Tis the Season

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We hear a lot about the economy and what Holiday sales will mean to retailers.  Traditionally, Christmas sales are approximately 40% of a retailer’s year, and in some cases even more.  Makes you wonder how they stay open the other 11 months of the year. 

A lot of people also think Season makes the local real estate market.  This may be somewhat true for condo sales, but historically single family home sales are fairly steady, with the 2nd and 3rd quarters usually accumulating the highest sales.  Season usually brings a lot of visitors to the area, and of course when they experience our awesome weather in January and February, they dream about buying in the future, so they call and ask to look at homes, many times a few hours before their plane departs for back home. 

Single Family HOmes Sales-Fort Myers-Cape Coral Florida 2009
Single Family HOmes Sales-Fort Myers-Cape Coral Florida 2009

We think this season is going to be different.  Buyers from up North have already started coming down looking to pick up their dream home.  They know that Florida is on sale right now, and the chance of getting a 2nd home or retirement home next year or the year after at these prices is slim.  Buyers are actually afraid they’re going to miss the bottom, and they know this may be their last season to fully capitalize.  

Foreclosures are trending down right now, and median prices are trending up.  Home sales set a record in every quarter so far in 2009, and nearly set one in the 4th quarter in 2008.  When we say set records, we mean they posted higher sales than even the peak of the market in 2005, only at much more affordable prices. 

The national media has reported the low prices we have in Florida, and we’ve seen an influx of buyers from Canada, Europe, and all over the U.S.  The first time home buyer tax credit has been a big help to first time home buyers up until this point, and the recently expanded home buyer tax credit for existing owners may help going forward to for sales that close by July 1 and are under contract by April 30, 2010. 

Median sales prices currently stand at $91,600, and that is after its 4th straight monthly gain.  To put this in perspective, in December of 2005 the median sales price was $322,300. Median prices today are roughly 28% of what they were only 4 short years ago.  In other words, median home prices were almost 4 times higher than today.  That is a sale no matter what store you’re at. 

This sale we’re experiencing has not gone unnoticed by buyers.  We’ve gotten some calls recently from sellers who live up North and want to sell because they see stories about property moving again in Florida.  They didn’t like the prices last year, so they figure this year must be better.  It must be nice to live somewhere else and not have to live what we’ve been going through here locally.  They are usually surprised when we tell them what units are going for in the neighborhood.  So many will wait to sell next year at higher prices, and they will probably get a higher price next year as buyers soak up all the bargains they can en masse. 

I’m not sure prices are going back up to December 2005 levels, but they are slowly going up.  We have pent-up demand from buyers and its being unleashed now, at least while the bargains are out.  I think we have pent-up supply from sellers who would like to sell but can’t today, and that’s another reason why we don’t see prices quadrupling.  This supply will eventually come to the market as prices rise and foreclosure inventory dwindles down the road.  The economy will have to make a comeback too, and jobs will be required to complete this cycle. 

In the meantime, get ready for a strong home buying season.  Agents and title companies will be busy this season.  Mortgage originators will be too except many of these sales will be cash.  2009 has been busy already.  As you can see, it’s been record setting.  We’ve been so busy we’re hiring agents to join our team.  People think Season is the only time homes sell in Florida, and as you can tell from the chart, 2nd and 3rd qtrs are generally the prime time for home sales.  Season 2010 might change that and make a run at big numbers if the inventory remains there to be sold.  The buyers are there. 

Here’s to a happy season to all.  Buyers, better get your bargains now, because next year they may not be at today’s sale prices.

What You Need to Know About Short Sales

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As you can see from the enclosed chart, short sale listings account for 53% of all active Cape Coral listings, 55% of Lehigh Acres listings, 35% of Fort Myers listings, and 40% of Lee County listings. While foreclosures account for more of the completed sales in Lee County, there are far less of them listed and they tend to go very fast.  Short sales on the other hand tend to take much longer, and their sale is not certain at all.  So we want to inform people of some of the things they should know about short sales.

Chart of Homes for Sale-All listings Vs Short Sales
Chart of Homes for Sale-All listings Vs Short Sales

A trend we see developing is many banks are requiring sellers to participate in the loss and pay money at closing, or agree to a promissory note that the bank will collect on.  Sellers should be very cautious not to list the property too low or the bank will reject the offer outright if it’s not within reasonable value, and they are coming back on the sellers regardless of whether it’s a homesteaded property or investment property.  Banks may not file a 1099 to the IRS on a homesteaded property, but they are in many cases on investment properties.  The forgiven debt has always been treated as income to the IRS, so if you take a loss on an investment property, prepare to pay taxes on the forgiven debt regardless of your ability to repay.

