♪ opening music ♪ ♪ <Gavin> Welcome to This Week in South Carolina.

I'm Gavin Jackson.

With interest rates rising and a lack of affordable housing, we look at the real estate market with President of the South Carolina Realtors Association, Nick Kremydas, but first, Dr. Joey Von Nessen, a research economist at the University of South Carolina's Darla Moore School of Business gives an update on the state of the economy.

Joey, welcome back to This Week in South Carolina.

<Joey> Thank you, Gavin.

Always good to be here.

<Gavin> So Joey, it's been a minute since we talked, but the economy in America is still recession free.

A lot of folks were calling for a potential slowdown or recession this year or last year.

but so far, we haven't had any of those predictions come true.

So tell us right now, what is making the American economy so strong in your opinion, and just how it's doing.

<Joey> Well, I would say the one word that we can use to describe the economy right now is resilient.

It's been very resilient in the face of these ongoing interest rate hikes that we've seen that's increased the cost of borrowing money, both for businesses and consumers.

We can observe the resilience in terms of consumer spending, which has remained steady.

The labor market remains strong, unemployment right around 3% in South Carolina, and even if we look at the housing market, which has been the industry that's been the most affected by these rising rates, and saw a double digit contraction in terms of sales activity between 2022 and 2023, it has...stabilized, as well.

So, across the board, we're seeing resilience, and that's the good news.

The bad news is there are still headwinds that are fighting the Fed on the inflation front that are keeping upward pressure on prices, and we can talk about what those are, and that's going to continue to make it difficult for the Fed to get inflation down to 2.0%, which is what their target rate is.

So that's going to continue to be a challenge going into 2024, but the bottom line is that we are more optimistic that we can hit that soft landing today than we were six months ago.

<Gavin> Yeah, we'll definitely explore a lot of those things that you brought up there, Joey, but when you talk about just your confidence level when it comes to either just having the soft landing that we're talking about in terms of not having a big recession, or do you see us having more of a slowdown... where's your confidence right now?

<Joey> My confidence is pretty high, I would say there's less than a 50% chance that we see recession within the next year, because of the resilience of the economy so far, but we are likely to see a further slowdown, because the other factor we have to consider is that we've had almost 12, almost a dozen interest rate hikes over the over the past 18 months, and we are just now at the point where some of these interest rate hikes are going to begin taking effect, because it can take almost two years for a given interest rate hike to be fully absorbed for the effects of it to be fully absorbed in the US economy.

So, we're certainly not there yet.

So going into 2024, these lagged effects of all the interest rate hikes that we've seen over the last 18 months are still going to come to pass, and so the question is, how much is that going to continue to pull back economic activity?

>>Yeah, I want to explore that further, when you talk about lagged effects of interest rates, and of course, the Federal Open Market Committee is meeting this week.

Sally, we're taping before that, but we'll talk about that in a moment.

I want to talk about inflation and CPI, the Consumer Price Index, which has cooled from its 9.9% high last June to about 3.7% in August.

That number did kind of tick up month to month, though because of gas prices, but how are you viewing this current inflation data as we're seeing it, at these annualized rates?

Things are slowing down, but are they slowing down fast enough?

Are we kind of stuck in a little, weird, stagnant spot, in your opinion?

<Joey> Well, I think if we look at the core inflation rate, that gives us the best gauge of the underlying inflation of the economy as a whole, and core inflation is when we look at all goods and services, but we throw out food and energy prices, because those tend to be very volatile, and as you mentioned energy prices.

We've seen volatility certainly in the last several months, and really over the last year, which has moved inflation in both directions.

So, if we throw that out, we see that core inflation has steadily come down from its peak back in the summer of 2022, and that's again, been very consistent, which is very positive.

However, it's still over 4%, currently at 4.3%.

So we still have a ways to go there.

So the good news is that, that measure of inflation, which is really the best, the best representation of the underlying inflation level of the economy, that's been steadily coming down.

On the flip side, as we go forward into 2024, we talked about some of the upward pressures on inflation that are still there.

Two of those are ones that we need to be very concerned about.

One is the, one is the labor shortage that is still ongoing, and that's putting upward pressure on wages across the board, and so that's increasing the price level in the service sector, and that's where much of this inflation that still remains is coming from.

