Lee County’s real estate market stabilized for the 2nd straight month, further confirming that 2006 will be much more like 2002/2003 levels than 2005 levels. 

As this chart illustrates, sales in August 2006 closely mirror 2002 levels.  We are back to a normal market, and this is a healthy and encouraging sign.  This is an end-user market, which is what it should have been all along until the investors found us and capitalized.

It may not feel like a normal market to some because of all the excess inventory on the market because of the investors who bought property with no end user in sight.  Because of this fact in SW Florida, the investors caused the market to over supply.  Investors sped up the supply 3-4 years ahead of what the market could absorb.

We probably have 3-4 years of over supply, and this market may feel a pinch for about 2 years until we eat into some of this over supply.

Fort Myers Cape Coral Single family home sales fell 29% in August 2006 from August 2005 levels, down from 968 homes sold to 691 homes sold.  Prices fell 7% from $283,600 to $264,100 in 2006.

Fort Myers Cape Coral Condo sales fell 64% from August 2005 to August 2006 from 280 last year to 100 this year.  Sale prices fell 15% from $278,100 to $237,500.

The good news is single family home sales have stabilized to about 690 or so sales per month, and median home prices have stabilized to about $264,000.  We now know the monthly targets.  It’s much easier to analyze the market once it hits a standard, and we think 2002 will be the benchmark.

Real estate has always been a profession that on the surface seems easy and lucrative.  It isn’t until one get’s into the business that they see how hard it is, how much work is involved, and that lucrative profits aren’t what they thought.  They don’t realize the tremendous expenses involved with selling real estate.  They also fail to realize how much training is involved, and how much time it takes to really learn the market, and to learn how to read people.  Only a small percentage of agents make it in this business.

For years we’ve known there are way too many agents in the business.  There is always room for good people who are sharp and dedicated but by and large many are not cut out for real estate.  We’ve shown that sales numbers are down to below 2003 levels, and very close to 2002 levels.  See Chart

We can assume there were too many agents in the business back in 2002 because there always is.  Lets look at the history of agent numbers:

Year # Agents
July 1998 1,178
July 1999 1,734
July 2000 1,870
July 2001 2,002
July 2002 2,257
July 2003 2,735
July 2004 3,623
July 2005 4,660
July 2006 5,884

These numbers were provided by the Realtor Association of Greater Fort Myers and the Beach, Inc.  They do not reflect all agents in various boards as agents can select a primary board and belong to other boards as a secondary member to gain MLS privilidges.  These numbers were primary board totals only.  Cape Coral, Sanibel, Bonita/Estero and Naples would show similiar increases in numbers over the years as well.

We know that sales are down to about halfway between 2002 and 2003 levels, so we can look at the number of agents today compared to the level back in 2002 and 2003.  When we do this we see that if we average the two, we should have about 2,496 agents.  Based on this, there are approximately 57.58% too many agents in the market wondering why they have no business.

The truth is, they have no business because they simply aren’t needed.  Most agents don’t have the experience, education, skills, or commitment to make it in today’s market.  What happens when the market turns is the good get stronger and the weak die off.  It sounds cruel, but it’s what the public demands.

Keep in mind we probably have 70-80% too many agents, we’re just talking about the 58% or so compared to the over supply of agents we had back in 2002-2003.

When the market is good, some sellers want the least expensive agent or company because they’re not convinced of the value the agent brings to the table, and they’d be right much of the time because they weren’t always selecting the highest quality agents.  If the agent screwed up the deal, there were 5 other buyers in line waiting to buy the property.  This isn’t true today.

Now we call it a "Flight to Quality."  Sellers want the best and most experienced agents.  They want someone with a track record of selling in both up, down and sideways markets.  They want aggressive marketing, possibly including Internet, TV, radio, direct mail, and newspaper advertising.  They know that there is an over supply of homes on the market.  Here’s a startling fact.  Only 1 in 19 homes on the market is selling each month.  This means that if a subdivision has 19 homes on the market, statistically only 1 will sell.

All sellers want to be that 1 sale, and yet that means 18 others won’t be.  This is why sellers are picky now about who they chose to work with.

Buyers should be equally picky.  There are great buys out there now, and it’s a good time to buy with excellent selection and low rates.  However, you don’t want to overpay when you don’t have to.  Buyers want an expert negotiator who also knows the market.  This only comes from knowledge and market experience, combined with life and people skills.

You’ll never know who the good negotiators are, so ask lot’s of questions.  Make sure the agent you’re working with will be around when you really need them.  If they’re part-time or working another job to make ends meet, you’re probably not interviewing an agent who’s successfully worked in all kinds of markets.  The great agents are successful in any market, so look for an agent that is busy.

We’ll take a look this time next year and see how many agents are out of the business.

We hate to say we told you so.  In an NBC interview in October 2005 we predicted sales would fall to 2002 levels.  In July we crossed that threshold.  We were at 2004 levels in May, however we fell below 2004 levels in June and below 2003 levels in July.

The chart clearly illustrates what’s happening with our sales numbers here in SW Florida.  All this is occurring while inventory levels are going up, which gives us an indication it will take awhile to sell off all the excess inventory.  In fact, until sales head back up again, inventory levels are likely to increase further in SW Florida, as more homes are coming on the market than actually selling.

There is some good news though.  2002-2005 were each record years in the SW Florida real estate industry.  Once our market moderates and we work through some of the inventory, a stable market awaits us all.  We have fairly steady demand, so that’s not the issue as more people move to Florida everyday.  All we have to do is work off the extra supply and our market will be healthy and vibrant again.

The SW Florida real estate market is on a diet right now, and once the extra pounds have come off, we’ll be a lean mean fighting machine.  Nobody likes a diet, and they are hard work.  Many agents have only been in the business a few years and have only seen the Boom times.  Agents are dropping like flies, and that’s a good thing.

In a future article, we’ll examine how many agents there are in the SW Florida real estate market today compared to year’s past, and we’ll evlaluate how many there should be based upon the volume of today’s business.

Investors have long been suspected of causing the downturn in the SW Florida real estate market as they flocked into Southwest Florida and scooped up property by the thousands.  This is all well and good if there are end users at the end of the rainbow to purchase these homes.

If there are end users at the end, investors can actually help a real estate market as they assist in getting properties built sooner rather than later by providing the financing for builders and taking the risk.  They help fuel supply when demand is much stronger than the supply. 

This was a good thing back in 2003 and 2004.  At some point we passed equilibrium and crossed over into over supply, and that was in 2005.  In the 4th quarter of 2005, the local real estate market caved under it’s own volition due to over supply of homes.

We decided to look inside the numbers and see if this is really the case.  We looked at the total number of single family homes on the market, as well as the total number of condos on the market and compared the totals with the number of single family homes and condos on the market built in 2005 and 2006. 

Most end users don’t elect to sell a new home right away unless personal circumstances change.  We can safely assume that most homes and condos on the market newly built are most likely investors.  We also know that investors also bought resale properties, although not in the numbers they did new homes and condos.  We also assumed that the investors who bought resale’s offsets the few end users who decided to sell their home or condo so soon.

Below are the numbers:


August 30, 2006 Active New Homes Investors %
Single Family 12,237 4,350 35.5%
Condo 7,408 2,596 35.0%

 35% is an unnusally large number for any segment of the market, especially new homes.  Knowing this number will allow us to make some predictions as to how long this market downturn will last.  We’ll analyze current absorption and compare that with the number of currently on the market, and add in expected new construction investor properties that haven’t hit the market yet in a future article.