This is another reason why selecting an agent with experience in short sales is critical.  Not only must the agent understand what the banks want to see in the total package, they must also understand what the banks are doing today and their implications to their clients. Agents are not tax advisors; however agents can pass along valuable experience before you go through such an ordeal.

Buyers are very wary of buying short sales, as are buyer agents.  Buyer agents typically only show listed short sale properties when they know the listing agent has a firm grasp on All the details needed to get the short sale through.

A listing agent should also make sure there is a title search done.  If you miss a potential lien on property and do not list it on the estimated net sheet the bank requires, it will not be part of the accepted short sale and the seller or buyer must pay the difference at closing.  It definitely pays to know all the back fees and penalties from HOA’s, utility companies, etc. upfront versus finding out later on and having the short sale deal blowup at closing.

You’ll usually want an estoppel letter from the homeowners association showing all back fees, because in a short sale they will need to be paid off.  In a foreclosure the HOA may only be entitled to recover 6 months of back fees.  This is one reason HOA’s should be more cooperative in providing this data. Many homeowners associations don’t realize their management companies are charging large sums simply to provide an official amount the owner may owe.

We also recommend sellers pay their HOA fee even if they are delinquent on their mortgage.  Time is valuable in a short sale, and the HOA could actually file foreclosure papers much sooner than the bank might.  When the clock is up, the short sale is dead.  I can’t tell you how many homes we’ve seen listed as a foreclosure after the banks supposedly agreed to a short sale.

The bank(s) should only see one accepted offer from a seller.  If a bank sees multiple offers it gums up the works, and sometimes leads the bank to believe it is a Hot property and should sell for more.  Nevertheless, it increases the time it takes the bank to respond as it is much more work, and we should do nothing to increase that time.  Furthermore, there is a legal risk by accepting more than one offer.  The offer is between buyer and seller.  The bank cannot agree to a short sale unless seller agrees with a buyer.  The bank can only tell you what they’ll do if you have a sale.  A seller could have legal problems if more than one buyer believes they have a valid contract with the seller.

We also don’t believe in sending in fake contracts to get the ball rolling with the bank.  When banks discover this tactic they are less likely to work with you.  Additionally, there is no such thing as an accepted short sale price. If you lose a deal, typically you have to start all over and the terms usually change.

There is a test program that is an exception to this rule on HUD properties, but that price is set upfront and has nothing to do with previously accepted contracts.  There are many other things a buyer and seller should know.  To view a video segment on HOA’s and management companies, visit segment 2 of last week’s Future of Real Estate Show.  http://bit.ly/8pfMMf  or you can visit http://www.youtube.com/brettellisfl for many real estate related videos.

Let’s Talk Turkey

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Many people in SW Florida believe we have a Turkey of a market.  They can list all the things that are wrong with the market, wrong with the economy, wrong with what the government is doing to fix things, and wrong with how the banks are handling things.  And, in many cases these people would be right.  There are lots of ideas on how to fix things, and in fact we’ve covered many of them here. We’ve been quick to point out what is working, and what needs to be fixed or tweaked, so we’ve participated in these discussions just like everybody else who has lived here for the last 5 years or more. 

This being Thanksgiving weekend, we thought it might be nice to go over some of the things we can all be thankful for in the real estate market.  Transaction numbers were just released for October, and home sales in Lee County were up 96% over last October, so we’re continuing the trend of record setting sales, eclipsing even lofty 2005 numbers.  Sales were up 7% vs last month, partly because the 1st time homebuyer tax credit was thought to expire by end of November which motivated people to close in October. 

If you’ve followed these weekly articles, or listened to our radio show “The Future of Real Estate” you’ll also know that we’ve been predicting since June that the median single family home sales price would begin going up instead of down, and we gave statistical reasons why we thought this would occur.  As you can see from the chart, median home prices in SW Florida have risen every month since June, which is definitely something to be thankful for as well.

SW Florida Real Estate Monthly Median Prices 2009
SW Florida Real Estate Monthly Median Prices 2009

 Condo median prices in SW Florida rose 14.07 % last month, but you won’t see that reported many places.  Condo sales were up 143% over last year, so it’s not just single family home sales that are doing well. 

