Investors have long been suspected of causing the downturn in the SW Florida real estate market as they flocked into Southwest Florida and scooped up property by the thousands. This is all well and good if there are end users at the end of the rainbow to purchase these homes.
If there are end users at the end, investors can actually help a real estate market as they assist in getting properties built sooner rather than later by providing the financing for builders and taking the risk. They help fuel supply when demand is much stronger than the supply.
This was a good thing back in 2003 and 2004. At some point we passed equilibrium and crossed over into over supply, and that was in 2005. In the 4th quarter of 2005, the local real estate market caved under it’s own volition due to over supply of homes.
We decided to look inside the numbers and see if this is really the case. We looked at the total number of single family homes on the market, as well as the total number of condos on the market and compared the totals with the number of single family homes and condos on the market built in 2005 and 2006.
Most end users don’t elect to sell a new home right away unless personal circumstances change. We can safely assume that most homes and condos on the market newly built are most likely investors. We also know that investors also bought resale properties, although not in the numbers they did new homes and condos. We also assumed that the investors who bought resale’s offsets the few end users who decided to sell their home or condo so soon.
Below are the numbers:
|August 30, 2006||Active||New Homes||Investors %|
35% is an unnusally large number for any segment of the market, especially new homes. Knowing this number will allow us to make some predictions as to how long this market downturn will last. We’ll analyze current absorption and compare that with the number of currently on the market, and add in expected new construction investor properties that haven’t hit the market yet in a future article.