Just as every ailing person must submit to the appropriate medical interventions to restore good health, so too must Florida’s overstressed real estate market. Wherever prices inflated radically during the real estate boom of 2004/2005, there must now be a meaningful correction before healthy appreciation can resume anew. That’s the sobering news facing every Florida market targeted by too many overconfident investors who bought at “high noon” during the boom.
There’s good news too. Sarasota-Bradenton is the toast of Florida, having been the first market in the state to take the painful but appropriate initiative of convincing sellers to lower prices—mainly by tempering unrealistic profit expectations born of the boom. In doing so, we have already accomplished what many Florida markets are just now realizing must be emulated. As a result, for the first quarter of 2008, Sarasota-Bradenton has enjoyed a sustained upturn in unit sales of both single-family homes and condominiums; a trend that appears to be gaining traction as today’s best opportunities become irresistible to previously uncommitted buyers.
Chart “A,” tracks monthly unit sales for the past year in Sarasota-Bradenton. Since bottoming in January ‘08—with 490 .png)
single-family units sold—there have been three successive months of solid gains. These statistics show that March sales of existing single-family homes broke the 700 barrier for the first time since July ‘07—finishing at 709. The same trend holds true for condominiums, whose unit sales bottomed in January; then started upwards again, breaking the 300 barrier in March for the first time since May ’07—finishing at 313. All of this in spite of the incessant drumbeat of doom and gloom surrounding mortgage defaults and foreclosures that has seized Wall Street and dominated coverage in the mainstream media during the same period. Clearly this increase in local sales, occurring as it has in defiance of persistently negative news regarding the broader market, speaks to a healthy resurgence of buyer confidence in our market.
In Sarasota, one of the continuing bright spots reflected by the March report was the strength in pending sales, which stood at 674—the highest level in the past year—and have been edging upwards since December 2007, when there were only 374. Pending sales represents the number of signed contracts in a month and are the leading indicator of closed sales to come. There is a direct correlation between pending sales and closed sales that are reported a month (or two) later.
Chart “B” tracks movement in the median price over the same period and its downward trend explains why unit sales are up. Median price represents the market’s midpoint; half the homes or condominiums sold for more, half for less. Having posted a .png)
6.5% decline in the fourth quarter of 2007, followed by a 3% decline in the first quarter of 2008, buyers are now confident that today’s best-priced properties present an acceptable threshold through which to re-enter the market and make long-deferred purchases while interest rates are still low.
Although these rates are still hovering at historic lows, the general home buying public has yet to see the benefits of fresh cuts in the Fed’s prime lending rate manifested in even lower mortgage rates. Indeed, rates of late have inched upward as the supply of available money has steadily dwindled since 2004/2005. This is especially true involving jumbo mortgages—any amount over $417,000—and loans for second homes. As well, some of the nation’s largest banks have shied away completely from offering loans for condominium purchases—although Wells-Fargo, our financially solid partner in lending through MSC Mortgage—still has loans available for creditworthy condominium buyers. With new and tighter restrictions cropping-up daily, it makes sense to borrow now and take advantage of today’s excellent buying opportunities rather than risk the possibility of slightly lower prices with greater restrictions on borrowing.
With tourism in Southwest Florida still humming along at record levels and local home prices back into realistic focus, buyers have rediscovered their confidence, are finding true value in the homes they want, and are ultimately succumbing to a lifestyle second to no other in Florida. Finally they’re starting to realize that the clock has ticked past midnight for the best buyers’ market in many years.
michael hayes 2:32 pm on May 16, 2008 Permalink
I hope you have read the recent article in the Herald Tribune Re: the commission being charged by some realtors. 6 per cent commission is partly the cause of houses being over priced. In this market 3% is plenty to charge in this market.You being one of the top realtors could set an example for the others. I speak from experiance as I lost a deal because the realtor would not reduce their commission.That is part of the reason why sellers go to FOR SALE BY OWNER.
Hope this will help to get the realtors to co-operate in this time of some needed help
Gary Robertson 7:19 pm on May 15, 2008 Permalink
Dear Michael:
I’ve read with interest your article and the response(s) to your article and I’m in both camps!
Having recently bought a house through your office (in Sarasota) and from one of your sales representatives I must fess up – I’ve questioned a couple of times my decision and each time I do I come back to exactly the same conclusion.
Right decision, good choice of possible locations and no regrets.
I’m Canadian and I do understand the negative emails and I applaud you printing the negative comments. They have merit.
It’s firms like Michael Saunders that these same people (that find fault with you or your firm) who should be thankful to you for your work, and the work of your employees and the effort that you take to build confidence in an industry that has been wounded.