The first time home buyer tax credit was extended until April 30 of next year, and buyers have until end of June to actually close on those properties.  Additionally, the tax credit was expanded to existing owners under certain conditions.  We were fighting for provisions like this, and while Congress didn’t go far enough, the fact that they did what they did is also something to be thankful for.  We expect this to help the market going forward. 

This year’s holiday season may be leaner and families have accepted that they’ll be giving their children less this year.  Children have responded and they know times are tough.  A parent’s greatest fear is they won’t be able to give their children everything they so very much want to provide for their children, but children are resilient and are supporting their parents through lean times.  The truth is, children don’t need all that stuff to be happy.  What they really crave is family time, and this tough economy has brought parents closer to their children. 

A parent who has been laid off may now take a child to school, and we’ve seen many reports where parents are now more involved at school because they have the time.  Parents are spending less on fancy tech toys and kids are having fun the old fashioned way, by playing ball in the yards, card games, board games, etc.  We don’t mean to trivialize the pain many SW Florida families are going through, but rather point out a few of the silver linings in a tough environment.  This is Thanksgiving after all, a time to be thankful for what we do have, and forgetful of what we used to have. 

If nothing else, this economy has taught us to get back to the way it used to be decades ago, not 4 years ago.  Society was caught up in how much we could buy, how much we could borrow, and it was fueled by rapidly escalating equity in our homes, among other things.  We were taught on how to spend vs how to save.  We bought things we didn’t need or even use.  The market has corrected itself, and the question is, have we corrected ourselves? 

I think the answer is yes, many people have made corrections.  When this economy returns, and there are indications some things are getting better, will we be better as a community, as a family?  Sometimes it takes a kick in the pants to learn a life lesson, and lord knows SW Florida has been hit hard.  At a time when few see the positives, let’s take Thanksgiving to reflect on all that we do have, and be thankful that life has taught us to get back to the basics.  Tell your loved ones you love them and how thankful you are to have them.  Be kind to your neighbor, as they’ve probably gone through tough times like you have.  We’re all in this together.  We’ll come out stronger than before, because I believe at the height of the market is precisely the point we were weakest as humans. 

I am thankful to be here in SW Florida.  I am thankful for the friends and family I do have, and I am thankful to be back to basics.  I look forward to brighter days, and together we’ll get there.  Thank you SW Florida, and God Bless.

Banks Cooperating on SW Florida Short Sales

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We’ve been reporting for weeks now that distressed property sales are moving.  One component of a distressed sale is the Short Sale.  A short sale is when a bank agrees to take less than what is owed on the mortgage so the property owner can afford to sell the home at today’s lower market values.  Banks in the past have taken much time to decide and some have been stingy on accepting these deals, for good reason. We’ll come back to the reasons later on. 

Many agents have been reluctant to show short sales to their buyers because banks have been declining a lot of these sales.  We have a bit of good news to report, and that is short sales are rising.  We’re not saying they happen overnight, or that they’re easy.  We’re just reporting the fact that they’re happening more frequently now as banks develop systems to more adequately deal with these sales, and they realize they may lose less in a short sale than a foreclosure sale. 

 

SW Florida Closed Short Sales 2009
SW Florida Closed Short Sales 2009

As you can see from the monthly chart, Cape Coral leads the county in short sales.  All three areas, Cape Coral, Fort Myers, and Lehigh Acres are experiencing an increase in short sales from the banks.  Cape Coral had 113 short sales in May compared to 151 in October.  Fort Myers had 29 in May compared to 73 in October.  Lehigh Acres had 30 in May compared to 49 in October, so you can see a definite increase in banks cooperating in short sales in just a few short months, no pun intended. 

Why is it that banks are cooperating more?  We’re not exactly sure, however we can speculate that banks have learned they lose less in a short sale than a foreclosure.  Real estate agents have also learned what banks are looking for through education and are presenting better packages to the banks, which are key.  Perhaps that Tarp money has freed banks up a bit to sell distressed properties.  Most likely is that banks have been hiring and training people to deal with the barrage of requests and heavy paperwork load and they’re getting better at dealing with this issue. 

Let’s look at some of the reasons banks take so long so we can understand the delays.  Banks obviously don’t want to lose money.  Banks generally qualify the seller and make sure there is hardship.  Being upside down on a mortgage is Not considered hardship.  There must be documentation proving the seller’s hardship, and this is why our sellers fill out a complete financial survey that is included in our short sale package to the bank. 

