A few years ago we reported that listing agents were listing homes at ridiculously low prices to create buying interest simply because the home was being sold as a short sale.  This is a bad practice for several reasons, and yet we’re seeing it continue today. 

Misleading Short Sales Distort Actual Values
Misleading Values in SW Florida Real Estate

This past week I noticed two different homes, each located in a different subdivision, listed at far below actual values.  This can cause many problems we’ll outline now. 

The bank is not likely to accept a short sale on either of these homes.  The bank will learn the actual value by ordering a BPO (Broker Price Opinion) or a bank appraisal.  Once they determine the home is worth much more, typically they just kill the sale.  Many owners and agents mistakenly believe that banks typically counter, but this isn’t normally true, especially when the offer is far below value.  There also can be more than one lien holder involved, and both look into value, and either one can kill the sale. 

If the banks were to accept such a deal, it creates a potential tax event or larger deficiency judgment against the seller.  The bank could also ask for a promissory note against the seller, and that note would be significantly larger due to the under valued sale. 

Even though the deal is not likely to be accepted, it also hurts the market in two other ways.  Buyers mistakenly believe that artificial number is the new market, because they saw a home for sale for X amount of dollars, even though it has no chance of selling.  Some buyers act quickly to tie it up, then wait months to find out the answer is No.  All the while, some good bargains have come and passed and they’ve missed out.  They may not have been the Steal they thought they were getting, but they were good bargains and suited their needs. 

In addition to the misperception buyers have, banks must also make decisions on how to price foreclosure inventory.  They do look at sold comparables, but they also look at what is on the market.  If they’re not careful, they’ll notice a particularly low priced sale and price theirs too low, which has a domino effect on future foreclosure properties, and it snowballs from there. 

The artificially low listing can influence future sales if people aren’t paying attention.  The foreclosure process is far from perfect, and people from other states typically make decisions about local property, so there is no need to give them false ammunition for fear they may shoot themselves in the foot with it.  When they do this, it hurts the entire market. 

The market will go up and down as conditions dictate, but it need not move in a direction due to false hopes and misinformation.  Sellers need to do a better job interviewing agents, and agents need to insure they know the local market, understand the short sale process, offer advice commensurate with what market conditions dictate.  This can be challenging I know in a changing market, but we see False Listings everyday and it doesn’t help anyone. 

The seller is let down when the bank rejects and it goes to foreclosure, the bank wastes time investigating a False Listing, and the buyer mistakenly believes they’ll end up the proud owner of a steal; all the while great bargains pass them by in the process.  And the market is let down by false and misleading listings that really shouldn’t be on the market.

If you missed last week’s Future of Real Estate Show, you can tune in now.  We interview Lee County Sheriff Mike Scott and ask him tough questions about Florida’s and Arizona’s immigration law and how that affect what he does.  Additionally we ask him his views on controversial red light cameras, the upcoming tight budget process, school resource officers, the jail, traffic stops, and much more.

We interviewed Lee County Florida Sheriff Mike Scott on this week’s show.  Sheriff Scott answered tough questions on Arizona’s controversial immigration law, how his officers conduct traffic stops and how they handle possible illigal immigrants.  We also asked Sheriff Scott his thoughts on terrorism, border control, patrolling SW Floridas’s waterways, the manatee, red light cameras, school resource officers, working with ICE, and recent reports his office may need to cut 5% of his annual budget.

Lee County Florida Sherrif Mike Scott and Brett Ellis
Lee County Florida Sheriff Mike Scott and Brett Ellis

Sheriff Scott answered every question asked by Brett Ellis.  The show is broken up into 3 segments, and you can find all 3 here along with descriptions of each segment. Future of Real Estate Video with Lee County Sheriff Mike Scott.

We just pulled up sales numbers for Lee County for July 2010 and we see a trend continuing that began about 4 months ago in many areas. Except for Cape Coral, the percentage of sales that are distressed is rising throughout the county.  Cape Coral has remained relatively steady at about 62% of all single family home sales the last few months, but even that is up from 54.57% in April.

