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. 

Median Sale Prices 2009-2010 Sothwest Florida Single Family Homes
SW Florida Real Estate Prices Single Family Homes

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.

Recently we attended a class with the Five Star Institute which is the premiere resource for educating bank asset managers and real estate agents on effectively handling bank foreclosure transactions.  The class we attended was the REO/Short Sale Summit which focused on bank foreclosures and the short sale process.  The Five Star Institute brought in asset managers for us to talk to, appraisers, banks, and 3rd party asset management companies so we could gain a thorough understanding on how to best deal with foreclosures and short sales, and insight into the back-end servicing agreements that control what the banks can and cannot do on behalf of the investor when approving a short sale or placing a foreclosure.

Short Sales and Bank Foreclosures in Cape Coral, Fort Myers, Lehigh Acres
Short Sales and Bank Foreclosures in Cape Coral, Fort Myers, Lehigh Acres

We learned that the Treasury Dept has agreed that mortgage modifications are not working, and most loan modifications and workouts still end in default.  It was further agreed that 2009 was a year of home retention intended to keep people in their properties, and 2010 will be a year banks collect money, either through a short sale or a foreclosure and re-sale.

Nationwide it is estimated there is 33 months of foreclosed inventory that has not been released.  Dave Liniger, founder of RE/MAX International told a group of banks a few weeks ago to release the inventory as holding it back is only harming the markets.  In the most distressed markets like Las Vegas, Phoenix, and SW Florida, there is actually a shortage of properties and holding back inventory only prolongs the recovery time of the market.

In many markets such as Florida, it takes over 1 year to get through the foreclosure process, and 2010 will see many begin this process if short sales don’t succeed.  All agreed that politicians’ running for office like to tell voters they’ll keep them in their homes, but this is actually harming the system instead of helping.  Most blamed president Obama’s initiatives as short sided and designed to score points with voters, but largely ineffective contributing to the problem.  The entire panel feared that politicians running for office this year may further try to prolong the inevitable in hopes of scoring points with voters, but that would further exacerbate the problems today.

In the last few months we’ve been able to help sellers sell through the short sale process, and from what we’ve heard we may see more of that in 2010 as banks pursue a simultaneous sale; short sale and foreclosure process.  Banks are stepping up their efforts by hiring more people, and moving their platforms online so agents, appraisers, banks, investors, attorneys, etc. can all work on the file together and streamline the process.

We expect to see more short sales in 2010, and more foreclosures in 2011, depending on how successful the 2010 short sales are.  Agents increasingly are becoming better trained, either from getting their CDPE (Certified Distressed Property Expert) designation or their Five Star designation to handle foreclosures for the banks.  The process has become very complicated.  Even an agent that never wants to list a short sale or do all the required work an REO agent does to sell a property would benefit by taking these courses as it educates agents on what is truly involved in the sale, and it will help them represent their buyers better by helping their buyers structure their offer better so the bank is more likely to accept.  Of course, sellers should select someone strong in this arena, as success with the bank is determined by the seller meeting certain criteria, and the agent properly presenting that criterion.

Only about 25% of all short sales actually sell, and yet this number can be increased substantially with education.  We are all for the industry getting better educated and increasing this closing ratio, which will help more sellers, help more buyers, and relieve frustrations by all.  The short sale process isn’t for everyone, but for those willing to be patient and properly work the system, the rewards are there.  And we’re for the banks improving their processes to make communication better.  We would actually be for loan modifications and home retention if they actually worked, but unless the banks and government will consider loan reductions instead of short term rate and term modification, we think this is a waste of time and is further harming everyone involved.

The most asked question I get, both in daily business and on Facebook is, “Are prices about to spike up?”  People are reading that inventory is shrinking, and buyers are buying all the foreclosures faster than the banks can bring them to market.  People assume the foreclosure pool is diminishing and we’re about to run out, and of  course they want to know how fast and how much prices will rise once that happens. 

It is true, to date buyers have been soaking up the incoming foreclosure inventory and whittling down the existing inventory.  Banks have been allowing short sales to some degree for qualified sellers, and in some sub-markets we are running low on inventory.  The chatter these days seems to be that prices are headed up in a big way, so let’s explore what’s really going on in the market today, and what may happen in the future and why. 

Median single family home sale prices have gone up for two straight months, but only marginally, up 1.25% in July and up .34% in August.  The median sales price now stands at $89,300, up from $87,900 in June.  Are all prices going up?  The answer is no.  The definition of median sales price is that half the sales occur over the stated number and half occur under, which now stands at $89,300. 

Median Home Sale Prices SW Florida Real Estate
Median Home Sale Prices SW Florida Real Estate

What is actually happening is the bottom has firmed up, and it’s getting tougher to find some of the bargain basement deals.  Homes in Cape Coral under $90,000 are getting harder to find, as they were somewhat plentiful last year. The bargain deals have swung to Lehigh. 

The other interesting phenomenon is that mid and upper priced homes are falling in value.  As these homes become bargains to their selective buyers, they are selling.  As these mid and upper priced homes sell, they actually pull the median sales price up, even though those home prices are falling.  Remember back to the definition of median sales price. 

In a few months people will start reading that prices are on the rise, when in fact prices are falling in the mid to upper tiers, and prices are rising in the lower tier.  Very soon the median sales price may begin to rise as it gets hit from both sides of the curve, however when you read that prices are rising, you have to remember that all real estate is local, and even Lee County has submarkets that are different. 

