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:

 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. 

Lee County’s real estate market cooled again slightly in July.  Single family home sales were down 32% from July 2005, and down 22.11% from June 2006.  There were 694 sales in July which signals buyers are still buying, just not as much in previous months or years.  The median single family home sale price dropped 8% from July 2005 levels, and dropped 1.27% from June 2006 levels. 

Many sellers have adjusted their asking prices to compete in this market, and some have not.  Some sellers are being caught chasing the market down.  Each time they make a price drop, they’re still behind what has already occurred.  Many sellers are pricing their properties in line with what other sellers are asking, not what actual buyers are paying.

It’s very difficult determining the correct price because in many cases there are few sales to base it on.  This is where knowledge and experience of your agent comes in.  Sellers who have broken through the "Ask in line with what other Sellers are asking" mold have had success selling, while the bunched group of sellers properties remain on the market.

The seller sets the price, the market determines the value.  This is true in a rising market, a flat market, and of course in a declining market.  In a hot market, the asking price was bid up over full price.  In a declining market, the property just sits.  When there are no offers and few showings, it’s either incorrect pricing, lack of marketing, or both.

Here are some other interesting statistics as of August 23, 2006:  

 Lee County Florida Current Market Statistics.

Inventory levels for single family homes in Lee County Florida have actually increased slightly from 12.97 months supply to 13.10 months supply.  Condominium inventory levels in Lee County have remained fairly steady the past several months.

Home builders in SW Florida have hit hard times.  Many are cancelling projects, especially large condo sales in towers.  Builders are also offering discounts and incentives to compete with existing home sellers who have adjusted to the changing market.

We provide links to News Press articles relating to home builder woes, as well as other trades that are affected by the slowing in home building.

Many agents are finding the changing SW Florida real estate market to be tough times.  Buyers aren’t as plentiful as in years past, and sellers are more demanding.

Sellers want systems.  They want to know what’s going to happen, when, and what the communication will be.  They particularly care about where and how often the property will be advertised.  Gone are the days when sellers would shop for the lowest priced agent.  It’s now a "Flight to Quality".  Sellers are scared, they see the For Sales signs go up and only a few come down.

Many agents relied on investor buyers for commissions last year.  Investors were easy because they have no emotional attachment to the home.  They just buy anything they thought would go up in value.  Values aren’t going up anymore, so investors have shut-off.

To make matters worse, many home buyers read the media reports and believe the market is going lower, so they’re holding off as long as they can.  This may or may not be wise because it takes quite a price drop to make up for increases in interest rates that can be locked in today.

A $200,000 mortgage at 7% interest rate has a principal and interest payment of $1,330.58  If rates go up 1 %, the payment increases to $1,467.51  That’s a $136.93 increase on interest rates alone.  To keep the payment at $1,330.58 at 8%, the new loan amount would need to be reduced to $181,336.09  That’s a reduction of $18,663.91

Because you usually put something down when you prurchase a home, I assume a 10% down payment which equals a 90% loan to value ratio.  To borrow $200,000 and putting 10% down would make the purchase price $222,222.22  To save that $18,663.91 you wouold need to buy a home for $201,484.54  That’s a savings of $20,737.68 a buyer would need to save just to make up for the difference in the interest rate.  That’s a 9.33% price reduction in the house.

Prices have already come down significantly, and many believe we’re close to the end of price drops.  While the jury is still out on that for sure, a buyer needs to bet that home prices in their price range will drop another 9.33%  If they beleive it will, they may be better off waiting.  If they believe we’re getting close to the end and fear interest rates could creap higher, or if they really need housing, now is the time to buy.

Back to the lonely SW Florida real estate agents.  Sales numbers are mirroring 2003 levels.  We have many more agents today than we did back in 2003, and many beleive we had too many back then.  We’ve started to see agents with little experience getting out of the industry, with many more to follow.  Too many agents have not experienced the ebb and flow business cycles of the SW Florida real estate market.  They’ve only seen one direction, and it was up.  Now that it’s not up they don’t know what to do or how to handle the sellers questions.  And when they do list a property, they quickly lose it.

We’ll follow-up later with another article on what an agent needs to do to be successful when the market changes.

County commissioners voted unanimously to reduce property taxes in SW Florida by at least 9.9%  They voted on only 4 of Lee County’s 6 tax rates, with another two to follow soon.  Rates could fall even lower if that happens. 

Right now the typical homeowner with a home worth $200,000 would save $79, even more if further cuts are approved. 

Don’t count on your tax bill going down though as Lee County only makes up about 1/3 of all the taxes you pay in your property tax bill.  Also, your assessed rate may have increased, offsetting any savings you might see from the reduced millage tax rates set by the County.