Focus On Affordability And How Builders Are Answering The Call To Help Buyers
It’s no secret that the Charleston real estate market is on fire. Charleston tops many “Best Of” lists, feeding the “I want to move to Charleston” hunger.
CHARLESTON'S DESIRABILITY FACTOR IS OFF THE CHARTS.
Growth of the aeronautics, automotive, and tech sectors, (not to mention the medical and university sectors) has Lowcountry area home builders working hard to build homes where people want them. The challenge in this high-demand market is to provide homes that are affordable and include all the desired features and amenities at the buyers' price point.
Due to demand, the housing market in Charleston has a lower number of homes on the market. The low supply has the effect of pushing prices up. Will Jenkinson, Broker-In-Charge at Carolina One New Homes told us that the Charleston real estate market has only a three-month supply of homes. According to Jenkinson, the market needs a six-month supply of homes to help establish lower, stable prices.
In his October 13 report, the Charleston Trident Area Realtor’s Association President Michael Salley pointed out the stresses on the market.
“The median home price in each of the three counties is now over $200,000, and we expect that figure to stay constant through the end of the year. While these increases are good news for sellers, many buyers are facing a significant affordability problem in all three counties. It is increasingly more expensive to live in this region—housing costs are up more than 6% in just a year’s time; we’re spending more time—and therefore money—commuting around the region. As we begin looking at how to solve our inventory problem through smart growth and development, we need to be sure we are adding housing inventory for all levels of income”
Cane Bay Plantation
Area homebuilders are up to the task. Local, regional, and national builders are creating many different types of new home communities, addressing affordability in many ways. By exploring the factors affecting affordability and reviewing how builders are answering the need for affordable homes, you can be a smarter home buyer.
FACTORS AFFECTING AFFORDABILITY
At the top of the list in Charleston is the availability of buildable land. Nowhere does the old real estate adage, “Location, location, location,” apply more than in the Lowcountry.
Lying at or slightly above sea level, and surrounded by waterways, Charleston is a water lover’s paradise. However, if you’re building homes, finding buildable land at the right elevation can be a challenge. Add to this the fact that most land close in to the city of Charleston has been built upon for the last 346 years, and you have a recipe for a growing metropolitan area.
Jenkinson says, “Land cost is the biggest factor in the affordability of a new home, because it is where you start the price calculation for a new home.”
Raw land in the Charleston area costs more than it did several years ago. Historically, according to information from NAHB1, finished lot prices have declined since the recession of 2005. In 1998 finished lot cost was almost 24% of a home’s sale price.
Across the United States, builders reported in 2015 that finished lot cost2 is 18% of the home’s price. In Charleston, in the last year, the average finished lot cost is at plus or minus 20% of the cost of the home.
Depending on where you choose to buy your new home, your finished lot cost could be even higher. Areas like Mount Pleasant and James Island have greater land prices on average, thus higher finished lot prices.
Hunter Quinn Homes
Preparing raw land to be built upon: grading and filling, engineering and installing infrastructure, and gaining governmental approval for the lot plans are all drivers of the finished lot price.
Some areas of the Lowcountry welcome development with lower fees and permit costs, thus helping keep development costs down. In other areas where demand and growth have caused governments to slow down development, buyers will pay a premium price for their home due to each of the components coming in at a higher cost to the builder.
HOW ARE BUILDERS ADDRESSING LAND AFFORDABILITY?
Janice Adler, Director of Sales and Marketing for the Charleston division of Dan Ryan Builders observed, “Obviously, increases in costs affects us directly but it is important that we don’t just pass those costs on to the customer. We must remain committed to offering a product that customers feel is valuable and affordable.”
Dan Ryan Builders
At Dan Ryan, the land acquisition department works with the people who will be providing infrastructure and engineering services to get prices locked in. Occasionally, builders have the opportunity to restructure plans for a community, adjusting lot sizes to yield a lower lot cost by getting more lots out of the land.