In some cases properties are cash flowing for investors at today’s prices, which was unheard of in years past, even before the run-up.  We believe now is an unprecedented time to be buying real estate in SW Florida as prices are so far below replacement cost that builders cannot compete, so building has been silent. 

We believe there will be more mid to upper priced foreclosures coming to the market in the next year, as more Alt-A mortgages are foreclosed on as scheduled interest rate resets take effect.  We’ve seen most of the sub prime loans already come and go from the market, so the next wave should be the Alt-A and the  economy driven foreclosures as regular people who have lost their jobs due to the falling economy. 

As you can see from the chart, median home sale prices are back to 1993 levels, but replacement costs to build are still at 2003 levels.  Our market won’t fully take off until we reach equilibrium on a broader scale reaching not only the bottom tier, but also the mid to upper tiers as well. 

So the answer as to when will our market spike up to where it was at the height is complicated.  The answer is it may never spike up to where it was, as those numbers were irrational and not supported by any sound financial basis.  However, the opportunities that lay before us may also be unprecedented, and because of the over-correction of the market dues to the financial crisis, foreclosures, credit becoming scarce, and over-supply, prices in many sub-markets are already on the rise.  Prices in the mid to upper markets will rise again; after they potentially fall some more, and the opportunity for home buyers to purchase at affordable prices and potential investment opportunities have many insiders excited. 

Remember the herd mentality.  When prices are at their height, most think it’s the time to buy, and when prices are at their low, most believe the sky is falling and time to run for the hills.  The smart money is back in, selectively, and they’re buying.  The opportunities today exceed perhaps any other time in the last 40-50 years.  

So when you read, prices are falling, or prices are rising, be sure to dig deeper and analyze what it really means.  Chances are, both statements are right, but in the analysis lies the true opportunity and wisdom.


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Yesterday Brett Ellis of the Ellis TEAM at RE/MAX delivered the SW Florida State of the Market Report to the public.  The report is 77 pages and includes data on Lee County Florida home sales, including Cape Coral real estate sales numbers, Fort Myers real estate sales numbers and pricing trends, Bonita Spring real estate updates, Estero, Lehigh Acres, Fort Myers Beach, Sanibel and Captiva, Pine Island, and all of Lee Couny.

The report shows single family home inventory in Lee County Florida declined 15.61%, and months supply of inventory in Lee County declined 42.66% due to decreasing inventory and increasing sales.

Cape Coral is the hot spot for sales activity, with 4,633 sales and less than a 1 yr supply of inventory.  Lee County overall inventory level stands at 17.53 months, down from 30.57 last year.  Median single family home sale prices were down 37.89%.  Two areas actually saw a rise in mean average sales prices in 2008; Bonita Spring-Estero and Central Fort Myers.

The report provides insightful data at the county level, and at the neighborhood level, as well as foreclosure data.  The sub-markets we analyzed were Cape Coral North, Cape Coral Central, Cape Coral South, North Fort Myers, Central Fort Myers, SE Fort Myers, SW Fort Myers, Lehigh Acres, East Fort Myers including Alva, Bonita-Estero, Pine Island, Fort Myers Beach, and Sanibel and Captiva Islands.  We provide data such as monthly pricing graphs for 2008, monthly sales charts, List price to sales price ratios, months supply of inventory levels, total list and sales volume,Minimum listing, maximum listing, lowest sold listing, highest sold listing, median price, average price, and total sales.

It is our most detailed report yet.  We scrutinized the data from multiple MLS boards and eliminated duplicates.  This one of a kind database is more thorough and accurate than services such as MLS Alliance because some boards pull their data out of the Alliance.  Additionally, we scrubbed the data for known errors.  We allowed duplicates when there were actually multiple sales on the same property for the same year.

73% of foreclosures in SW Florida were non-homestaeded property, meaning investors walked from their investments when the value fell below what they owed.  Most investors were planning to flip for a profit when they purchased.  SW Florida bank foreclosures were absorbed and sold, and inventory fell as the market heated up, even if prices have not.

We’ll add video of news stories from the report in coming days.

The August SW Florida Real Estate Current Market Index is out for Fort Myers, Cape Coral and Lee County real estate, and as you can tell, it’s been fairly level but weakening slightly, which should lead to strong sales numbers going forward, but not quite as strong as we saw in the summer months.

Ellis Team SW Florida Real Estate Current Market Index August 2008 Fort Myers Cape Coral real estate

The official index climbs slighty to 7.88, up from 7.51 the month prior.  The Index consists of Fort Myers and Cape Coral combined.  The overall Lee County index stands at 10.04 for single family homes and 19.27 for condos this month.  Fort Myers single family homes index is 12.89 and Cape Coral is 6.62, so Cape Coral is definitely the hottest part of the county for sales compared to inventory levels.  Lehigh Acres numbers are reflected in the Lee County numbers.  The graph depicts Fort Myers and Cape Coral  real estate single family home sales index numbers.

We’re predicting sales to remain good, but cool off slightly.  Financing is having an impact on current pending sales, and new sales will be tougher after October 1 when down payment assitance goes away.

Fortunately we do have some homes listed that are foreclosures and the credit union is willing to finance with only 2% down, and will offer low rates to buyers with less than perfect credit, so this is a very good program for buyers who may get squeezed out of qualifying or who cannot come up with the minimum down payment due to the new financing rules.