It was bound to happen. Back in 3rd Qtr of 2005 we went on TV and said this market is getting ready to hit some bumps in the road. We looked at the data and determined the Boom was over and it was simply a matter of time before the market reacted. In reality we started noticing signs in the 2nd Qtr of 2005, but everyone was busy rushing around trying to get their construction deals put together and finalized. We began pulling our investors out of projects in early 2005. We risked some commission dollars by doing so, but we just didn’t feel good about what was to come.
We took a lot of heat back then. We heard things like “You can’t stop this market, it’s on fire” and “It’s a runaway train” etc. Most of us learned growing up that nothing goes up forever, but back then it was that herd mentality. It was quite common to go to a cocktail party and hear stories of average people flipping home after home and making $100,000 per deal. They were buying as many as they could, without a true end user in mind.
We all know what happened to those days. Just as nothing goes up forever, nothing goes down forever either. If you read these articles regularly you know we’ve been predicting that about March or April of 2010 we could see prices actually rise over year ago prices and the headlines we would read would be quite different than what we’ve seen over the past 5 years. Well, Official numbers were just released this past week, and guess what? Prices are up 9% over last year. It’s not a miracle. If you’re unemotional and study the numbers you could see it coming.
We’re not rocket scientists. Most Realtors have a good pulse on the market and can tell you what’s really going on. And just because the headlines read one thing, there can be many submarkets reacting quite differently or bucking the trend. You’ve heard that all real estate is local, and that’s true. Even in the Boom market some properties didn’t fare as well as others, and in the down market, some didn’t do as poorly either. Full time Realtors are on the front lines and see trends as they develop. Sometimes it’s beneficial to step back and analyze the numbers, and others it’s great to be right in the race and see what’s happening in real time. Sometimes it’s great to do both.
Where will the market go from here? That’s a good question. Some speculate that the Home Buyer Tax Credit Expiration April 30 will have a negative impact, but we’re not so sure in SW Florida. Many of our buyers are scooping up bargains and don’t qualify for the credit anyway. We think home sales should continue their torrid pace as long as we have bargain inventory. 2009 set an all-time record and 2010 sales have surpassed 2009 sales. Our prices are artificially low, in many cases half or reproduction costs. This is why you see so few building permits being pulled.
Because we are not seeing building activity, it is limiting employment in our area, which was so heavily dependent on the building and real estate industries along with related services. We don’t believe prices will shoot back up wildly until we create more jobs, and we may not create more building jobs until prices shoot back up. So it’s the old chicken and the egg theory. We think we’re going to have to find other employment opportunities to help lift our entire economy back up so we’re not so reliant on the building industry. Once we do that, the building industry will take care of itself. We would caution governments not to add impact fees and other costs that price jobs out of the market. We need to be more competitive, not anti-competitive.
And finally, resist the urge to follow the herd. The herd is usually on right for a brief period of time, and usually at the tail end of the curve. Our market is Hot, and prices rose last month. We point out that even though the herd considers 2005 the Boom, there is more opportunity in the air now than there was in 2005. Misery was in the air, just few people realized it back then, and today opportunity is in the air, and the herd will realize it only after prices rise substantially in a few years.