Showings have picked up considerably, and buyers are making offers with increased confidence. We believe by mid-year 2007 the single family home market may bottom. We’ll look for inventory to stop increasing, and pending sales to pick up (See Pg 7). Combine these trends with further month over month price increases as seen on Pg 12 in the report, and we’ll have a pretty good idea we’ve hit bottom.
Once we can officially call a bottom to the single family home market, we think buyers will jump into the market even more than they are now with renewed confidence. There is pent-up demand. We would caution buyers not to wait too long though, because we can usually only pronounce a bottom only after we’ve already hit it and we start back up. Once this happens, it’s too late to perfectly time a bottom as you’ve already missed it.
As a buyer, if you believe we’ve very close to the bottom, it’s probably best to buy now while interest rates are still low, and just before all the other buyers jump on the bandwagon and start competing with you for the best value properties. We know buyers tend to jump at once, in unison, so you might wish to beat that crowd. Even if prices have slightly lower to go, the bottom will quickly bounce right back up, so there’s little risk in moving now. The risk may be in waiting for the absolute bottom you’re sure to miss, because procrastinators always miss the absolute bottom.
Condos on the other hand are another story. Because we have a 3 year supply of condos on the market right now in Lee County Florida, and because condo owners haven’t lowered prices to the extent single family home owners already have, we believe there could be more future price pressure on the condo market.
We also know that 66% of condos sell in the first 6 months of the year. We expect many unhappy condo owners to lower asking prices, tired of paying increased condo fees and insurance costs, once season ends and their unit isn’t sold. And for the tower condo owners, we’re even less optimistic as tower units tend to be the most expensive, and the least end-user owned. Without end users, condo sales just aren’t sustainable at these lofty prices.
Many condo owners will grow weary of the increased carrying costs. They also will not be able to cash flow an expensive condo unit to come anywhere close to the actual carrying costs each month. Quite simply, some unit owners will either sell at sacrifice prices, or face foreclosure. Even financially able unit owners of expensive condos will grow weary of high carrying costs with little hope of recouping costs via higher asking prices anytime in the near future. The future just doesn’t look bright for some condo owners.
Additional in-depth analysis:
Builders have stopped buying finished lots like they did in 2004-2005. Because builders have stopped buying lots, and because investors (Flippers) have stopped speculating on lots, prices on lots have been falling monthly (See Pg 16). Lot prices give an indication of where the overall market is headed. Builders have also felt pressure on pricing in the final sale price to consumers, and have been forced to pay less for lots, or not buy at all.
On that note, builders have slowed down tremendously their building of speculation homes as many builders have been caught with finished homes from investors who refused to close on contracted pre-construction homes because they could no longer flip the home and make a profit. In many cases it was cheaper for the investor to forfeit the escrow deposit than consummate the sale and take the loss on resale. Builders have been forced to resale these homes at lesser prices, hence their reluctance to build new spec homes into a price sensitive market. Don’t also forget that impact fees have risen dramatically too.
Because builders have slacked off building more homes, it will eventually help the resale market and this is why we’re forecasting a bottom mid 2007. Be careful not to focus on the exact date, as we’ll describe later.
We know that Lee County is adding about 13,000 jobs each year, and about 30,000 people are moving to Lee County each year. They’ll all need housing. Because building has backed off, it leads nowhere else but to the resale market. Buyers don’t have to wait for a house to be built, and they can get better deals in the resale market now that builders have unloaded most of their inventory at lower prices. There is hope for single family home sellers in the future.
The bottom of the resale market looks fairly flat from here. If we’re not there today, we’re fairly close. Once we bounce, don’t look for dramatic price increases after that until possibly 2009. This is why you shouldn’t worry what date we actually hit absolute bottom.
We also know that there is a market at the right price. Some sellers will need to reduce prices, but not sellers who are already priced where the buyers are. Only the sellers priced above where the buyers are need reduce asking prices, which lead us to an interesting dilemma. What would happen if all sellers (not realistic) reduced their prices down to where the buyers are at same time?
Either sales would hit all-time records, or we’d see additional price declines, or both. Because we don’t believe the latter, the average list price may come down whereas the average sale price may not move much as only sellers who are priced where the buyers can buy are actually selling. Because these are the only sales, they are the only ones affecting the average sale price, and because of this we don’t expect much pricing pressure to occur. It is an interesting economics question though, and food for thought.
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The Ellis Team at RE/MAX Realty Group
Fort Myers, FL