The bank also wants to verify that the seller is selling at today’s fair market value, not some super spectacular deal for an investor or relative so they can make money on the bank’s losses.  Keep in mind, the bank is taking less, so it is the bank’s loss. 

The bank wants to make sure it’s an arm’s length transaction.  They don’t want a family member buying it at a discount or an LLC being used as a vehicle to transfer property to a family member at a reduced price so the mortgagee can escape being upside down.

There may be more than one ban involved, and each one has limits on how much loss they will take on the short sale.  They will weigh the current loss vs. and anticipated loss they may receive at foreclosure.  They may wish to order appraisals before making a decision.  We submit a BPO (Broker’s Price Opinion) to substantiate today’s market value with all accepted contracts. 

We don’t let our sellers sign more than one offer and submit to the bank due to legal ramifications.  And we don’t have our sellers accept an unreasonable offer that the bank will reject, so we do all the homework upfront.  Why waste everybody’s time?  Because all listings agents don’t do this, buyer agents are skeptical to show short sales and waste their client’s time and money. 

Even if the listing agent does everything perfectly, there is no guarantee what the banks will do, and yet there are far too many listings being taken at incorrect prices and inappropriate situations, and that is bogging down the system.  This is not the time to just throw something out there and Try because seller is desperate.  Decisions made are impacting the buyer and seller’s lives, and a lot of time and energy is expended by all involved.  It pays to do things the way the banks require them for maximum results. 

If you understand what the bank is looking for, and work with someone who has experience actually selling short sales, buyer agents will be more likely to show these types of properties.  Agents are getting better, banks are getting better, and hopefully we’ll see more short sales go through so neighborhoods don’t have to suffer through abandoned properties and all the negatives associated with foreclosures.

Insider Tips on How To Buy Foreclosure Properties

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Lately our office has been inundated with calls from investors throughout the country looking to snap up foreclosure listings at bargain basement prices.  It’s true, we do have some bargain prices, and foreclosures tend to be a good deal.

Most of these investors want to only talk to the “Listing Agent” because they believe they’ll get the inside track on these deals.  There are some investor gurus out there selling tapes on how to buy these foreclosures, and as a foreclosure listing agent for many of the banks I can tell you that the advice given won’t help you much, so save your money on these tapes.

 

If you’re looking to purchase a bank foreclosure, here are a few tips:

  1. If the property is a bargain, offer full price or better.  Most of the foreclosures sell at or above full price.  From personal experience our listings do, so we decided to pull up the entire MLS sales for 2009.  Of the 8,080 single family home sales, the average List Price/Sale Price Ration was 99.02%, and if you look at median prices it was actually 101.8%.  So the stats do match what we’ve experienced.
  2. Be prepared to offer proof of funds with your cash offer, or a pre-approved letter from a major bank.  Many of the banks require a pre-approval letter from the bank handling the foreclosure so they know they’re taking the property off the market for a good buyer.
  3. Place more money in escrow.  Believe it or not, banks do look at how much you place in escrow with your offer.
  4. Make sure it is not contingent on the sale of another property.  Banks are not taking contingent offers.
  5. Work with an agent familiar with the process.  In most cases listing agents take the information from your offer and input key bits of data online.  The bank never sees your offer on the paper it is written until they accept one of the offers.  Do not make the listing agent hunt you down for crucial information.  Most properties have multiple offers, and the listing agent will just move on to the next offer filled out completely and correctly.
  6. Use an experienced agent who knows how to properly write a contract.  If anything does not make sense, the bank will reject that offer and go with another offer they have confidence in, even if it is lower in price.
  7. Asset managers get graded on how close the final offer is to list price, and if they make the scheduled closing time.  Asset managers get very nervous with offers that aren’t written well, as that’s a key sign the selling agent is poorly trained or new.  If the agent is inexperienced, the confidence level of that closing taking place on time, or at all is compromised.
  8. When a bargain comes on the market, don’t waste time.  It may be too late by the time you find out about it, so be ready.  If you know the market, and know what you’re looking for, be prepared to act.  This is no time for “Buyers Remorse” as the market will spit you up and eat you alive.
  9. Do your homework.  Do not buy at the courthouse steps unless you are an expert in inspecting and title.  When buying from a bank, do your inspections, read the bank contract closely, and know the market ahead of time.  You’ll have little time to act, so be prepared ahead of time.

