the $700,000 to $2,000,000 price range, homes under contract at the end of the study period, new home vs. pre-existing home sales and bank owned and short sales relative to traditional sales by property owners. In addition, I will touch upon the sales activity of deepwater homes.

On September 20, 2010, there were 213 “high-end” single family homes on the market of which 15 of these homes were bank owned property or short sale situations. Of these 15 homes, only 2 are new construction. There were an additional 20 homes under contract, of which 6 were bank owned or short sales. None of these are bank owned or short sale situations. Of the 213 homes on the market, 30 were described as “waterfront – deep”, of which 3 were bank owned or short sale situations.

 

September 20, 2010 Inventory

High End Homes On The Market – 213

             High End Bank Owned Or Short Sale Situations- 15  (7 %)

      New Construction – 2  (1 %)

      Waterfront Homes – 30  (14 %)

             Waterfront Bank Owned Or Short Sale Situations – 3  ( 10 %)

High End Homes Under Contract – 20

           High End Bank Owned Or Short Sale Situations – 6

           Bank Owned Or Short Sale Deepwater Homes Under Contract - 0

          

 

The inventory of high-end homes on September 20, 2010, the end of the study period was certainly high from a historical perspective. However, only about 7% were “distressed properties” and less than 1% of the “distressed properties” were new construction. These statistics/figures seem to contradict the assertion/belief that the high-end home market/inventory primarily consists of “distressed” properties. About 14% of the homes on the market were described as “waterfront-deep” and only  10% were “distressed “ properties.  Again, not a particularly high number of these waterfront homes have or may go into foreclosure.

During this six month time frame, 57 high end homes sold/closed of which 6 were bank owned or short sales. 10 of the homes were new construction with 47 being pre-owned homes. The average price per square foot of the homes that sold was $229.45. Of the 57 homes that sold, 10 were described as “waterfront-deep”, none of which were bank owned or short sales. The average price per square foot of the waterfront homes was $280. Of the 57 homes that sold during the study period, 10 ½ % were distressed sales with 17 ½% being new construction.  Again, not a particularly high number of homes that sold were distressed properties. These figures seem to contradict the assertion that the only high end homes that are selling are “distressed” properties.

Homes Sold/Closed

Total Homes Sold During Reporting Period – 57 ($229.45 sqft.)

        Bank Owned Or Short Sale Situations – 6 (10 ½%)

        New Construction Sold – 10 ( 17 ½%)

        Pre-Owned Home Sales – 47 ( 82 ½%)

        Deep-Water Home Sales – 10 (17 ½%) ($280 sqft)

        Deep-Water Bank Owned Or Short Sales - None



If we use the figure of $200 per square foot for the cost to a buyer to have a custom home built in the Charleston area plus the cost of the lot we see that the cost to build is not appreciatively more than what a buyer will pay for a pre-existing home in the Charleston area, whether the home be on an interior or waterfront lot assuming an interior lot costs $150,000 and a true deepwater lot $450,000 and building a 4000 sqft. home. 

Using the $200 sqft. building cost and cost of a deep-water lot, a buyer could have a custom waterfront home built for about $ 1,250,000 plus the cost of the dock. A similar resale deepwater home has sold for about $1,120,000 including dock. The difference is about $130,000 plus dock cost. Assuming a dock cost of about $100,000, the total investment in a custom deep-water home would be about $230,000+/- more than a resale purchase. For this additional $230,000 cost premium the home buyer is getting “the perfect home” for their dollar with just the right floor plan, fixtures, cosmetics, lot, view etc. to meet their needs, not to mention that the home components are new, not used  One can make a strong argument that this premium can be recouped at the future sale of the home when offering a home with few if any negatives to a potential buyer.

 

From previewing and showing property in the $700,000+ range in Mt. Pleasant, I have observed   the vast majority of them were either built during the “real estate bubble” where for the most part little attention seemed to be paid to the floor plan, lot site, home placement and/or quality of construction. A large percentage of homes were sold to buyers looking for rapid appreciation and almost out of desperation because of so few homes on the market at any given time. What would not have been a “deal breaker” during the exuberant real estate years, is now a “deal breaker” unless the buyer can get the home “for a steal” and the seller does not have the financial means to hold on to the home until the real estate market turns. Even if the seller is agreeable to selling their home for substantially less than list price, most buyers are not purchasing unless the home is close to meeting all of their needs and preferences.