The second element that is less talked about, I think, is the movement away from globalization in the United States, and that's happening for a variety of reasons, including more geopolitical uncertainty, particularly with China, more US onshoring by manufacturers who are worried about supply chain disruptions, and when you see a reduction in globalization, that limits the supply chain of many US producers, and so that limits competition, and that prevents a decline in price levels.

So anytime you're reducing globalization, that's going to put upward pressure on prices.

So, you put those two factors together, and that's what is fighting the Fed in ...this battle against inflation going into 2024.

So there's still some factors at play, even though inflation is coming down.

<Gavin> Joey, when you talk about these globalization efforts and tamping them down a little bit, how do you feel that will affect our very global economy here in South Carolina?

I mean, obviously, the ports are so huge for us.

We have a lot of multi-nationals based here in South Carolina.

Is this going to be a negative effect when we talk about kind of re-shoring or moving around the global supply chain?

<Joey> Well, slowing in the global economy, which we've seen this year has definitely impacted activity in South Carolina.

It's impacted export activity, and reduced the total volume of exports.

The good news there is that exports remain a fairly smaller percentage of South Carolina's economy from a...trade perspective overall of total spend, but nevertheless, that does have an effect on...the margin.

So I think looking forward, we need to be concerned about what global markets are doing, and yes, that has the potential to affect South Carolina going forward.

<Gavin> - and when we talk about global markets too, you know, we were just talking about gas prices.

Oil prices have been steadily increasing a lot because of supply cuts due to economic slowdowns in places like China and Germany.

So are high gas prices here to stay because of this demand issue, or what?

What's your read on that, and when it comes to the global economy as well?

<Joey> Well, I'd say in general, if we look at energy prices, that is affecting our trading partners.

So getting back to the global economy, particularly with respect to Germany, which we see is in recession right now, one of the top trading partners for South Carolina.

That's going to affect our economy.

It already is and likely will impact our growth levels and going into 2024, but having said that, if we look at energy prices, overall, those are notoriously hard to forecast.

So, it's very difficult to get a real read on where those are headed in 2024, but there's no question that energy prices do affect what's happening in the US and in South Carolina, and especially for consumers who are already seeing the pinch from inflation, and so any further increase in gas prices, for example, is going to begin to erode consumer spending, which could jeopardize that soft landing.

So energy prices are going to be at the core of what we're looking at for 2024.

<Gavin> Yeah, everything affects everything it seems like, but Joey, we're taping this on Tuesday morning, like I said, it's before the FOMC meeting with the Fed this week, talking about interest rates, I'm not going to ask you to expect or to forecast what they might do, but it seems like there's overall consensus to pretty much keep rates holding steady, pretty much at 5.25% to 5%, 5.5%, with the thought that there could be another interest rate increase this year.

What about when we can start to see these interest rates come down?

What's ...going to be the indicator for that, in terms of going forward and really just, you know, lowering these rates that are affecting everyone from, you know, credit card owners to mortgage backed securities and the like?

<Joey> Well, I think in terms of pulling rates down is the Fed going to lower interest rates in 2024, there's been some talk that, that could happen.

I certainly think that's possible.

The Fed is being, being very cautious in terms of any types of commitment beyond the likely final increase in interest rates of a...quarter point later this year, but looking ahead, the real leading indicator that we need to be watching is the labor market.

If we begin to see an uptick in unemployment, then that would likely motivate the Fed to begin to look at lowering interest rates, because when we see a pullback in unemployment or see a rise in unemployment, I should say, that's usually a first sign of recessionary activity.

We have not seen that yet.

It doesn't look like that's going to be happening anytime soon, especially if we look at metrics such as the job openings rate which is still at a level that is far higher than where we were before the pandemic began.

The job openings rate simply being the way that we measure the number of jobs that are currently open and unfilled.

So, it's a way of looking at the number of help wanted signs in the window.

So, as long as that's relatively high and higher than it was before the pandemic, the labor market is likely to still be in good shape, but if that changes, that would likely signal a change in policy for the Fed.

<Gavin> Yeah, I was going to ask you about that, because in South Carolina, our employment, our labor market remains pretty strong, pretty resilient.

In July, our rate was holding steady at 3.1%.