Single Family Distressed Home Sales in SW Florida
SW Florida Distressed Home Sales

Lehigh Acres is leading the county by far with approximately 3 out of every 4 sales being in distress.  This number has risen from 71.31% back in April.  Lee County numbers have risen about 10% in the last 4 months, which is an interesting sign.  Is this troubling? 

Foreclosure sales are going down, as are short sales, but regular sales are falling even faster, which leads to a higher distressed sale percentage.  To that extent, this is troubling. 

Some would argue that more short sales going through is a good thing, and it would be if this were true, but short sales have been going down in recent months.  Banks have not been easier to work with on short sales overall, while in some select instances they have been. 

Foreclosure sales have fallen as a backlog has been slow to enter the market.  We’ve been told there are still many homes in backlog, while some dispute that fact. We’re also noticing new foreclosure proceedings starting on failed short sales and people who’ve managed to hold off this long but no longer can due to employment and the economy. 

Heading into the fall elections, it’s safe to say things are not better with the economy, and the housing market is not finished cleansing itself.  The good news is we have a market, and the market is absorbing new bank foreclosure listings, but nothing is being done to help the economy and prevent them in the first place. 

Mortgage modifications have largely been a failure, and government efforts have been a joke.  Back loading a mortgage modification with extra principal and interest to the back end of the loan doesn’t help the homeowner when given a 6 month reprieve on payments.  At the end of 6 months, they still cannot afford the loan, and now the payment is higher than it was before when they couldn’t afford it. 

If a bank is willing to short sale to a new buyer, maybe they should consider a principal reduction to an existing owner who is in Real trouble.  I know banks are afraid to do this as every homeowner would ask for the same thing regardless of need, and this is a valid concern.  It is, however, probably one of the few tactics that would work.  

The other is to provide meaningful employment, and it’s clear that the stimulus plan hasn’t worked.  The government has failed at both ends of the spectrum.  All mortgage solutions have been voluntary on the banks part, and the banks haven’t always behaved nicely when dealing with distressed sales.  It’s time for a plan with teeth to compel the banks to cooperate, and a plan to get the economy moving again. 

Housing plays a big part in the economy; approximately 32% of GDP, so it makes sense to kick start the economy on Main Street.  Wall Street will respond once Main Street is stabilized.  November is only 3 months away, and I have a feeling the voters are going to vote with their pocket books this year, or perhaps with their pink slip.

This is the question most often asked, by both buyers and sellers.  The truth is nobody knows for sure, but the market usually leaves clues.  Sometimes the market leaves strong clues a kindergartner can figure out, and sometimes they’re more obscure only a tea leaf reader might understand. 

So what clues is the market leaving right now?  Median single family home sale prices are up about 10% over last year in June.  July numbers haven’t been released yet.  Prices are down .31% over last month, so we’ll call that about even.  Home sales are down 12% over last year, but home sales are up 2.81% over last month. 

SW Florida Real Estate Sale Prices
SW Florida Median Sale Prices 2009-2010

As you can see by the attached chart, last year home prices rose steadily in 2nd half of the year, perhaps due to the home buyer tax credit, low interest rates, and bargain buys in the SW Florida market. 

Prices continued to rise this year right up until the home buyer tax credit ran out.  Is this coincidence?  We don’t know.  Some speculate it is due to the expiration of the tax credit, others speculate it could be effects from the oil spill, while still others wonder if it’s not the economy and the job situation.  Perhaps it’s all three, or perhaps its simple supply and demand at equilibrium in this new economy. 

Banks have slowed down bringing bargain homes to the market, and we’ve long wondered what will happen to our market when the bargains are gone.  Because we don’t have sustained employment opportunities, it seems almost impossible for prices to shoot up drastically once the distressed sales are gone. 

The distressed sales are not gone; it’s just that foreclosure listings have slowed recently.  We’re hearing that FNMA has more properties coming to the market soon, and we have seen a slight jump in pre-listed foreclosures we’re working right now.  We’ve also seen a slight increase in short sale transactions, although not enough to make a dent. 

