Monthly Archives: August 2011

Sales Decline as Listing Inventory Falls in SW Florida

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As you can see from the SW Florida Sales chart, SW Florida single family homes sales have been somewhat seasonal the past few years with sales peaking around April and declining after June or July.  Although it’s too soon to tell, early indicators tell us 2011 may repeat recent history as pending sales are trending even with last year and closed sales have begun their descent.

Single Family and Condo Sales in SW Florida
SW Florida Real Estate Sales 2010-2011

Even more importantly this year may be the lack of inventory compared to previous years.  We’ve seen a major decline in inventory in recent years.  Currently single family inventory stands at 6.89 months supply, but even that number is a little high because many of the short sales are tied up and not closing.  In fact, last month only 13.8% of the pending short sales closed which is much lower than traditional pending sales.  It’s unreasonable to think all pending sales will close, but 13.8% is practically nothing.

If we took out active short sales from the equation, the month supply of inventory would be lower.  I believe the month supply of inventory is deceiving as many homes on the market aren’t really on the market as they’ll never close.

As you can see from the listing inventory chart, it’s really come down in the last 18 months.  Lehigh Acres inventory is below 1,000 homes for the first time in years. Of the 975 homes on the market in Lehigh, 470 are short sales and 117 are bank foreclosures.  60.21% of all homes on the market in Lehigh are distressed, and last month 63.06% of all single family sales in Lehigh were distressed.

Single family and condo listing inventory in SW Florida
SW Florida Real Estate Listing Inventory August 2011

Cape Coral and Fort Myers inventory has come down too however the ratio of distressed sales is much less.  For instance, Cape Coral distressed inventory now stands at 44.15% compared to 60.21% in Lehigh.  Fort Myers distressed inventory stands at 37.18%.  On the closed sale side, Cape Coral distressed sales were 50.51% last month and Fort Myers distressed sales were 42.97% last month.

Buyers are finding they just don’t have as many choices today.  They love the prices, and they realize homes priced $150,000 or less have seen rising prices, but they’ve been increasingly frustrated by competing with other buyers with multiple offers, or long wait times on short sales.  This is just all part of the SW Florida housing market and it may last another few years.

Foreclosures will run their course in due time assuming the economy picks up in the next few years, but short sales may remain for awhile until prices return to points where a seller can afford to sell.  We see increasing prices in the low to moderate end going forward; however we don’t envision a return to 2005 levels.  The market has reset and people are accepting the new reality of the market.

This is good news for the younger generation as they’ll be able to purchase the American Dream and not be saddled with debt their parents have endured.  It’s a fresh slate and we can only hope generations going forward can study the past and learn from it.

While we believe buying real estate today may be a great investment long term because eventually prices will rise, we also recommend buying a home that suits your needs versus focusing strictly on investment potential.  Investment potential is what caused so many people to buy into the last market frenzy and some forgot the whole purpose of buying real estate is to fulfill a need, especially if it’s your primary home.

If you’re buying a second home or investment home, there are some factors to look for that may assist you in making the best decision for you.  Real estate can be a good investment, and it helps to clearly define what your goals are and think long term.  If you’re buying a primary residence, it’s rarely a good idea to buy solely on investment potential if you don’t like the home or it doesn’t meet your needs.  Plan B is always to keep it awhile longer until the market works in your favor, and if you’re unhappy with the home, that’s harder to do.

It is a good time to buy, so if you’re in the market, seek professional advice on current market conditions, and put your best foot forward.  Don’t be afraid, be informed. Call us at 239-489-4042 if we can help.

 

Distressed Sales in SW Florida Making a Comeback

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As you can see from the attached chart, the percentages of sales that are distressed are rising once again.  This isn’t necessarily a bad thing as we believe banks should actively work with sellers to allow short sales rather than going through an arduous and costly foreclosure process that ties the home up for months or years.  If the homeowner simply cannot afford to stay in the home and all other realistic options have been exhausted, banks should assist in allowing current homeowner to sell to someone who can afford and wants to be in the home, and everyone wins including the neighborhood.

Distressed Sales Chart for Greater Fort Myers, Cape Coral Florida
SW Florida Distressed Sales

Official sales numbers will be released after we write this article.  Our internal market research suggests sales will fall in July compared to June by about 216 +/- homes and median prices will fall slightly as well.  This may be a function that foreclosures made up a larger portion of the distressed sale pie than in previous months, signaling short sale percentages declined versus foreclosures.

Banks are beginning to release more foreclosures as they’ve turned a corner in the legal battle when they went back and cleaned up the process to file foreclosures.  We all knew there would be some pent-up foreclosure supply, but nothing along the lines of 2008-2009 foreclosure filings.