- Excuse me.

So what does that strength of the labor markets say to you?

I mean, what more needs to be done to kind of maybe create that soft landing here in South Carolina?

Or do you see it just, you know, slowly tapering at this point?

Or is it still very red hot in your opinion?

<Joey> Well, the labor market is still very red hot.

I don't think there's any...question about that.

When we look, when we talk to businesses across the board, in data that we see, it's very clear that all industries in South Carolina are still are struggling to find workers as a whole.

So the labor market remains strong.

Going forward, what we're really looking for is...actually what we're seeing right now, which is one reason we are optimistic about a soft landing.

That is a labor market that remains strong, but a pullback in overall demand.

So we have seen some...pullback in consumer spending, at the national level.

GDP growth has dropped from about 3.2% in the second half of 2022, to about two and a half percent in the first half of 2023.

If we look at job growth in South Carolina, it's still positive, but it's not as strong as it was in 2022.

So we've seen it pull back in the rate at which we're creating jobs in South Carolina, and all that is consistent with a soft landing, slower positive growth, but no negative effects on the labor market, and certainly no... layoff activity, and so far, that's what we're seeing.

<Gavin> Then Joey, if everything's kind of going to plan, then why's everyone so upset about the economy?

We always talk about this.

You know, we see the polling numbers that show folks say that they're...they don't feel optimistic about the economy.

They don't feel better than they were the year before.

I just saw that I guess some consumer sentiment numbers have ticked down for a second straight month.

What's your read when it comes to deciphering those polls and how folks feel about the economy versus what we're actually seeing in the data?

<Joey> Yeah, that's a great question, and you're right, there is a very large chasm between what a lot of these economic data show and what people are feeling, and I think the... bottom line is that, that just comes down to inflation.

If we look over the past two, two and a half years or so, we've seen a major difference between the rate at which prices have been going up and the rate at which wages have been going up.

So in South Carolina, if we look in total between 2020 and 2023 - So, basically, since the pandemic began, inflation has gone up by about 18%.

Wages have gone up by about 10%.

So that's a huge difference, and that has made meaningful differences to purchasing power for the average American and the average South Carolinian.

So they're seeing prices go up.

They're not seeing their wages, keep pace, and inflation is something that you see every day.

It's not something that we can get away from.

You see it at the grocery store.

You see it at the gas pump when you're buying things online.

So inflation permeates every aspect of the national and the state economy, and so that's what consumers are feeling, and that cumulative effect, has had a real meaningful impact on their purchasing power.

So, despite the fact that inflation is actually coming down now, meaning that we're not seeing prices go up as much as we were a year ago, that in a, just few months period is not going to make up for that large decline in purchasing power that consumers have felt over the last several years.

So I think that, that divide is really what's driving a lot of the discrepancy in the...data that we see on consumer sentiment.

<Gavin> Joey, I know we're wrapping up here, but I have two quick questions that are right on the front burner right now with the news cycle.

One of them is the federal student loan repayment policy ends on October 1, and retailers are concerned about how this is going to affect the economy.

We're talking about $100 billion annually, that will be diverted from the economy to help start paying back federal loans.

Are you concerned about this?

Do you think that's overblown?

Do you think it's going to be more again, like a tapering?

Or is this going to be another strong economic headwind that we could be facing?

<Joey> I think it certainly is a headwind.

It's going to continue to pull back demand.

So, from that perspective, I think it's consistent in terms of applying to the soft landing movement, tapering demand overall, but the real concern, I think, is when you combine that with the fact that the excess financial reserves that consumers...have built up over the past two years, because of the stimulus dollars, those have now been exhausted.

So consumers have spent those excess reserves and so they don't have those resources to draw on.

So you combine that with the student loan payments, and that could make a pullback in consumer spending more significant in the coming months than what we've seen over the past or in 2023, so far.

So definitely something that we want to keep our eye on.

<Gavin> Joey, the UAW the United Auto Workers Union is striking.

They're doing a slow roll out of strikes at the Big Three automakers over contract negotiations.

When you look at South Carolina and its connection to the automotive industry.

How concerned should suppliers be here and manufacturers as well when it comes to these strikes?

How do we fit into this supply chain?

