One of the major influences on the Hilton Head Island real estate market is availability of capital through loans. 

We have recently seen a situation where most banks are not making lot loans.  The few banks that are making these loans are requiring that you build within a year and use them for the construction loan. 

In other words, if you want to buy a single family lot, you either have to follow this requirement or pay cash.

In this type of environment, it has a negative effect on sales.  Since most people do not want to pay cash they do not buy at all.  Their thinking is – we don’t need the lot until we retire so we will just wait until we retire to buy a lot and build.  This helps explain why single family lot sales were down 92% in 2008 compared to a 10 year average.  It is hard to believe that any commodity could drop that much, but when your source of purchasing dries up I think one could understand why that would happen.

It is also true in homes and villas.  An agent in my office has someone who wanted to buy an oceanfront house and they wanted to put down $1 million.  The bank required that they put down $2 million and they did not want to put that much down because it would take most of their available cash that they had.  Therefore, the deal did not go through whereas a couple of years ago the person could have bought the same property with $500,000 down. 

 The availability of capital has a huge effect on the real estate market.   When there is not much capital available, less sales occur and prices drop because of the simple economics of supply and demand.