Cape Coral saw almost a 5% increase in distressed sale percentages while Lehigh Acres was up about 3%.  Overall sales were down in Lee County, but the breakdown of the sales was leaning more towards distressed sales.  County wide distressed sales equaled 48.82% of all single family home sales in July, up from 44.57% in June.

Contrast this with listing inventory in Lee County and you would think there would be upward price pressure as inventory levels dwindle.  It’s fascinating to watch the economic dynamics in play.  A similar analogy might be predicting hurricane’s forecast trajectory plot and intensity.  A storm can be influenced by dry air, low pressure, ridges anticipating forming at a certain time and point, and so forth.

Single Family Listing Inventory Fort Myers- Cape Coral
SW Florida Listing Inventory

Forecasting the SW Florida housing market has similar variables influencing the market.  We have banks processing foreclosures as fast as they can, banks willingness to accept short sales, traditional sellers moving up, down, or not at all depending on how much they owe and their job security, and the overall job market.  Are jobs moving into the area or out of?  When will the economy improve?  Interest rates and insurance costs also influence affordability and motivation for buyers.

Predicting the housing market would be so much easier if you could accurately predict each individual variable.  Since we cannot, all we can do is monitor local and sometimes world events and report on how they are affecting the real estate market.  In past articles we’ve talked about the effect of United States debt on interest rates.  We’ve talked about the price of oil’s effect on the economy, and housing supply issues.

As we enter an election year, hopefully the focus will be on the economy and jobs, and if Washington gets out of the private sector’s way and allows it to grow, maybe, just maybe, we’ll see a positive influence on several variables that influence our local real estate market.

 

How Will US Debt Downgrade Affect Local SW Florida Real Estate Market?

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Because this is the first debt downgrade from AAA for United States Debt we are entering unchartered territory, but we can offer some clues on what to watch out for and how this could affect Main Street going forward.

Nobody I know would say a downgrade to US debt is a good thing; however there may be a silver lining after all.  First off, the downgrade was inevitable.  S&P telegraphed this downgrade and stated so much when they announced it would take $4 Trillion in deficit cuts to protect our credit rating.  Congress finally sent a bill promising around $1 trillion in cuts now, and other unnamed cuts later on.  The reality is we cut about $21 Billion from this year’s budget, which is at a deficit of around $1.6 Trillion, so it’s really a drop in the bucket.  We just added over $2 Trillion to the debt to get us through the next election.  Wall Street is concerned Washington isn’t serious about cutting costs, and who could blame them with fuzzy math like this?

10 Yr US Government Bond Yield Chart
United States Government Bond 10 Yr Yield

The blame game has begun with Democrats blaming the Tea Party for the downgrade.  This is kind of funny as it was the Tea party that pushed for cutting costs, something Standard and Poors said was necessary to protect the US credit rating.  So Congress dropped the ball and blamed the only people working towards a solution to protect our rating.  Washington doesn’t get it, and now they’re in recess.  The world gets it and they realize we’re flat broke.  We’ve spent and borrowed beyond our means and nobody wants to pay the bill.  Unless we change, we’re in for more downgrades.  Even Republicans have said “The Tea Party Won.  They changed the conversation from automatic debt increases to deficit reduction.”  And this is the problem with Washington.  It’s all talk.  They cut nothing.  All they did was change the conversation, and somehow that’s good enough for Washington.  This is the way it’s always been and that’s not good enough anymore.  Our debt is being downgraded.

Now, here comes the silver lining for local real estate.  Don’t take this as good news, because it’s not, but it’s not all bad like you hear in the media.  When there is uncertainty in the market, which there clearly is right now, investors seek a flight to quality, which has traditionally been the US debt.  We look good compared to many nations’ debt, so we’re still considered a leader, but our days are numbered.

Part of the flight to quality in uncertain times is seeking out tangible assets that have a value behind them.  Obviously one is gold, and another is real estate.  The difference is gold is just gold, but you can rent out or live in real estate.  You can actually derive an income from real estate.  Both can go up and down in value, but only one can provide a yield while you wait.

The other silver lining is investors worldwide have flocked to the 10 Yr Treasury note, as this is safer than the 30 Yr bond.  Today’s mortgage rates are closely tied to the 10 Yr note Vs. the 30 Yr bond, and as investors seek safety, the yield is going down making mortgages more affordable, for now.  30 Yr interest rates are down today to 4.375% with no points.

