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www.charlestonmarketreport.com “The pessimist complains about the wind; the optimist expects it to change; the realist

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“The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.” William Arthur Ward

November 2009 Issue In This Issue Cartoons Charleston Jobs Impact

William Arthur Ward November 2009 Issue In This Issue Cartoons Charleston Jobs Impact www.charlestonmarketreport.com

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Charleston Jobs Impact This issue of the CMR is going to focus on Charleston residential

Charleston Jobs Impact This issue of the CMR is going to focus on Charleston residential data and trends along with the economic impact Boeing and the Wind Turbine facility will have on the real estate market.

According to the Washington Alliance for a Competitive Economy Report published in April 2009, Boeing has a “jobs multiplier” of 3.96 which means each of the company’s jobs will support nearly three additional jobs in the state. Once the Boeing plant is finished and the 3800 employees are hired the state of SC will see approximately an additional 11,248 jobs brought to South Carolina (mostly in Charleston). I have no idea how many of these additional “indirect” jobs will be located in Charleston. However the impact in the next 2-5 years of 15,048 jobs coming to Charleston and/or the state of South Carolina is the equivalent of winning the jobs lottery.

In order to put the economic impact of Boeing into perspective the state of Washington if Boeing moved their entire operation out of Washington they would lose 285,000 jobs of which 72,000 would be Boeing employees. I feel it is safe to forecast that Boeing will gradually shift more operations to Charleston after 2011 over the next 20 years in order to move their production workforce to a right to work state that does not have a union.

The charts below will give everyone something to compare the job impact of Boeing and the Wind Turbine Facility.

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So what will be some of the economic impact of Boeing coming to Charleston? Personal

So what will be some of the economic impact of Boeing coming to Charleston?

Personal income in the Tri-County will increase which will help our local economy.

Home prices in certain areas of Charleston will increase as these new citizens begin to reduce inventory levels.

The job impact will not be fully implemented at the new plant until the middle of the next decade according to

many reports. A potential start of an aerospace cluster.

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The billion dollar question is will Boeing implement a phased withdrawal strategy of their manufacturing operations from Washington to South Carolina? I believe the answer is yes because of the higher costs to pay union employees and the extremely high costs that Boeing incurs when these employees shutdown their production facilities due to a strike.

The ultimate best case scenario for this phased withdrawal from Washington to South Carolina would mean approximately 285,000 jobs would be shifted to South Carolina from approximately 2013 to 2030. If this strategy is implemented by Boeing it would mean approximately 16,784 jobs would be shifted to South Carolina each year for the next 17 years starting in 2013. This type of job creation would completely change Charleston in a manner I can not even imagine. It would bring tremendous growing pains, such as traffic, but would transform the residential real estate market from a current problem of excess inventory due to lack of demand and too much supply and completely flip the supply/demand model to a point where this region could face a housing shortage. Remember, this scenario I am speaking about occurs only if Boeing decides on the complete phased withdrawal from the state of Washington.

the complete phased withdrawal from the state of Washington. I am not sure what the Boeing

I am not sure what the Boeing employees will be paid. Based on the fact that Aircraft Manufacturing employees in Washington were making $91,886 in 2007 I have to believe the future Charleston Boeing employees will make at least $40,000-$50,000 per year when they start.

will make at least $40,000-$50,000 per year when they start. In addition to Boeing coming to

In addition to Boeing coming to the lowcountry we also recently got news of a Wind Turbine Test Facility coming to North Charleston that could be bigger than Boeing’s recent announcement in terms of the number and quality of jobs. The U.S. Department of Energy said the impact of this facility could bring 10,000 – 20,000 jobs to SC over the next 20 years. The immediate jobs would include:

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Construction jobs

Electrical engineering and development

Handling of equipment

Jobs related to testing

This $98 million project which received $45 million grant from the U.S. DOE and $53 million in matching funding is directly related to a major sector, wind, of new green energy technology to help the U.S. and the world create cleaner energy.

One of the main questions that are impossible to answer is how many of these new jobs which are being created in the next couple will hire Tri-County residents versus out of town residents. This will be important in determining the true impact on the Tri-County residential real estate market. I have no idea what this percentage is going to be so we can really only speculate.

In order to determine the impact of these two major facilities and jobs on the Charleston real estate market we need to take a look at a couple of variables. The first one is the impact on the unemployment rate for this area. Currently, the unemployment rate in the Tri-County region is 9.7% and has almost doubled from the 5.2% rate a year ago. Obviously, this has been the trend not only in Charleston but in almost every city and town across the U.S. as well. So what does a 9.7% unemployment rate for Charleston mean?

town across the U.S. as well. So what does a 9.7% unemployment rate for Charleston mean?

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The important number is how many people are actually unemployed in the Tri-County region? I
The important number is how many people are actually unemployed in the Tri-County region? I

The important number is how many people are actually unemployed in the Tri-County region? I never have seen the local news media really break this number down into perspective in order to relate it to future job creation of Boeing and the Wind Turbine Facility. Why?