I speculate that most of the upper end custom homes being built today are built in a manner and of a design that will make them appeal to a large percentage of potential future buyers so as to minimize the downside risk to the new home owner. This is very much the case with one of my clients who are building a custom waterfront home on the Wando River in Mt. Pleasant after being unable to find a resale home to meet their needs and personal preferences. Additionally, the home owners are not paying for excess unusable square footage, unusual decorations and/ or fixtures that need to be replaced or outdated appliances, fixtures and interior finishes. Many of these downsides to the purchase of a pre-owned home are large negatives to the support most list prices and will keep a luxury home from selling regardless of price.

 

Conclusions

MLS statistics over the past six months seem to confirm that the “luxury home market” has not come to a standstill in Mt. Pleasant, SC. There have been many luxury home sales of new and resale houses (57). In addition, a drive through many of the executive home neighborhoods in Mt. Pleasant will confirm that additional homes are being built and occupied whose sales are not reflected in the mls statistics. This “phantom” number of custom home sales may offset to a large degree the “phantom” number of non mls homes sales that have taken place over the past 6 months. A vast majority of the luxury homes that were sold were not distressed properties, which is contrary to the common belief that the only luxury homes being purchased are be sold at “fire sale” distressed  prices. I feel that many of the home owners who are building luxury homes in Mt. Pleasant are doing so because they have been unable to purchase a home to their liking, even when they may be able to purchase it at a substantial discount from “list” price. With lot and construction costs relatively low, I feel that many luxury home owners are building because by doing so they are able to get just what they want and for a historically low price which may minimize their “downside” risks, particularly if they plan on owning for many years and not primarily as a short or medium term investment.

If those 57 buyers who purchased a luxury single family home during the past 6 months got the “most bang for their buck” in this distressed real estate market, we can assume that the “going rate” for the best luxury home is about $230 a square foot. Breaking out deepwater homes from this figure they paid an average of $280 a square foot.

 

A View Of The Wando River From A Home Under Construction

Based on the sales figures above, I feel that a luxury waterfront home has less downside price risk than a luxury home on an interior lot, given the relative low price, yet limited supply of good waterfront lots available in today’s market. With today’s construction and material costs so low and the low after tax return on ones cash reserves, a strong argument can be made for building a luxury home, particularly a waterfront home even in a deeply depressed real estate market.  This is particular true for a buyer who will be using the home as a primary residence or even for a second home buyer who has the adequate cash financial reserves on hand and enjoys water activities and direct water access.

Of the 10 “deepwater” homes sales during this 6 month period, the majority of the homes sold were about 10+ years old and do not appear to have been updated. The newer homes sold for an average of $283 a square foot.  Probably the best deepwater “comp” sold for $284 a square foot on 3/29/2010. It was originally listed for $2,350,000 in October of 2007 with price reductions to about $2,000,000 after February of 2008. It was a raised 2 bedroom home on the Wando River with 5000 sqft. The home had a separate covered pier-head dock sharing a “walk-way” with an adjacent lot.

 Sold For $284 Per Square Foot


Wando River View

If we use the lower figure of $280 a square foot for a “fair market” value for a “deepwater” home and factor in depreciation for age and/or floor plan deficiencies, I feel an argument can be made that a buyer will come out ahead by building a home on a deepwater lot given a $200 a square foot building cost for a 5000 sqft high quality custom home, if the lot cost is in the $ 400,000 +/- range. This assumes dock construction costs of about $100,000, which would more than likely be substantially less than the cost of updating an older home.

The above evaluation and analysis is based on recent sales statistics, certain assumptions pertaining to construction costs, a stable real estate market and the writer’s knowledge of the homes that sold. If waterfront home prices continue to decline in the Charleston area more than waterfront lot prices and construction costs remain the same or increase, it may make economic sense to purchase a pre-existing waterfront home at some point in the future rather than building.


Share on Social Media:
Tags: , , , , ,

Comments (0)

Comments have been closed for this post.
Please contact us if you have any questions or comments.