These tips, along with professional advice from an agent experienced in buying foreclosed property will serve you well, and give you the best chance of getting that bargain you’ve dreamed of.  Good luck, and happy house hunting.

Watch The Future of Real Estate Video Show as we explain this and more.

Future of Real Estate Radio Show Now on Video

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We’re excited to bring you The Future of Real Estate Radio Show now on video.  We just aired our first show which will be simulcast today on 3 radio stations along with the video.  The advantage to video is we will be able to show graphs and charts as we discuss the market.  We did have our first glitch, so the first chart we talked about on the show didn’t actually make it into the show, however we were able to recapture that portion and place it on YouTube.

Brett Ellis-Future of Real Estate SW Florida
Brett Ellis-Future of Real Estate SW Florida

To view the entire show go to  Topagent.com  To view the 1st segment with the graphs go to our YouTube broadcast.  The first segment illustrated graphs of the distressed property market in SW Florida and how that affect the overall market.  We look forward to bringing you future broadcasts each week, and improving on the quality.  Sorry for the first glitch, but we are real estate agents afterall venturing out into the brave new world of video, and we’ll only get better.

Distressed Market Update SW Florida

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This week we’ll focus on freshly updated numbers for the distressed segment of the Lee County real estate market.  It’s important to study this segment of the market as it has been responsible for a large chunk of sales, and has influenced pricing in the market. 

As you can see from the chart, distressed sales in Fort Myers have fallen precipitously in the last 3 months, down from almost 73% in July to 58% in September.  Short sales in Fort Myers have increased about 20% and foreclosures have dropped 35% while overall sales have remained relatively constant.  This tells us that banks are working to sell properties as short sales in Fort Myers as opposed to acquiring the property through foreclosure and selling later on at much lower prices. 

Distressed Proeprties in SW Florida July-Sep 2009
Distressed Proeprties in SW Florida July-Sep 2009

Cape Coral on the other hand has seen about a 15% drop in overall home sales since July.  Distressed sales have remained relatively even, hovering around 70% all 3 months.  Foreclosure sales have dipped almost 26% since July while short sales have increased 9%.  This tells us that the demand in Cape Coral is directly tied to the bargain, meaning as the distressed inventory has fallen in the Cape, so have overall home sales.  Statistically, buyers in the Cape are all about the bargain, and as home prices have increased in the Cape, home buyers have moved to Fort Myers and potentially Lehigh Acres for the bargains. 

Lehigh Acres has seen a slight fall in distressed sales, down from almost 87% in July to 82% in September.  Lehigh Acres is still far and away the distressed capital of Lee County.  Overall home sales in Lehigh Acres have fallen almost 13% from July to September.  Foreclosure sales in Lehigh Acres are down 18%, while short sales in Lehigh are down 17%.  This is why home sales are down overall about 13% as Lehigh Acres, along with Cape Coral are both proving to be price sensitive markets led by first time home buyers and investors. 

Fort Myers seems to be much more stable at this point in time.  We are seeing a trend towards more expensive properties coming to the market via foreclosure, so it will be interesting to see where these properties are located and how it affects demand and pricing in each of the three major markets in Lee County. 

Congress has extended the first-time home buyer tax credit to purchases made through April and closed by July, and added a provision for existing home owners who have owned their home for at least 5 years.  Unfortunately, in this sagging market it doesn’t give them much time to sell their home and close on a new one to take advantage of this provision, so only a select few may be able to purchase a new home before selling the older home. 

We think Congress could have done a much better job writing this bill.  They did add to income eligibility limits, but again the bill limits who can take advantage by July.  This may further fuel the bargain end of the market assuming the president signs this bill, which has not been done at the time this article was written.

We’re concerned that this bill won’t fuel a total real estate recovery and will continue to spur demand at the lower end of the market.  To pull this economy out of the doldrums, a broad based real estate recovery would have served a better purpose, but I guess we’ll take whatever help we can right now.

We’ll also monitor the trend of banks accepting more short sales.  To date banks have been ill equipped to deal with the magnitude of requests.  Recently Bank of America adopted a policy to use its online foreclosure system of working with approved real estate agents called Reotrans and opened it up to short sales.  This will allow approved agents to more efficiently move Bank of America short sales through the system. 