My wife and I have been vacationers in Florida for 15 years and have a condo in Bradenton, in a gated community, and after the market collapsed we decided we would look for a house in Florida so we took two weeks to look in Naples, Ft Myers, North Port, Sarasota, Bradenton, and so on. In two weeks we put on 2,000 miles and visited over 80 houses. Our goal was to find a house in a gated community, on a golf course — with a pool. The budget was between $400,000 and $500,000. We found a house that fit the budget.
For non Florida residence it’s a lifestyle. Our Canadian dollar was at par when we made the decision. And for those that don’t realise it – we could buy a house in Florida at par to Canadian dollar when just a few short years ago we would have paid $1.40 for a $1.00 of US house. Therefore a house valued at let’s say $650,000 would have cost us $650,000.00 x $1.40 or about $910,000.00 but the dollar was at par and the $600,000 house selling for below $500,000.00 let’s say in the $450,000.00 range. The house once $910,000.00 in Canadian money and now can b bought at $450,000.00 that means the new price to a Canadian is $450,000.00 cheaper.
Now apply the same rule to the European who has a Euro (not par) at $1.50 higher than the US Greenback. That same house can be bought for $450,000.00 divided by $1.50 or (after conversion) $300,000.00. Wow, what a saving for the European.
A person in any part of Europe would pay 1,000,000.00 Euros for a dwelling. Would they be in a gated community, on a golf course, with a private pool, and have 3,000 square feet of living space, two car garage, and a quarter acre of land? Not likely. I’ve been to various parts of Europe and 850,000 Euro gets you what they call a flat. We refer to them as apartments (barely condominium).
I agree with those who question Michael Saunders to the extent that there are tough times ahead. But I have to agree with you – people wanting to invest into homes in Florida are looking at lifestyle. That alone can start the investment into properties again. The people coming to start this process are writing cheques, they are not borrowing money. Some of them are multi-millionaires buying million dollar condominiums others have less cash but are buying houses at a bargain-to -them. That is the key – people are buying. This downturn will find a bottom, some will find more bargains (even yet) but others are prepared to step in now because they see bargains.
Just like after the 70’s the US was a bargain for investors from other parts of the world – and that is what will help the US recover. Some in the US may call these people stupid for not realising that the US is going through troubled times, maybe, but maybe not. Outside of the US we look at the situation also, some of us see opportunity for renewed growth. With a lower US currency that gives the US a chance for recovery. It is one of the few bread baskets of the world. It has technology that can now be better priced for world markets, investors from outside the US will now invest into the US. There will be this more savings, less consumption – as some have written. And in the end – well we can only hope that firms like Michael Saunders continues to expound their beliefs – they’ve been down before, they know what it is like to lay on their back and see the ceiling, it is not comfortable. But here’s the question.
What is the alternative?
My outlook. If you are looking at a home for lifestyle and the price is right and it’s affordable to you – don’t be afraid to buy. If you are looking for the best deal and using the house (in reverse as compared to when houses were rising) as a low cost flipper – forget it. Anyone who wants to buy now and try to create the fast buck and mess we had a few short years ago won’t be happy. This is not a buy-and-flip market. That was the market that needed more nerve to buy into then the one we have today. I had no nervous thoughts buying low.
GR
ToddinFL 6:39 pm on May 10, 2008 Permalink
Michael Saunders said:
“With new and tighter restrictions cropping-up daily, it makes sense to borrow now and take advantage of today’s excellent buying opportunities rather than risk the possibility of slightly lower prices with greater restrictions on borrowing.”
HUH ? If the market is turning as you have been suggesting, then why would lenders feel the need to place greater restrictions on borrowing ? Why would lenders be closing down home equity lines of credit as they’ve done in Florida ?
If things were truly improving (and the credit crisis was easing) in the RE market then borrowing standards would be relaxing so as to allow more people to participate in home ownership.
Urging people to run out and quickly borrow money before it becomes even harder to borrow is a recipe for disaster. What incredibly poor advice!
Interest rates are indeed low; but it matters little if lenders continue to tighten lending standards and require higher credit scores and higher down payments.
Contrary to what you have been putting forth, the situation we find ourselves in will unfortunately get still worse before any improvement in market conditions returns.
There is increasingly little tolerance for those who refuse to acknowledge the seriousness and reality of the current economic situation. Continually spreading misleading and false information regarding the RE market will ultimately lead to the public being even more skeptical of their advice in the future (and rightfully so).
We as a country have consumed more than we produce, and that has to change to bring things back into balance. The transition from less consumption to more savings is not pleasant and smooth. But in the long run, it is what’s best for our country and for the economy.