Dan Ryan Builders is also helping save money by purchasing land in outlying areas, where the region is expanding. While location is a primary factor for buyers, Janice Adler said, “Buyers are willing to buy further out in order to get their desired square footage. Where you spend your evenings, weekends, vacations are more important and buyers are willing to trade for their lifestyle.”
Buyers should know it takes about two years from the time a builder purchases land to the time homes come to market. During this time, builders are carrying the cost of the land — a cost which is reflected in the price of the sales price of the home. Jenkinson observed that fortunately interest rates have remained low, which helps builders hold down prices, and therefore increases affordability.
CONDOMINIOUMS AND TOWNHOMES RETURN TO THE MARKET
Jenkinson told us, “in order to make affordability happen, increased density is the only way to go.” He also said, “Raw land value is up due to the rise in the economy. Development costs have doubled since the last recession.”
Summers Corner - FrontDoor Communities
North Charleston and inland areas are more affordable — because land costs are lower, so homes there will be cheaper coming out of the ground. Across the Lowcountry, builders have had great success selling single family homes in the north and inland areas.
According to Jenkinson, buyers can look for more builders to construct townhomes and condominiums. He said that in Mount Pleasant at Carolina Park, CalAtlantic has introduced townhomes which are priced from $300,000, which is considered affordable for the city. In Nexton in Summerville, Pulte is building Nexton Townes which are available from the low $200s.
Townhomes are not the only attached home product on the market. Jenkinson said that buyers should look to Hanahan where new condos are going to be constructed by a builder in 2017.
BUYERS ADJUST EXPECTATIONS
Home buyers are also adjusting their square footage expectations. Most will not give up must-have amenities like 40” cabinets, granite countertops and hardwood floors, high energy efficiency or low-maintenance materials, but they will downsize their square footage requirements.
FrontDoor Communities Vice President of Sales & Marketing Irene Hall says they “are meeting expectations by offering several smaller, more affordable floor plans at Summers Corner including the Sassafrass with 1,658 square feet; the Cottonwood with 1,726 square feet; the Dogwood with 1,690 square feet and the Gardenia with 1,685 square feet. The pricing for these homes is from the high $200s to the mid $300s, Hall said these are “ideal for first home buyers or for those who are downsizing.”
In the past, purchasing a home that has fewer square feet would mean a move as a family expanded. However, one Charleston area builder is addressing this in a very creative way. Kristie Meave Allen at H&H Homes told us that they are engineering a few single-story home plans to bear the load of a second story. Buyers can plan to remain in their homes, upfitting them or adding on a second story when they need and can afford it, knowing that they are assured that the engineering has been done upfront.
National builder Pulte helps buyers get the house they need at the price they can afford by offering a variety of brands. Each brand in their company — Centex, Del Webb, John Wieland Homes and Pulte Homes — provides a product to fit the buyer at every economic life-stage. Pulte allows buyers to select only the additional features that they are interested in instead of being confined to included items that they don’t value.
ENERGY EFFICIENCY INCREASES LONG TERM AFFORDABILITY
The majority of builders are providing highly efficient appliances, and some are even offering systems which save money from the day of purchase. On-demand, tankless hot water heaters are included in homes built by Kolter at The Ponds in Summerville. Kolter also includes programmable thermostats with their energy efficient 14 SEER condenser and 80% gas furnace. With programmable thermostats, owners can choose their setback times and primary heating and cooling times, reducing energy consumption.
BUILDERS OFFERING INCENTIVES AND SAVINGS
Builders also help buyers save by providing the incentives buyers want. Dan Ryan’s Adler said, the company offers “Incentives that resonate with buyer. Customers will say ‘can I use that incentive towards upgrades towards closing costs?’ And Dan Ryan is able to customize an incentive for a buyer.”
The most frequently requested incentive is paid closing costs. Rather than come out of pocket for this expense, some builders are able to cover closing costs. Buyers who want to save money can search Charleston New Homes Guide for the many builders who will help them by paying closing costs.
Despite the pressures on the real estate market in the greater Charleston area, home builders are addressing the need of buyers to purchase only as much home as they can afford. Their futures and yours depend on it.
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