Sellers wishing to sell their home via a short sale should seek out experienced short sale agents who are also familiar with Reotrans.  Because they are adding more than just bank REO’s (Real Estate Owned) they are changing the name from Reotrans to Equator.  This may revolutionize the way banks handle the massive short sale process and speed up many of these sales.  It will also help that they are using agents familiar with the Distressed Sale process. 

If you’re a seller considering selling as a short sale, it’s almost impossible to go it alone.  We recommend hiring a seasoned professional familiar with the intricacies of a short sale.  You might seek out a CDPE (Certified Distressed Property Expert).  If you’re a current Bank of America customer, you might also seek out an agent who uses and is approved on Equator.  This could be a trend that other banks go to as it will ease the communication stream and handling of the data among various agents, negotiators, and investors.  This online system could do for short sales what it has done for bank foreclosures, which was to make an online system whereby many authorized people could all work on a file simultaneously and get things done instead of pushing paper from one desk to the next. 

Stay tuned, as the market is always in flux, and we’ll report interesting changes and how they may affect the market.

It’s Official-3rd Quarter Sales Sets All-Time record

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Last year we told you 3rd quarter sales were very strong, which led up to an almost record 4th qtr in 2008.  Official numbers are in, and 3rd qtr sales in 2009 blew past last years big numbers and surpassed 2005 record numbers by a mile.  To put this in perspective, last years sales numbers were up 72% over 2007 numbers.  This year’s numbers were up 109% over last year.  2005 was the biggest sales number year we had ever seen, and 2009 was up 35% over 2005.

All you read or hear about is how bad the market is, and there is some truth to what you hear.  Rarely though do you hear the whole story, and sales numbers tell a compelling story.

Our market has gone through a predictable healing process.  It’s a process nobody looked forward to, but sometimes you have to hit bottom before you can go back up.  Simply put we had too much inventory and phantom demand.  The demand we thought we had was investors flipping to other investors like musical chairs, until one day the music ran out.  We had high employment because builders were building at warp speed, and we needed mortgage brokers, closing agents, not to mention appliances, carpet, etc.

Then one day when it became apparent the demand was phantom, building stopped as speculators stopped buying from one another.  That led to a severe market correction that was inevitable, which further led to job losses throughout SW Florida.  These further job losses created a downward spiral, which increased foreclosures from not only investors who walked from deals, but regular people who lost their jobs.

The only solution unfortunately was to begin a healing process of selling these homes, which of course was going to be at a price much lower than the high’s of 2005.  The prevailing questions were always, how low would prices have to go, and how long would it take.  And the answers are related.  The higher the prices, the longer the process would take.  Because SW Florida led the state in price drops, it also led in the healing process.  Our prices dropped faster than any other area as evidenced by pricing reports on our website at www.topagent.com under housing statistics.  Thus we have set record sales levels even surpassing the 2005 levels.

Single Family Home Sales By Qtr Lee County Florida Real Estate Market
Single Family Home Sales By Qtr Lee County Florida Real Estate Market

Many people think that because we’re setting record sales levels, prices should rise, and they are partially correct.  However, we’re not done yet with the healing process.  Prices coming down from unsustainable levels was only the beginning of the process.  Prices won’t rise dramatically until we bring back employment to the area.  Oh, we’ll see some rising prices as snow-birds flock to the area this season not wanting to miss out on a great deal.  This won’t lead to massive price increases though because we still lack a driving economic force, which are jobs.  And jobs is not just a SW Florida problem, it’s a nationwide problem.

We’ll also see some price increases as less entry level foreclosures enter the market and we swing more to mid and upper tier foreclosure price points.  Again, these are just statistical numbers.  Median prices may rise, but prices in certain neighborhoods can actually fall due to more foreclosures and distressed sales at higher price points.

The good news is SW Florida has cleansed itself pretty well comparatively speaking.  It’s kind of like a company with lots of inventory in a down economic cycle.  The company can place the inventory on sale and blow out the old inventory, and when the economy rebounds that company is well positioned to capitalize as they are not saddled with high inventory coming out of a recession.

Our market has done a good job of discounting and selling the inventory.  What’s out of our hands is the national economy.  We have sunshine and good weather, but we’ve always had that as an advantage.  We either need the national economy to improve, or we need to steal some jobs from another city and have them relocate to SW Florida.  This may sound bad, but it’s done all the time.  GM just relocated some plants from one state over to IN.  Indiana’s gain was another state’s loss.