HAFA, the government program designed to make short sales easier to sail through with the banks has been a huge flop.  It’s almost to the point the government should stop trying, because they’re making things worse.  Last year the government intervened and tried to instill loan modifications and workouts, but it was a flawed theory and failed miserably.  Because of this, we said 2010 was the year of the transaction either a short sale or a foreclosure.  Short sales have not worked like intended.  It was a voluntary program and had no teeth or real chance.  It was just an arbitrary deadline designed to make the politicians look good, but now they just look bad. 

Right or wrong, this all leads up to more eventual foreclosures.  We believe more are coming, and they take time to work through the process.  The Lee County Clerk’s office has been working down the backlog of files lis pendens, and this is a good sign.  Unfortunately, there are more to come.  The stimulus has not worked, nor has the governments plan to revive housing.  It’s time for a new plan, a plan that can actually work.

 We invite local, state, and federal officials to sit down with those on the street and think about the big picture.  Theory should align with reality, and implementation should be realistic, and have teeth.  Otherwise politicians are kicking the can down the road, prolonging the housing crisis, and adversely affecting the economy.  Housing is 32% of GDP, so it makes sense to work on a comprehensive solution that helps both, not one that sounds good for votes but does nothing. 

Where is our market headed?  We’ve identified some clues, and maybe there are others.  You can read the tea leaves and decide for yourself which elements will win out.  We can say we have record low rates, below replacement cost prices, and affordability is at an all-time high.  So if a buyer has a job, has good credit, and wants to buy, now is a good time.  I just want to get more people good jobs so more people can take advantage of this market.

Watch this week’s The Future of SW Florida Real Estate Video Show August 13, 2010

Whiskey Creek is one of Ft Myers long standing prestigious communities established back in the early 80’s era. Before Whiskey Creek, the prestigious areas of Fort Myers were off McGregor, Ft Myers Villas, and Tanglewood to name a few. Back in the 60’s and 70’s smaller homes were prevalent with shag carpets and lime green or yellow counter tops. 2 Bedroom homes were very common. Povia Ballantine was a builder here in SW Florida and you could always spot one of their homes by the door knobs which were usually yellow speckled, and many were in the Villas, Cypress Village, and other communities.  

Spotlight on Whiskey Creek in Fort Myers, FL
Whiskey Creek Subdivision, Fort Myers FL

As the economy and market emerged, McGregor area continued to build up south of Colonial, and the high end dollars transitioned to Tanglewood with the bigger yards and larger floor plans.  After Tanglewood, Whiskey Creek emerged. 

Whiskey Creek is divided by Whiskey Creek Dr, and one side featured custom homes by various builders and the other was predominantly US Homes.  This is why there was a difference in values based upon location and features which still exists to this day. 

Whiskey Creek Home Listed bu The Ellis Team
Whiskey Creek Home

What’s really interesting is the amount of interest Whiskey Creek receives to this day, which could be a function of owners maintaining their yards and landscaping so well, the mature trees, the oversized yards as opposed to today’s newer subdivisions, or the central location to everything via McGregor, College Pkwy and Summerlin Rd. 

It’s amazing to me when young families call us and only want to look in Whiskey Creek to raise their family because one of them grew up there as a child and wants that same location to raise their children. 

Currently there are 31 homes on the market priced from $160,000 to $849,000.  There are 4 pending sales priced from $169,900 to $279,000.  Since the beginning of the year there has been 26 closed sales priced from $108,000 to $875,000. 

Of the 31 homes on the market, 9 are short sales, and 2 are bank foreclosures.  Of the 4 pending sales, 2 are bank foreclosures and none are short sales. 

Of the 26 closed sales year to date, 3 are bank foreclosures and 1 was a short sale. 

These numbers indicate a stable market with a reasonable number of distressed properties given the current climate.  Some of the newer subdivisions have much higher rates than this.  This may be another reason as a whole the neighborhood is maintained meticulously, and why it is so desirable.  It also breaks the mold of today’s newer, cookie cutter communities. 

Whiskey Creek offers what today’s newer communities don’t, which is yard size, mature landscaping, and that established feel.  Combined with a perfect south location, we believe Whiskey Creek will remain a favorite for home buyers for years to come.

Watch the Future of Real Estate Show July 20, 2010 for updates on what is currently happening ine SW Florida Real Estate market.