You’ve heard the expression Tis the Season, and in real estate season can mean many different things depending on where you live, and what type of product you’re referring to. Let’s talk about the Seasonality of the SW Florida Real Estate Market. For many years in SW Florida condo sales were highly dependent on seasonal sales, and in many tour developments that is still true. However, even with condos there are differences. Some condos are located at the beach; some can be rented weekly Vs monthly, and so on. There are only a few golden rules in real estate; Location, Location, Location, and Price. If you over price a home in this market, chances are good it will not sell, and we all know location makes a difference, although some would argue it’s still a function of Price. The better the location, the better the price, but that’s the old chicken and egg theory we’ll stay away from today.
Today we thought we’d illustrate some seasonal trends in single family home sales throughout the years. For many years we’ve told people single family home sales traditionally peak in the summer months, perhaps because kids are out of school and that’s when the relocations tend to take place, and perhaps that many of our buyers over the years were move-up buyers and they had more time to look after the Season their business just had. For years we didn’t have large companies employing hundreds or thousands of people, so many of our buyers worked for or owned small business, and they were busier in Season than out of season.
We have attracted a few large employers, although a few more would be welcomed by all here I think. Our market has been in turmoil since 2005, so we weren’t sure the charts would show the traditional rule of thumb that home sales tend to peak March through end of summer. Upon further study of the home sales graph, it does seem to hold true even in this time of change that home sales peak in the March through Summer time frame, and as we enter the fall one might expect home sales could decline.
This year may or may not be like recent past years as we have a first time home buyer tax credit in play that expires November 30, artificially low interest rates as the government has been buying treasuries at least through October, and artificially low property values due to the distressed nature of the market. Put all this together and you’ve got a Perfect Storm for record sales, and we’ve seen that for the past year.
So what could speed this train up or slow it down going forward? In a few weeks interest rates could head up if the government doesn’t decide to keep them lower. If so, rates could shoot up over 6% almost overnight like it did a few months ago last time their decision was about to expire. Additionally, the first time home buyer tax credit could go away, thus taking some motivation out of new buyers in the market. How the public reacts to the overall economy, health plans, stimulus money, bailouts, etc. could also affect public confidence about the direction the country is headed, and affect purchasing decisions. All these could slow the train down.
The train could also gain momentum if the government enacted a tax credit for all buyers, not just first-time home buyers. Nationwide we’ve been lacking the move-up buyer, and that’s certainly true here as well. A tax credit for everyone would spur a recovery in the overall market, and may decrease pressure on banks. As tax payers we either spend it here or spend it there, however if we help save the banks and spur home sales we also help the economy and increase jobs at the same time. It would also help if the government keeps interest rates low by buying treasuries allowing the market more time to heal itself.
A reform of the newly enacted (May 1) appraisal rules would also help the market, as new rules intended to help have actually hurt, and have not increased quality of many appraisals. We would argue the new government program has increased costs, increased inefficiencies, and spurred out of town appraisers who don’t know the market’s intricacies, but what would you expect when you put the US government in charge of local property valuation rules?
Some banks are getting better at evaluating and approving short sales when they make sense and some have gotten worse. How banks make decisions today will affect future foreclosure inventory. We believe foreclosures coming to the market may increase in the next year, which will help sales because inventory has been shrinking, and this will bring more affordable housing to the market to replace dwindling inventory. We don’t see rapid price increases on the horizon until we see job growth, and even though we have artificially low sales prices, we are seeing sales because they are bargains. I’m not sure we’d see anywhere near the sales volume if these bargains went up significantly in price overnight, and this is why I don’t think prices will jump dramatically when inventory contracts until the overall economy heals with the housing market. And this is why we are in favor of a home buyer tax credit for all, so we can heal both simultaneously.