- and then obviously, we don't have a lot of UAW shops, not that we have any down here, but how does that fit in to the whole labor market situation?

<Joey> Well, in the short run, it's not going to be good news for South Carolina or for South Carolinians in terms of consumers, because all this does is exacerbates the supply chain shortages that we've seen in the auto industry, and that's going to fuel inflation, has the potential to be another headwind against getting inflation down to 2%.

So, that's going to be a problem in the short run.

In the long run, more from a strategic or a political standpoint, these auto manufacturers have to be looking at this and asking the question of what is, what does this do to the competitive landscape of the southeastern United States and South Carolina?

Does that make South Carolina more attractive going forward, because not only are these labor negotiations, creating...disruptions that is something they have to consider when they're looking at their...operating procedures, but also looking at this transition to EVs and how that's part of the conversation.

That's driving a lot of the, some of the concerns that these auto workers have as well.

So how does that all play out?

I think it could ...be advantageous to South Carolina, depending on how it plays out, but we'll see.

<Gavin> Got you, a lot to watch over the coming months.

That's Dr. Joey Von Nessen.

He's a research economist at the University of South Carolina, Darla Moore School of Business.

Joey, thank you.

<Joey> Thank you, Gavin.

My pleasure.

<Gavin> - and joining me now to discuss the housing market in South Carolina is Nick Kremydas.

He's the CEO of South Carolina Realtors.

Nick, welcome to This Week in South Carolina.

<Joey> Gavin, thank you.

Thank you for inviting me this morning.

<Gavin> Great.

So Nick, we just spoke with USC research economist, Dr. Joey Von Nessen about the economy at large, but we want to talk to you about broadly how the housing market is doing right now, and what you're seeing right now in the state when it comes to just the market.

<Nick> The market is experiencing some change.

We've seen sales decline this year compared to last somewhere in the 15% to 17% range, depending what part of the state you're in.

It is normalizing compared to the very hot market we've had, especially during the pandemic.

After 2019, we saw the...market just go a little crazy, to be honest.

It was unsustainable and we're starting to see that cool off and...normalize in South Carolina.

<Gavin> - and interest rates are driving mortgage rates too.

So I'm assuming that's helping stabilize things.

How are you seeing that play out right now with the interest rate increases?

<Nick> Interest rates are the big question mark.

Our national economist sees interest rates leveling off in the spring of next year, bouncing back down to kind of the mid sixes maybe lower 6% range, but there is some troubling news on the horizon, the Fed continues to be very aggressive with their inflationary policies, which could trigger that instead of a bump down on the interest rates, a bump up, and I've read several reports that see interest rates bouncing up to almost 8%, and we're hovering just above 7% right now, which we were expecting those numbers to be a little bit lower this time this year.

<Gavin> Yeah.

When we talk about interest rates, Nick, you know, I was looking at some data, and I saw that since April 1971, the 30 year mortgage rate has averaged 7.7%.

So that's based on Freddie Mac data.

Are we in this era now of maybe reshaping people's thought process to what interest rates should be?

I mean, gone is the era of like the super low 3% mortgages, but now we're at around 7%.

We're not at 18%, like back in the 80s, but are we just in a matter of trying to maybe reshape folks' approach to what interest rates should look like?

<Nick> I think it is, Gavin.

It's very important, especially in real estate to look at these numbers over a long period over a historical perspective, interest rates, even at 6% are historically low.

It's a good...return for...home buyers.

So, even if we're bouncing around the 7% range, that's, as you mentioned, near the historical average.

Another thing to keep in mind, that when we look at these trends in real estate, you've got to look at these long term numbers, because real estate is not, you know, not typically a short term gain.

It's a long term investment that most families make.

It's the largest financial investment most families ever make, but it's also a long term investment strategy.

<Gavin> So that being said, Nick, what's your advice to folks right now thinking about buying or selling a home?

What should they be doing right now?

What should they be, what should they be considering right now?

<Nick> First time home buyers are in a particular crunch right now, home sales in that market in that price range have... taken a stronger hit than... any other category in the state, and that's a combination of several things.

Number one, inventory continues to be at historic lows.

We are years away from catching up with demand, which is the reason why prices even in this normalizing slightly declining market, prices continued to climb.