There is a hidden double whammy working in the real estate market’s favor right now.  Wall St is skittish, and this could all change on a dime.  The final silver lining could be that the S&P downgrade was a shot across the bow of politicians.  Perhaps if the American people speak out and tell their politicians we cannot continue living this way, they’ll have the political will to make necessary cuts.  America is still a great country, we just spend too much.  We have an opportunity to make these cuts voluntarily now, or we can wait until the markets do it for us like with Greece.  There were riots in Greece as the public wasn’t ready for the tough choices.  Let’s hope the American people are ready today and send that message to their politicians so we don’t have tough choices Forced upon us later on.

In the meantime, take advantage of low interest rates, low prices in Florida, and watch to see if investors take money out of the stock market and invest in real estate markets across the US.  Median prices have risen 30% locally, and with any luck we can keep that trend going. Of course, with any luck, Congress and the president will pass a real budget that pays the bills.  We can always hope, and maybe, just maybe, this downgrade will wake people up and address a situation that has gone unchecked far too long.  If not, there’s always church on Sunday.  Maybe that’s what they meant regarding separation between church and state.  And if that doesn’t work, watch where the smart money goes.

Washington may not be smart right now, but the money always finds the way.  Let’s just hope the money stays in the US and we remain relevant.  Stay tuned.

 

SW Florida Real Estate Prices Holding Steady

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Median single family home prices increased slightly in June rising 1.91% from $114,900 in May to $117,100. The 2nd qtr of 2011 was the 3rd highest on record trailing only 2010 and 2009. Inventory levels have been falling and median prices have been rising.

Median Southwest Florida Real Estate Sales Prices
SW Florida Real Estate Prices 2009-2011

Perhaps the most often asked question is, if prices have risen 30% since January, does that mean all prices have risen that much? The answer is unfortunately not. The official number is simply a median price, which means half the sales occur over $117,100 and half under that amount.

Foreclosures have dried up which has taken many sales away at the lower end of the spectrum. While this does alleviate some pricing pressure to the downside, it doesn’t automatically make higher priced properties worth more. Supply, demand, and economics dictate that. In addition, of the foreclosures we are seeing hit the market, some are at the upper end of the spectrum.

Currently we have 2 properties pre-listed that will be well over $1 million. One is a large home near the end of Captiva Island, and the other is a 5,500 sq ft bay front home in Bonita Springs that features an elevator, pool, 2 docks, and much more. While you would think these eventual sales would pull up the average price, keep in mind they are only 2 sales out of over 1300, so they don’t influence the median price as much as they would the mean average price.

Interest rates may begin rising with the uncertainty over the United States credit rating. Inevitably it looks like Congress will fail to adequately address the root cause of our debt crisis and will place bandages over gaping wounds and $54 Trillion of unfunded debt which will not settle the credit markets long term. What we see today is all political posturing and kicking the can down the road, all the while Medicare may be broke in 6 years and not there for anybody.

It just seems funny that we’re hemorrhaging $1.6 Trillion dollars this year alone which equates to us losing $4.38 Billion every single day. Congress has been talking about cutting between $1 Trillion to $2 Trillion dollars out of deficit over 10 years in return for raising debt ceiling $1-2 Trillion dollars. So in other words, we’ll reduce our deficit about $100 Billion each year for 10 years while we increase it that much today, and it will only carry us through 6 months. The deals pay off nothing and we’re nowhere close to a balanced budget, let alone paying off any of the debt. I think if the American people realized what Congress and the president are really doing, or not really doing they’d demand some action. We’re not really doing anything until we begin balancing our checkbook and paying off some of the debt. Until then, we’re making it worse everyday.

For every 1% increase in interest rates it robs borrowers 9% in purchasing power. Let’s say you were going to buy a $100,000 property today but waited and rates shot up 1% due to a downgrade in US debt. For the same money you would now only qualify for a $90,000 home, which is not good because prices have been going up and you’re still paying the same monthly payment for less home. That’s assuming you can even find a home for 9% less money that meets your needs and isn’t gobbled up by investors. It’s getting tougher for first time home buyers on every front to purchase a home, from banks lending money, to interest rates, decreasing selection, etc.

This whole debt crisis and the excuse of a US debt downgrade is a farce. The credit agencies will downgrade us anyway even if we continue to keep raising the debt ceiling unless we get our fiscal house in order. It’s kind of like a family that agrees to take on more debt. If you take on too much, your credit rating will suffer. So don’t let the politicians fool you that they’re making significant cuts or we need this to avoid default and protect our credit rating, because that’s just Washington speak.

Housing has come under enough pressure in recent years without politicians devaluing our property values because they can’t agree on a budget. Prices have been rising in SW Florida, which is good for a change. Let’s keep the positive momentum going!