The family would like to move, but property values in their Carolina Forest ZIP code dropped about 32 percent in the past five years, and they owe more than their condo is worth.
A condo in the development sold earlier this year for $80,000, which is disheartening, Shalissa Sears said.
"That means we're stuck here for a very long time," Ryan Sears said. "The only thing that's restricting us is the market value has dropped so much we can't sell."
The Sears family lives in one of the areas that have seen the steepest declines in property values, but an analysis of the past five years - from 2005 to September 2010 - by ZIP code shows that most areas in the Grand Strand had a drop in prices for condos and single-family homes.
William Harrison, a professor of real estate at the University of South Carolina, said that foreclosures are driving prices down not just in South Carolina but across the country.
Nationally, the typical foreclosure sells for about 26 percent less than the same property not in foreclosure. With foreclosures at such a steep discount, other properties have to drop prices or they won't sell until all the foreclosures are gone.
"It's in the best interest of the broad public ... for this process to rapidly get resolved and [get] foreclosures out of the market so we can recover," he said.
Just living next door to a house in foreclosure can cause your house's value to drop. Foreclosures are being included in the appraisals of nondistressed properties, which is driving down prices on all properties across the Grand Strand, said Tom Maeser, a real estate analyst for the Coastal Carolinas Association of Realtors.
About 36 percent of condos sold in the past year were foreclosures or short sales, a preforeclosure sale where the lender agrees to take less for the property than is owed. About 25 percent of single-family houses sold in the past year were distressed properties, according to the Multiple Listing Service.
"You've got to clear those out," Maeser said. "You've got to get stability back into pricing, and you've got to see an increase in values before you see a stable, growing, vibrant market."
Condo prices in the 29577 ZIP code, which includes the Myrtle Beach oceanfront, dropped 41.2 percent during the past five years, the biggest fall of any ZIP code along the Grand Strand, according to the data from Site Tech Systems, a local company that tracks the real estate market. The northern part of Myrtle Beach and Carolina Forest, the 29572 and 29579 ZIP codes, also had big losses with 39.6 percent and 32.5 percent drops in condo prices, respectively. The Myrtle Beach section of Horry County that includes Forestbrook, the 29588 ZIP code, fared the best in terms of price with a slight 1.3 percent increase in condo price between 2005 and 2010.
Faster rise, bigger fall
Areas with more investor properties, such as Myrtle Beach, tend to have a higher number of foreclosures because as property values drop below the mortgage amounts and the owners aren't making enough rental income, the owners will let the property go into foreclosure, Maeser said.
Areas with unfinished communities, such as Carolina Forest, where developers halted midconstruction when the market collapsed, also have seen a decline in value, he said. In those areas, the banks that own the properties after a foreclosure often sell them at steep discounts, Maeser said. Oftentimes lots in those areas will be foreclosed on and a new developer will buy them and will likely build at a lower price, which drives down prices for the surrounding houses, he said.
Carolina Forest has one of the highest concentrations of properties in foreclosure, according to Site Tech Systems. Greg Harrelson, the owner of Century 21 The Harrelson Group, said that is partly because during the boom many buyers were entry-level buyers who bought more house than they could afford.
Financing in 2005 was much easier to get, and often home buyers could borrow more on an adjustable rate mortgage than they could afford. As those mortgages adjusted to higher rates and homeowners lost their jobs or made less money, some properties were foreclosed on, Harrelson said.
By contrast areas such as Forestbrook, where more people live permanently, tend to have less volatile markets than areas with second-home or investor owners, Maeser said.
"Any time you have more permanent residents, you're going to have a more stable real estate market," he said.
In addition to having a lot of investor-owned properties, the Myrtle Beach area that had the largest drop in condo prices had many oceanfront condos that were completed around 2005 and had the most inflated prices, said Rod Smith, the broker-in-charge of Coldwell Banker Chicora Real Estate.
"It only stands to reason that as the market falls, they have farther to fall," he said.
By contrast, areas such as Forestbrook, which are more residential, didn't have the dramatic price drops because the appreciation prior to the market collapse in those areas was more normal, Smith said.
"You weren't seeing the astronomical escalation of prices. Without that huge upswing, you don't have as far to fall," he said.
Geography counts
Where a property is located within a certain area, or ZIP code, and the price range are also important factors in determining the change in value since 2005, Smith said.
The interest in properties that cost more than $400,000 has been very low the past several years, he said, with most buyers spending less than about $250,000. As a result, even if a property has lost half its value and is now $300,000, it is still more expensive than most of what is being bought.
In 2005, the real estate boom was in full swing and developers started looking farther west to areas such as Aynor. When the market collapsed, areas that were overbuilt were more susceptible to foreclosures and price drops.
Aynor, the 29511 ZIP code, had the largest drop in single-family home price, with homes losing 30.5 percent of their value since 2005. With fewer properties sold in the Aynor area - 23 this year - a smaller number of foreclosures or lower-priced sales have a larger effect on prices.
Prices in the Surfside Beach area, the 29575 ZIP code, dropped 22 percent since 2005, and prices in North Myrtle Beach, the 29582 ZIP code, dropped 20 percent.
The oceanfront homes in Surfside Beach and North Myrtle Beach, typically investor properties, had more price inflation at the peak and are now more likely to be foreclosed on and lose value, said Harrelson.
Harrelson, whose company works closely with banks to sell properties that had been foreclosed on, said often banks feel pressure to sell at low prices to get rid of a bad asset quickly. Banks are in a difficult situation, he said, because if they hold a property, they have to keep money to cover potential losses, and it could take years to gradually put properties on the market without impacting prices. In some cases that doesn't make sense for a bank, he said.
"The banks are really looking at what is the real cost, and if it doesn't make sense, then they're moving and saying let's cut it now," Harrelson said.
More to come?
Century 21 The Harrelson Group has been receiving a lot of calls lately from homeowners who have hung on this long but can't any more and need to try to do a short sale to avoid foreclosure, he said.
While another wave of short sales and foreclosures isn't good for the market in the short term and is likely to drive prices down further, it is essential that the problem properties are worked through before the market can recover, Harrelson said.
"Logic would tell us that we could see a little more of a downturn," he said.
Harrison said that while the bottom of the market will be in 2011 or 2012, how quickly the market recovers depends on the pace of economic growth after that bottom.
Home sales won't pick up and the markets nationwide won't achieve stability without improvement in the job market, he said. Potential buyers are more conservative in their spending, and even if they can afford to buy a property, they are hesitant to do so, he said.
"If we are still in an extremely slow, anemic recovery, we won't see prices rise rapidly," Harrison said.
The Sears family in Carolina Forest have their fingers crossed that the market will recover soon. Shalissa Sears said she wants to move to a more permanent place before her daughter starts school in about three years - if that is possible.
"It's going to take us so many more years to get ahead in life, and that's what's frustrating the most," she said.
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