December 2009: Foreclosure Market update

Southwest Florida real estate has followed the trend of the entire state with numbers of existing home sales increasing and the median price also trending higher. With prices now reduced off the highs of 2006 by 40-70% there are many buyers entering the market and they are not just tire kicking. Existing Home and Condo sales are now up for 10 months in a row and median prices have also started to come off the lows of early 2009.
Below is the Naples Area (adding Ft Myers and Cape Coral the trend is the same)

Pending Sales by Month. This chart goes back to January 2009. Some of the pending sales are backed-logged Bank Owned and Short Sales as these transactions are generally more lengthy to bring to a close. Some banks are streamlining the process and I see these types of transactions (which are the lions share of sales) shortening the offer-to-contract-to-close time as they become more standardized.

Did We Reach Bottom Yet?

I know everyone asks, when will (or did) prices bottom out, and the truth is there are many foreclosures in the pipeline yet to get through and resets on ARMs yet to come. However, the buyers ARE back and when the distressed properties are released, we are seeing multiple offers on many of them. Distressed sales (REO and Short Sales) are making up the majority of sales here and across Florida.

As you can see the last month on this graph has bucked the trend line that has been headed down for 2 ½ years. (This graph is for all Ft Myers down to Marco Island)

There are some neighborhoods that I believe will still trend lower, and some areas where there is so much buyer activity that prices are coming back up swiftly. For buyers who are coming into the market, the days of lowballing a property that has already been slashed to BELOW REPLACEMENT costs and having that offer accepted are over. There was recently one article in the paper about a broker getting 34 offers on one property! I do a market analysis of any property you are looking at and advise my clients to stay near that number. (If you don’t think the bank is doing the same, think again!).

Cash is KING...

Another strong trend is the cash buyers outnumbering the conventional and other financed purchases. (in many areas 2:1) See Chart for Finance Type of Sale.

MY READ...

My read on this….even though the economy in South Florida has not turned the corner, the buyers from Canada, Germany, and northern USA are not waiting to get the property they want….at the price it was 6-10 years ago. There is a backlog of retirees who have been sitting on the sidelines for a couple years while the prices came back to earth. The property they saw at 500k and 400k when they were shopping in 2006 is now 50-60% lower and they are jumping in.

About 1/3 of my clients are first time homebuyers who have now watched the dream of home ownership come back within reach. They are picking from inventory that is recently built and in some cases below the cost to build it!

There are 2003-2008 built homes on the market for $50-80 sq ft.

They are in competition with investors who are also prowling the market for deals that make sense at these prices. The cash sales I have transacted have been investors who are renting and/or doing basic rehab and relisting.

Real Buyers are Back

With the buyers back in the market, the overhang of inventory is trimming quickly. Especially the properties that are bank owned and short sales. The “organic” sellers are either having to match the market prices that the buyers are seeing in REO property or they will be holding on to their property for some time to come. The distressed properties that are not on the market yet will have the effect of keeping the prices low, so I believe that there is time to look around. I can also tell you, (and some of my clients reading this will tell you) that there are other like-minded people who are also pulling the trigger on purchasing their “place in sunny Florida” and you may have to make offers on multiple properties or bring the right number.

Real Estate Bedtime Story

I recently had a client tell me this story when he was debating whether to add 2-3% to his offer to get the deal done on a condo he had been wanting. Years ago, he was on an African safari and they were well into the bush and had camp set up. He said it was a luxury type safari and he was in his tent when a young local guy came to call on him. The young man explained that he was offering Hot Air Balloon rides at sunrise the next morning. “How much”?, this gentlemen asked the local. The boy replied that it was $400 and that he only had one spot left for the next morning. This client then told me that he had been a successful businessman all his life and prided himself on his negotiating skills: “I’ll give you $300” he told the young man, who said it was not possible for him to do the deal at that price.

So the man said, “I tell you what, you knock on my door ½ hour before you are ready to leave and I’ll have my $300 ready to go.” The young man thanked him and went away.

The next morning the man woke to the sound of air whooshing from the hot air balloon. He jumped up and went outside.

He looked at me and said, “What I saw was the most beautiful sunrise with this balloon rising silently from the floor of the savanna and I missed it over $100.”

“I learned a lesson that day that sometimes when you see something in life that will make you happy it is not worth fighting over pennies to make it happen.”

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