Final year end official stats are in and as expected, 2009 set all kinds of records. Every single quarter of 2009 was a transaction record, so it’s no surprise that the entire year set a transaction record as well. 2009 saw 16,260 single family home sales compared to 8,272 last year for a whopping 97% increase over last year. 2005 saw 12,123 home sales, so 2009 eclipsed that lofty mark as well, but this time it was done in a more healthy way, if you can believe that.
2005 sales were fueled by regular home sales and builder sales from previous years that took until 2005 to complete and close. We’re not seeing any builder sales, pent-up or otherwise because today’s home prices are well below replacement cost, so builders cannot afford to build today as they would lose money on each deal. So what’s different about 2009 vs. 2005?
The main thing is housing affordability. At the height of the market single family home prices were about $322,000 and now they’re at $94,500. This makes it much more affordable for families that still have jobs. Obviously if you’ve been affected by the economy and a job loss, almost any mortgage payment is too much, so when we mention affordability we’re speaking to people who are blessed with a job. We also have low interest rates which positively affect affordability.
Property taxes are lower which greatly reduces the monthly payment as well, further adding to affordability. We still have a home buyer tax credit which is up to $8,000 for first time home buyers and $6,500 for existing buyers. Nationwide December sales slumped because Congress waited until end of November to extend and expand this credit, but we expect sales nationwide to pick up again. Locally sales were up 40% over 2008, so the tax credit expiration didn’t affect us much as everyone is trying to get in on these rock bottom prices.
First time home buyers are in steep competition with investors for the best buys as well. For years we would tell investors property in SW Florida just won’t cash flow unless you put a bunch down. This isn’t true anymore, so investors are coming in and scooping up these artificially low values and either renting them out for a positive cash flow or flipping them for a generous profit. Cash flow is the rent or income earned minus expenses, like debt service, property taxes, repairs, vacancy and collection losses, etc. In preparation for our annual State of the Market Report I started flagging several home sales that were flipped in 2009, sometimes a few times.
Today’s prices are too low, especially at the bottom end of the market, and 2009 saw 5 of the last 6 months with rising median prices. We hear from our sources that there are more foreclosures on the way. Banks study default rates and can predict how many will foreclose in the future; because once a homeowner gets behind, statistically they don’t catch up very often. While the worst may be behind us, we believe we may have more to go. This fact and the job market should keep prices relatively stable until the economy turns around. We may see escalating prices going forward, and if so it will be because we are undervalued on a cash flow basis no matter what the job market is, but we believe true price appreciation will occur once the job market stabilizes.
The commercial market is currently experiencing an adjustment similar to what the residential market has gone through in years past, as commercial tends to lag residential. This could put pressure on some banks, so 2010 may be a year to watch the banking sector for mounting losses on the commercial side. In the next few weeks we’ll have detailed analysis in out State of the Market report. You can view last year’s report at www.Topagent.com in the Housing Statistics section. We have additional graphs you can view there as well. We’ll be unveiling this year’s report online and on The Future of Real Estate show broadcast also on the website.
Sales are off to a boom in 2010 with many sales contracts happening right now, so 2010 will be another fun year to track.