South Carolina 2025 Residential Real Estate Review- Key Take Aways
I. Introduction
Dr. Joey Vonman is introduced as a research economist from the Garland School of Business at USC.
He frames his research as using economic data to help businesses make strategic decisions.
He states that understanding the market environment is crucial for strategic decisions.
The presentation will cover the economic landscape in January 2025, how it got there, major changes in the economy over the past year, and expectations for 2025.
Three methods of evaluation will be used: perception, performance, and expectations.
II. Three Methods of Evaluation
The three methods are introduced as:
Economic perception: How people feel about the economy.
Economic performance: Objective metrics of the economy.
Expectations: What can be gleaned about the future.
These factors are typically in sync, but have been out of sync recently, necessitating separate analysis.
III. Economic Perception
Overall, economic perception is "not that great".
Consumer confidence is below pre-pandemic levels, despite some recovery since 2022.
The economy was a top issue for voters in the 2024 election, which usually happens when economic perception is down.
Despite low consumer confidence, consumer spending has remained stable.
The biggest drop in consumer confidence occurred between 2021 and 2022, when inflation rose significantly.
Consumers dislike rising prices, which makes things less affordable.
Consumer spending is driven mainly by higher-income households (about 35% of all households), while the other 65% have been financially squeezed.
Prior to the pandemic, all income groups spent more similarly.
Example of rising prices: A $100 grocery bill in December 2019 would cost $128 in November 2024.
If inflation had risen at the pre-pandemic rate, that same grocery bill would have been about $111.
It took 15 years for prices to rise by $28, but only 4-5 years for a similar increase more recently.
The difference between $111 and $128 is called the "frustration index".
Positive trend: wages are now growing faster than prices, allowing consumers to regain lost purchasing power.
Wage growth is about 4% compared to inflation of 2.7-2.9%.
If this trend continues, consumers could regain lost purchasing power by the end of 2025.
IV. Economic Performance
Economic performance is strong and robust, despite negative perceptions.
If the economy were graded in January 2025, it would receive a B+.
Reasons for strong performance:Steady consumer spending
Historically low unemployment in South Carolina
Steady wage growth
The labor market has started to cool, leading the Fed to cut interest rates in the second half of 2024.
The economy is moving away from a "pandemic bubble" towards more sustainable growth rates.
Comparison of 2008 and 2020 recessions:
It took about seven years to recover all lost jobs after the 2008 recession.
It took only about two years to recover lost jobs after the 2020 recession, despite it being deeper.
The faster recovery after 2020 came with a trade-off of higher inflation due to $6 trillion in stimulus.
Price stability was not a concern after the 2008 recession.
The economy is still in "recovery mode" because consumers have lost purchasing power.
The "goods bubble" emerged in 2020 and 2021 because of social distancing and stimulus money.
The goods market peaked in 2021 and began to deflate.
The correction period is largely behind us and we are transitioning to sustainable growth rates.
This "bubble" can be seen in port activity and container shipments.
A peak in 2021 followed by a valley in 2023 and a correction.
Positive growth has returned.
The same "bubble" pattern is seen in housing markets.
Charleston housing sales saw a bubble after the 2020 recession, a readjustment period, and then a return to a long term trend.
Median sales prices also show the "bubble" and a correction, with prices still rising, though at a slower rate.
Inventory remains low, putting pressure on prices.
Labor market:
Unemployment rates in South Carolina have increased from 3% in January 2024 to 4.8% by November.
This increase is due to slower job growth, not increased layoffs.
The average unemployment rate during economic expansions in South Carolina is 6%, putting the recent increase into perspective.
South Carolina is experiencing significant population growth, which contributes to a higher unemployment rate as new residents look for work.
South Carolina and Charleston are experiencing about 3% annual employment growth.
Population growth in the southeast is a source of housing demand.
South Carolina was ranked number one in population growth in 2023.
V. Expectations for 2025
Two main points:
Lower risk of recession.
Higher risk of inflation rebound.
Lower risk of recession:
A recession checklist is used to evaluate the risk of recession.
This checklist includes consumer activity, business activity, and the market environment.
Consumer spending is stable, job growth is slowing but stable, and there are no major red flags in other metrics.
The goods bubble has deflated, allowing the market to see positive growth.
Lower interest rates have generated a stimulus effect.
Higher risk of inflation rebound:
Inflation is the biggest wild card for the economy.
Inflation peaked at 9.1% in June 2022 and dropped to about 3% but has since leveled off.
The Fed's target is 2% inflation.
Shelter costs are the biggest driver keeping inflation higher.
Even though the rate of house price growth has helped bring inflation down to 3%, it's not likely to bring it down further.
There are factors fighting the Fed that are keeping inflation between 2.5 and 3%:
Strong consumer spending
Labor shortages
Elevated government spending
Elevated shipping costs
Elevated housing prices
Potential new tariffs
There's a 50/50 chance that inflation will "tick upwards" towards 3% in 2025.
Inflation is a major driver of mortgage interest rates.
Banks consider inflation when setting mortgage rates, and increases in expected inflation lead to higher mortgage rates.
Despite the Fed cutting rates, mortgage interest rates remained stable between 6.5 and 7% in 2024 because inflation leveled off.
Mortgage interest rates are not expected to drop below 6% in 2025 due to inflation.
VI. Conclusion
Overall, 2025 is expected to be a good year for Charleston and South Carolina.
The economy is strong and has adjusted after the pandemic bubble, moving towards sustainable growth.
The main drivers are steady consumer spending, a strong labor market, and stable wage growth.
Inflation is the biggest wild card, with a 50/50 chance of rebounding to around 3%.
Housing markets are stable, and strong population growth will drive demand.
Because mortgage interest rates are unlikely to decline significantly, sales activity will likely remain flat or show small positive growth.
Inflation will be a big factor in determining sales activity in 2025.
VII. Q&A
The biggest highlight of the previous year was wage growth overtaking inflation.
If this trend continues, consumers will regain lost purchasing power.
The median sales price appreciation market is projected to be at 4.5%.
The reason for slower job growth is the pullback from the pandemic bubble.
Policy makers need to make South Carolina more competitive to capture more activity given the large influx of people moving to the southeast.
Consumer confidence is becoming more of a political marker.
Remote workers make it difficult to track employment data.
Surveys of both employers and individuals are used to track remote workers, but it is still a challenge.