The average sales price last month was over 400,000 in South Carolina for the first time ever.

The median sales price continues to climb.

That's over now $324,000.

These interest rates have made a home from three years ago, almost twice as expensive.

In South Carolina alone, when you look at the home price change since COVID, since the beginning of the pandemic, home prices in South Carolina have increased almost 48% over a three year period.

So you factor in the...rise in the price of the home, the value of that home, the increased cost to build new...homes that home builders have... faced due to supply chain constraints and...all those other things.

You throw in all of...the other increased costs in housing, and it's a real crunch for first time home buyers and...just working class families in South Carolina.

It's more important than ever, you know, life...life creates events that require you to buy or sell.

You know, there's... never, there's never going to be the perfect time to buy or sell, but life creates these events, and whether you're downsizing because you're an empty nester or you're growing because you've got new children on the way or you've got... other categories of life events that impact those processes, You need a trusted adviser to guide you through that process, and working with a local realtor who knows the market, who's competent in that, in that community is more critical than ever.

<Gavin> So Nick, when we talk about just this, this market and all the challenges that it's facing, folks, are your trends still holding strong when it comes to in-migration to South Carolina?

Are we still seeing those numbers hold up when it comes to possibly retirees and maybe folks moving here for jobs?

What are you seeing in terms of those trends when it comes to folks moving to South Carolina?

<Nick> South Carolina continues to be one of the most attractive states to live, work and play in, and those migration numbers continue to play that out.

We're still one of the top three move to states in the country, and ask anyone in local government right now, Gavin.

They are all dealing with growth and development issues all across the state, and how do we grow in a...smart way?

How do we grow that addresses infrastructure and service and schools and health care?

It is creating some chaos in particularly, you know, 70% of this growth is in our coastal communities, and that's where they're struggling with it the most.

<Gavin> You know, we're definitely seeing some of our top markets like Greenville and Charleston and Columbia, having some huge home value gains in the month of June according to Redfin.

So, we're seeing that on the coast, of course, and also inland, too, but what about rural South Carolina, Nick?

We've seen massive amounts of infrastructure money coming from the federal government, whether it's broadband or water and sewer infrastructure upgrades.

Do you think that's going to help drive maybe some new development in areas of the state that we typically didn't see it before?

<Nick> Absolutely.

We're seeing it already.

You look at the town of Easley, outside of Greenville, experiencing growth pains.

We were in the town of Greenwood, just a few weeks ago, talking.

The first topic on the agenda was affordable housing, in Greenwood, South Carolina.

We're starting to see migration into the rural areas because development follows infrastructure.

You can't...without water and sewer without roads, you can't build.

You can't develop.

You can't attract business, and as we see these infrastructure improvements, we're going to see all of South Carolina benefit from it.

<Gavin> Nick talk to me about affordable housing.

You just mentioned it there.

We have about 90 seconds left, but what needs to be done to grow quality affordable housing, in your view here in South Carolina, especially in some of these big metro areas and the smaller cities?

<Nick> We definitely need to get the planning commissions, the local leaders, the local property owners to the table together.

Too often, the knee jerk reaction to growth and development is to, "Hey, let's put up a wall or a fence.

Let's...enact a moratorium.

Let's increase lot sizes, to make areas less dense.

", and we all know that in order for good responsible growth, you've got to have mixed use.

You've got to have certain density where the infrastructure is, is there in place, and we need the parties.

We need to get a consensus in communities, because not every community is the same, but we have to do it in a way that's fair, that doesn't violate fair housing rules, and make sure that our communities are open, inclusive and diverse.

<Gavin> So, definitely, like one of the top issues for y'all and the housing market broadly in South Carolina is affordable housing?

<Nick> It continues to be and will be for the foreseeable future again.

<Gavin> Got you.

Great!

Well, that's Nick Kremydas.

He's CEO of South Carolina Realtors.

Nick, thank you for that update.

<Nick> Thank you.

<Gavin> Appreciate it.

To stay up to date with the latest news throughout the week, check out the South Carolina Lede podcast.

It's a podcast that I host on Tuesdays and Saturdays that you can find on South Carolina Public Radio.org or wherever you find podcasts.

For South Carolina ETV.

I'm Gavin Jackson.

Be well, South Carolina.

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