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So we currently have 32,000 people in the Tri-County out of work. Many of the foreclosures and short sales are a direct result of this negative economic number. Fortunately, this number is about to improve once Boeing, the Wind Turbine Facility and other indirect companies that move to Charleston as a result of these new facilities begin operations. Clearly the unemployment rate in Charleston is close to the highest point it will be during this severe economic recession and yes it could go a little higher but it will not stay high much longer with these high number of jobs being created by these new facilities.

According to the stats from these two facilities Charleston will have the following jobs created by 2015:

Boeing (Direct) – 3800 Boeing (Indirect) – 11,400 (3 jobs for each Boeing job) Wind Turbine – 4500 (10,000 – 20,000 over the next 20 yrs.) Total – 19,700 or 4,000 each year over the next 5 years.

If these numbers are accurate and our local unemployment rate does not go up much further from 10% then we could see the unemployment rate of the Tri-County area drop by 60% over the next 5-6 years! Now, what is the main driver of growth for housing demand? Answer: JOBS. Job growth translates into more adults with incomes who can buy or rent homes.

Starting in 2010 Charleston should see consistent job growth with higher than average wages that will have a positive impact on the local residential housing market. Now the question is which part of the housing market gets affected? In order to keep these stats simple I am going to break out the current state of the Tri-County housing market for Homes (Single Family Detached) and Condo/Townhouses (Single Family Attached) selling between ($100-$350k) versus ($350k and up). The reason I am breaking down the market in this manner is that based on the type of jobs being created and tighter lending standards will only allow most of these new employees of Boeing and the Wind Turbine Facility to afford homes that are selling for less than $350k. I am using $350k as the max amount these future employees will purchase based on a combined income of $100k per year and the fact that DTI (Debt to Income) runs around 45-50% for most loans. Once you factor in Principal, Interest, Taxes and Insurance the maximum mortgage payment is going to be around $2300-2500 based on what a reasonable couple can afford after taxes are taken out of their paycheck. This is not an exact science and there will be special cases but I am using these numbers to try and project what the average new employee in Charleston will be able to afford.

average new employee in Charleston will be able to afford. The Charleston MLS currently shows 1277

The Charleston MLS currently shows 1277 homes, condos and townhouses active for rent for less than $2500 per month.

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Houses ($100-$350k)

Houses ($100-$350k) www.charlestonmarketreport.com

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Condo/Townhouses ($100-$350k)

Condo/Townhouses ($100-$350k) www.charlestonmarketreport.com

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Houses (Greater than $350k)

Houses (Greater than $350k) www.charlestonmarketreport.com

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Condo/Townhomes (Greater than $350k)

Condo/Townhomes (Greater than $350k) Depending on how many of these new employees move to Charleston and

Depending on how many of these new employees move to Charleston and want/need to buy a home over the next couple years the previous four charts tell a very simple story. Since most of these employees will probably have families I see the $100-$350k housing market’s inventory declining and really flipping into a strong buyers market while everything over $350k will improve somewhat but still have inventory and pricing issues.

Based on this scenario lets breakdown the $100-$350k SFD Housing Market a little more based on each county.

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SFD - Berkeley

SFD - Berkeley SFD - Charleston SFD - Dorchester www.charlestonmarketreport.com

SFD - Charleston

SFD - Berkeley SFD - Charleston SFD - Dorchester www.charlestonmarketreport.com

SFD - Dorchester

SFD - Berkeley SFD - Charleston SFD - Dorchester www.charlestonmarketreport.com

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These future employees will buy homes in areas with the best value, schools and location. This is not rocket science but I feel it is important to point out where the sweet spot and future buying trends are going to be. The radiuses on the map of Charleston below go out approximately 15 miles. So it is my opinion the areas that will have the most impact are going to be in the affordable price range based on income I already mentioned for homes that fall within the red and blue radiuses.

for homes that fall within the red and blue radiuses. Based on conservative direct/indirect job impact

Based on conservative direct/indirect job impact of Boeing and the Wind Facility if just half of these new 10,000 (20,000 x 50%) employees buy a home, condo or townhouse in the $100-$350k range over the next five years it would completely wipe out the existing inventory of 5,179 homes on the market in the MLS. We would have 4800 people who could not get a home based on existing inventory numbers in the MLS so we could clearly face a shortage of homes in this range over the course of the next five years. Then you have to determine the shadow inventory and shovel ready lots that the builders have lined up. I do not have access to this info and it really requires an expensive feasibility study in order to determine that type of supply in the market.

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We could easily see the lower to mid market become a strong buyers market while the upper end of the market remains a sellers market because it was simply overbuilt over the past 5 years. Keep in mind I am just basing this analysis on the impact of two new industries in Charleston without accounting for other future opportunities that may arise in the future. So I am very bullish on the affordable housing market in Charleston, just as I was last April when I made my presentation at the College of Charleston and I remain bearish for the upper end of the market in Charleston due to excess supply and tighter mortgage guidelines.