So let’s pray the economy gets better soon as it’s good for our real estate market and good for jobs.  And if our local leaders have a few tricks up their sleeves to lure businesses to our area it would be great.  I think our area has suffered and we deserve some good news.  If a company is looking to relocate, it might as well choose SW Florida vs. some other state.  It would be good for their employees to move to a nice place like SW Florida where we have a good work force, decent schools, great weather, and wonderful things to do year round.  If you’ve ever been cooped up for months during a miserable winter, you know the advantages of living here.

So let’s hope our Economic Development Council will be announcing some exciting news soon.  We could all use some good news.  Until then, let the healing continue.

SW Florida Real Estate Current Market Index

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It’s been a few months since we’ve reported numbers for the Current Market Index, so here is the update.  The Fort Myers-Cape Coral area index now stands at 4.02, up slightly from 3.86 in September and 3.81 in August.  The lower the index numbers the better the market for sellers.

This is a result of slightly rising inventory numbers, but very much in line with inventory numbers back in August.  We’ve seen continuous dips in inventory for quite a few months leading up to October, and this is the first month we’ve seen a slight increase.  Pending sales are down ever so slightly as well, however nothing that is statistically significant.

Current Market Index SW Florida Real Estate
Current Market Index SW Florida Real Estate

Existing sales are holding up nicely and still showing healthy gains over last year.  Buyer interest from around the country is strong.  In fact, our team has so many buyer leads coming in that we need to hire 4 more buyer agents to keep up with the activity.  We think season this year is going to be very strong.  Temperatures up north have been unseasonably cold this fall and it’s looking like they could have a long and cold winter.  Traditionally this is always good for the Florida market as snow-birds look for a tropical escape and potential property purchase.

The snow-birds we’ve talked to are already motivated to purchase.  They witnessed first hand that some properties are up about 20% in price over last year as the pickings are getting slim in certain segments.  They realize this season may be the last season to pickup many of these bargain basement priced properties.

We’re seeing waterfront properties in the Cape for example bouncing off their bottom last year for entry level direct access properties.  We’ve also seen a bottom in Cape Coral for entry level homes, especially pool homes.  This has fueled an increase in sales in the Fort Myers and Lehigh Acres market. Fort Myers home sales in September increased by 6 sales. Cape Coral lost 35 sales versus the previous month.  Lehigh Acres gained 7 sales versus September.

As sales potentially shift from the Cape over to Fort Myers and Lehigh Acres, we could see a bottoming in prices there as well.  You’ve heard the term that water seeks it’s own level.  As prices get too high in a given area, buyers shift their focus to other more affordable areas.  Many have preferred to live in Cape Coral over Lehigh Acres, but in the run-up back in the early 2000’s, prices in the Cape got so far ahead of Lehigh Acres that buyers shifted to Lehigh for the value, and thus a boom began in Lehigh.  As foreclosures hit hard, many buyers scooped back into the Cape for the bargains and preferred the Cape over Lehigh all else being equal.  Because we’ve sold many of the Cape foreclosures, the bargains are not there like they used to be, so we’re seeing this shift to wherever the bargains are.

We’re still in a bargain market for the time being, but that could change.  Northerners are starting to fear that the bargains are drying up and they don’t want to miss out, so this season could get very exciting.  It’ll be interesting to watch where the money goes, and what happens when the foreclosure well starts to run dry.  How will that affect the overall market?

Speaking of foreclosures, it appears banks are cranking up the process on a whole new batch of foreclosures.  Some have speculated that banks purposely waited until the end of 4th qtr which ended Sept 30 to file these new lawsuits so their books would look better.  Wall Street has a history of doing this for earnings and results.  A friend of mine has even speculated banks are keeping losses off their books this year to pad their earnings so they can collect bigger bonuses.  There may be some truth to that.

Last year we saw a spike in Lis Pendens filings for precisely the same theory.  We’ll have to watch the November and December filings to get a feeling if this is another Wall St accounting trick of holding back what they can, and thus the October spike, or if this is a long-term trend.  If this is a long-term trend, then it will stall increase in prices.  If this is merely a short-term blip like last year, we could see fewer bargains and more actions from northerners fearful for missing out on one of the best buying opportunities in awhile.

Just like back in 2005, you cannot calculate the absolute top of the market until it’s in your rear view mirror.  Timing the bottom of the market is much the same way, and in fact we’ve seen a bottom already in certain segments.  The entire market doesn’t always move in unison.

