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. 

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.

August 23,2006	Active	Pending	Months Supply of Inventory
Single Family	12,168	1,261	13.10
Condo	7,391	557	14.18

 

 

July 25,2006	Active	Pending	Months Supply of Inventory
Single Family	12,053	1,343	12.97
Condo	7,387	591	14.17

 

 

May 27, 2006	Active	Pending	Months Supply of Inventory
Single Family	11,838	1,426	12.74
Condo	7,414	644	14.22

 

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.