We originally predicted the median sales price to drop to around $260,000 before leveling off. For three consecutive months, the median sales price of a single family home in Lee County Florida hovered around $280,000. Combine this with a tremendous surge in buyer activity in the past few weeks, and we may be nearing the end of the cooldown, statistically speaking.
What this means and does not mean: Statistically we don’t expect median prices to fall much below $280,000 as we head into the busier summer months. With buyer activity increasing, and tradtionally strong summer months upcoming, look for sales activity to pick up over 1st and 2nd Qtr 2006 levels. We will not match 2005 activity levels. Look for more normal sales levels posted in 2003 or 2004.
This does not mean that all sellers are OK on their pricing. When the SW Florida housing market was red hot, we still had some over priced sellers who didn’t sell. When the market cooled, we had over priced sellers who were caught chasing the market down, and haven’t sold. In any market, you will always find over priced homes that do not sell, regardless of how hot or cold the market is.
There are also hot and cold pockets within our market. Not every property or development is hot, nor is every development cold. Each one should be evaluated on it’s own merits.
What’s in store for the balance of 2006? Buyers will look back on May and June of 2006 as one of the best times to buy. Inventory selection is high, interest rates are low, and the buyer is probably in the best buying position they’ll be in for awhile. As rates climb, this will erode their home affordability, making mortgage payments higher. If a buyer is waiting for the market to fall let’s say another $10,000, those savings will be eaten up by higher payments due to interest rate changes.
It will actually cost a buyer if rates go up 1/4 percent, even if home prices decline $10,000. So now is the best time for home buyers to buy as we don’t see the median price dropping much from these levels.
We also don’t see prices going up much for awhile either, due to four wildcards.
1. Interest rates are rising, thereby crimping buying power from purchasers.
2. Property insurance is rising, and with each hurricane, insurers are getting more nervous. As each insurer pulls out, it makes the remaining insurance more expensive, raising payments on buyers and crimping their purchasing power.
3. Property taxes are rising due to increased property values. Many local buyers can’t afford to upgrade because their property taxes will go up once they sell and buy another home. Florida needs property tax portability to alleviate this situation so Floridians can afford to move if they choose witout being taxed out of house and home.
4. Inventory levels are high. While median prices may have moderated, it will still take awhile to work through all of this inventory, which should cap price increases for awhile.
I don’t think seller price reductions are over. Sellers need to evaluate how their home stacks up against the competition. The sellers who are the most price competitive are selling right now. They have set the floor, and the market is responding. The sellers who are over that floor are sitting on the market. When they reposition their home in the marketplace to where the buyers are, their homes will sell.
We also have some investors in the market who should have never been there. These weren’t long term wait and hold investors, rather quick flippers who didn’t have tolerance for this type of correction. They helped fuel the rapid increase, and can least afford the decline. As we work through these inventory levels, prices will stabilize.
The overall market has alraedy fallen. Some price ranges have been hit harder than others, and this is normal. Some price ranges became too bunched up. Many $450,000 homes were too similiar in size and features to $500-550,000 homes. Something had to give. Either the $550,000 had to go up, or the $450,000 home had to come down as there wasn’t enough price differentiation. I’ve seen this phenomenon several times in our career.
As the market heats up, buyers are forced to buy whatever they can, or be left out of market. This leads to some price inequities that need to be rebalnced later. Our market has been doing this for about 6 months or so, and it is actually healthy.
Bottom line is , single family median home prices have bottomed. This is not to say that every home in Lee County has bottomed. The homes that are priced to sell now will sell because buyer activity is really picking up now. Homes priced over the market need to make some adjustments to get in the game, and when they do their homes may sell too. Buyers can feel comfortable again wading into this housing market. There is pent-up demand from buyers who have been holding off waiting for prices to come down. The wait is over, and the time to jump in is now with excellent selection, bargaining power, and low interest rates. The same may not be said forever. It’s always fun to sell in a "Sellers Market" and buy in a "Buyers Market". We have a Buyes Market today, so have fun while it lasts.
Condo sales are another story. Insurance issues are really affecting maintenance fees as insurers pull out of the condo market. Look for more associtaions to raise their fees as they replace existing insurance with higher priced replacement insurance.
Look for a detailed State of the Market Report update coming in June or July. Because the market has changed so much in the last 6 months, we’ll do a mid year update to our annual report.