Charleston- North Charleston, SC (MSA) Unemployment

11 10 9 Jan-09 8 Jan-08 7 Jan-07 6 Jan-06 5 Jan-05 4 Jan-04 Created
11
10
9
Jan-09
8
Jan-08
7
Jan-07
6
Jan-06
5
Jan-05
4
Jan-04
Created by: Brad Rundbaken
3
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Jan-03
2
Jan-02
Source: Bureau of Labor Statistics
1
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
Unemployment Rate %

Date

Charleston U.S. 13 per. Mov. Avg. (Charleston) 27 per. Mov. Avg. (Charleston)

Charleston

U.S.

13 per. Mov. Avg. (Charleston)

27 per. Mov. Avg. (Charleston)

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Vital Sign Market Momentum Chart Tri-County Existing Residential Sales Top of the real estate market.
Vital Sign Market Momentum Chart
Tri-County Existing Residential Sales
Top of the real estate market.
40
Above "0" Line: Favorable market conditions.
30
NASDAQ Correction
Recession
20
Mar 1990- Feb 1991
10
Recession
Dec-08
-10
Mar 2001- Feb 2002
and 9/11
Dec-07
-20
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Nov. 2009 = - 23
Dec-06
-30
Below "0" Line: Unfavorable market conditions.
Dec-05
-40
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
Dec-96
Dec-95
Dec-94
Dec-93
Dec-92
Dec-91
Dec-90
Market Momentum Reading

Based on past, current and future local circumstances I now believe the bottom of the overall Charleston housing market was reached in April 2009 where you see the blue arrow. These important trend charts should continue to improve as the job market changes over the next couple of years.

The real wild card for the entire local residential real estate market will be the eventually increase in interest rates. The Fed is supposed to discontinue purchasing bonds in 2010 which would lead to interest rate risk. If this occurs and depending on the severity of the volatility and increase many sellers may have to drop prices further in order to sell their home to prospective buyers. The interest rate risk will have the biggest negative price impact where there is more inventory and less demand which is the upper end of the market which is most on the coast and in Charleston County.

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Vital Sign Market Momentum Chart New Building Permits

50 Above "0" Line: Favorable market conditions. 40 30 NASDAQ Correction 20 10 Jun-09 -10
50
Above "0" Line: Favorable market conditions.
40
30
NASDAQ Correction
20
10
Jun-09
-10
Dec-08
Recession and 9/11
-20
Jun-08
March 2001-February 2002
Dec-07
-30
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Oct. 2009 = -34
Jun-07
-40
Dec-06
Below "0" Line: Unfavorable market conditions.
Jun-06
-50
Dec-05
Jun-05
Dec-04
Jun-04
Dec-03
Jun-03
Dec-02
Jun-02
Dec-01
Jun-01
Dec-00
Jun-00
Dec-99
Jun-99
Dec-98
Jun-98
Dec-97
Jun-97
Dec-96
Jun-96
Dec-95
Market Momentum Reading

In conclusion, none of you have probably ever read anything so bullish from me since I started the CMR. I am not aware of any city in the country as fortunate as Charleston is at the current to be on the verge of gaining so many high quality jobs over the next 20 years. Although the influx of all these new jobs will present growing pains on our infrastructure and communities most business people in Charleston want the growth. I have mixed feelings about it and honestly miss the “Old Charleston” but considering the problems in real estate and the local economy these new jobs are wonderful news and a nice Christmas gift for the lowcountry.

There is still one set of circumstances that could effect my recent bullishness on Charleston. Our country is still suffering from an increasing deficit, an economy that still has a bad case of credit cancer, a capitalistic system built on credit and debt that is literally “ponzi-financing,” a global economy running on stimulus funds that were created out of thin air via printing presses, and gold now trading at $1159 per ounce.

All of this global stimulus and manipulation of economies by governments and central bankers has created other bubbles that could bust in 2010 or later and present speed bumps to our local economy just like what occurred in 2008 so be careful. Fortunately, good paying jobs will trump most of the negative economic situations that may pop up over the next several years. It really does appear that the Post & Courier was correct when they coined Charleston as “Boom Town” with the recent jobs announcements.

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Disclaimer The research done to gather the data in The Charleston Market Report involves examining thousands of listings. With this much data inaccuracies will occur. Care is taken in gathering and processing the data and information within this report is deemed reliable. IT IS NOT GUARANTEED. The real estate market is cyclical and will have its ups and downs. Past performance cannot determine future performance. The purpose of the Charleston Market Report is to educate you on current and consistent market conditions by reporting leading market indicators with the support of traditional real estate data.

This information is offered with the understanding that the author is not engaged in rendering legal, tax or other professional services. If legal, tax or other expert assistance is required, the services of a competent professional are recommended. This is a personal newsletter reflecting the opinions of its author. It is not a production of my employer. Statements on this site do not represent the views or policies of anyone other than myself.

Investing in real estate is not a get-rich-quick scheme nor is there any guarantee you will make a profit. Every effort has been made to make this report as complete and accurate as possible. However, there may be mistakes. Therefore, this report should be used only as a general guide and not as the ultimate source for making money in real estate. www.charlestonmarketreport.com