Our advice to buyers is simple.  Regardless of whether this is the absolute bottom, we’ve already seen the bottom, or we have a little bit more to go, prices are bargains right now.  You may not want to miss this general time period, because one day soon we may look in the rear view mirror and kick ourselves for missing the buying opportunity of a lifetime.  All the bank’s misery and misfortune can now become your gain.  Somebody is going to capitalize on this misfortune.  Why not you?

Next Wave of Foreclosures

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A few weeks ago we stated here that we believe there will be more mid to upper priced foreclosures coming to the market in the next year, as more Alt-A mortgages are foreclosed on as scheduled interest rate resets take effect. We’ve seen most of the sub prime loans already come and go from the market. So the next wave should be the Alt-A and the economy driven foreclosures as regular people who have lost their jobs due to the falling economy begin to stop paying.

We based this upon a graph in our State of the Market Report published last January. You can view this graph in greater detail and in color on our Blog at http://ellis.realty-buzz.com or visit our Fan Page on Facebook at www.Facebook.com/Ellisteam As you can see by the chart, Option Arms are scheduled to reset at their highest point about August of 2010.

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Reset Schedule of Mortgages by Type

A feature of the Pay Option Arm is that borrowers are allowed to pick a payment, meaning they can pay any one of several payment options.  These loans began with low teaser rates, and one of the ways they allowed borrowers to minimize their payment was by allowing the buyer an option to make a payment less than the “Interest Only” portion of what the loan would have been.  These types of loans are called “Negative Amortization” because each month the borrower is losing equity.

Pay Option Arms were used primarily by borrowers who wanted to maximize their purchasing power by leveraging as much as the banks would lend with the absolute minimum payments.  These buyers didn’t worry that they were getting further behind each month as they figured the home would appreciate faster than the negative equity would accrue due to the loan.  Most of these borrowers planned to “flip” the property and make a fortune, then repeat the cycle all over again.

In this cycle of irrational exuberance, few thought about when the musical chairs would run out.  It seemed like that crazy market would last forever, until one day when the music died.  You could see the train wreck that would one day ensue.

Simultaneously, the value of the property is in free-fall and the loan amount is increasing by the month.  You’ve heard the terms “Upside Down” and “Getting Hit at Both Ends”.  This pretty much sums up what happened to Option Arm borrowers in heavily concentrated investment areas like many new subdivisions here in SW Florida.

Have you ever wondered why certain established neighborhoods held their value fairly well through the downturn, while newer communities seemed to take it on the chin?  The answer is investors and speculators flocked to newer construction, as this is where the perceived pre-construction deals were back in 2003-2005.  The problem is we had too many speculators.  Investors can be quite healthy for a market, but a speculator just drives up prices for the sole purpose of Flipping to another buyer.  The only useful purpose this would serve is providing the capital to speed up construction to provide much needed supply due to high levels of demand.  The problem is, we had phantom demand.  Our market sped up the supply side without real end users.  There’s something not quite right when the end user is another speculator buying to flip same property for a 3rd or 4th time to another speculator.  Eventually the music dies and the musical chairs run out, except this is real life and not fun and games.

The rest of us have been picking up the pieces from this sad game, and we’ve all paid a price.  Construction jobs have left, values have plunged, banks have failed, taxpayers have paid for a bailout, and just about everyone that played the game is sorry.

Many of these Option Arm’s have already defaulted as the speculators learned early on they couldn’t flip the property for a profit, so they quit making payments.  We do believe there are some regular buyers who also used the Option Arms to purchase more home, and some have been hanging on for as long as they can because they can’t afford to sell their home.  Once these payments reset, we could see another round of foreclosures hit the market.  These buyers tended to buy the mid and upper tier homes.  This is one reason we predict you’ll see more higher priced homes coming out of the foreclosure pipeline.

We’ve seen the foreclosure pipeline growing in the past few months, and due to processing delays, we expect several foreclosures to start hitting the market this month.  Filings are down, so the foreclosures coming out now were backlogged from back in December and January.  The resets in 2010 and 2011 will also take awhile to work their way through the system, so bottom line is we’ll see a certain amount of foreclosures for the next several years.  The sooner we clean them up and ship them out the sooner we’ll be on our way to a normal market, so I say bring them on without delays, so we can all get back to listening to the music.  Leave your chairs at home.