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Condo market topples into buyers' domain

Condo sales plunged 30 percent last year, sparked by the departure of short-term investors and skyrocketing homeowners insurance rates.

Single-family home sales fared better, down 4 percent from 2005.

The decline pushed the burgeoning Myrtle Beach from a seller's market to a buyer's market for the first time since 1990, analysts said.

That's good news for buyers because they will have more to choose from, can take their time choosing a condo and can find price cuts.

"I knew that it had to slow down [from 2005]. It hit us midway [during 2006]. The oil crisis, the escalation of the war and insurance put a total stop to the investor market," said Dale Johnson, broker for Palmetto Real Estate Partners in Myrtle Beach.

The year ended with 5,845 homes sold compared with 6,104 last year. Condo sales fell from 9,222 to 6,453, according to the Multiple Listing Service for Horry and Georgetown counties - which captures about 80 percent of the area's listings.

Realtors and some experts, however, say comparing last year's sales to 2005 does not give a fair picture of the market because 2005 was an extraordinarily strong year.

Indeed, 2006 showed an increase in sales for both homes and condos over 2004.

Tremendous price appreciation in 2004 and 2005 cut some buyers out of the market in 2006 and hurt rental investors who found they couldn't cover their mortgage payments with rental income.

As homes flooded the market and prices slowed down in early summer, house flippers started to back out.

Skyrocketing insurance premiums added to the slowdown with condominium associations seeing increases as high as seven times the amount they were paying.

Many condo owners on fixed incomes were forced to sell.

Inventory ballooned, growing 61 percent for homes over 2005 and 26 percent for condos.

Since October, the inventory has dropped. At that time there were 10,493 condos on the market and 5,291 homes. Today, there are 8,654 condos and 4,848 homes on the market.

That drop is a sign of correction, signaling that sellers who aren't willing to lower their prices are taking their homes off the market, analysts say.

Still, 8,600 condos will take a year to clear out if the MLS got no more listings, said Tom Maeser, president of the Fortune Academy of Real Estate.

"The rental investors are not buying anymore. We are waiting for more permanent second home investors," Maeser said.

One sign that the investor has left the market is in the drop in cash transactions.

This year, cash transactions made up only 15 percent of overall transactions in the MLS.

The percentage has never been that low - at least not since statistics started being recorded in 1994.

It usually hovers between 18 and 20 percent.

Maeser said flippers often pay with cash as they buy and sell properties - and the drop shows they're gone.

The local market must attract permanent second home buyers because the short-term rental investor isn't likely to return soon, he said.

Those second home buyers will come in the nation's 77 million retiring baby boomers. Most real estate agents and industry experts say this will be the saving grace for the Grand Strand real estate market.

"The baby boomer is a definite positive thrust in this market. We got what they want, and we just need to be marketing to them," Maeser said. Economist Al Parish at Charleston Southern University says while boomers will keep the market pumping, the insurance problem needs to be resolved to keep them coming.

"The rental income investor has been lost and the [flipper] has been lost. It's the retirees that will keep our market going," he said.

Parish said the condo market won't bounce back until the insurance problem is solved. He expects the single-family market to start showing strength in late spring.

Real estate broker Johnson agrees that insurance is the major problem looming over real estate for 2007.

"One industry is jeopardizing the future of so many other industries. [The solution] has got to come from our legislators. Our delegation is saying the insurance issue is No. 1 on their list. Paying 400 to 600 percent more than they paid last year has caused a lot of people to get rid of property. I don't see anybody buying condos right now," he said.

But he added that the lack of buyers tells him that now is a good time to buy resort property or a second home. He says he's seen sellers finally giving in to prices much lower than listed price.

The average price of homes and condos increased 5 percent and 18 percent, respectively, but analysts say the increase is more likely because of the addition of higher-end homes to the mix than a reflection of the year's appreciation.

"What still surprises me is the fact that prices did go up. Because there was still some momentum from '05 that ran into '06, that probably is a good reason for the increase in [overall] prices. I think you'll continue to see prices drop on condos," Johnson said.

The average price of a single-family home is $271,366 and the average price of a condominium is $227,023.

The median price - meaning half sold for more and half for less - shows homes at $207,045 and condos at $185,000.

A year ago, single-family homes had a median price of $185,000 on the Strand.

In 2007, real estate agents and brokers must learn to work in the buyer's market of the future - marketing to permanent buyers and second home buyers instead of investors, Maeser said.

"Eighty-five percent of agents have never been in this kind of a market. They don't have a clue what to do. Marketing has to change. Their approach to financing has to change," Maeser said.