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Drought Busting

Nothing pleases us more than to see two droughts ease up just as summer hits its stride.

Until very recently, Southwest Florida was gasping for water; choked by a three-year dearth of rainfall, with no let-up in sight—especially as our scorched landscape limped into Spring.  Local meteorologists shook their heads and predicted that the situation was likely to get a lot worse before it got better.  The month of May, they reminded us with their best professional hats on, is customarily among the driest of the year.

Then, just as looked like May might live up to its inglorious billing, came the rain.    Buckets of it.  Torrent after torrent, day after day of glorious rain—a full six weeks ahead of schedule. You couldn’t have imagined a more unlikely end to such a tenacious drought.  Yet even though the drought is by no means completely over, all indicators that the end is near are looking very good.   New rains come every day with the kind of regularity we haven’t seen in a long time.  Ground levels are rising steadily and the major rivers east of town—mostly dried-up riverbeds a few weeks ago—are filling up and flowing freely.  Things sure can change quickly around here.

Which brings us to the second drought, whose end we’re also witnessing.  We’re talking about the more than three-year-old drought that has plagued the region’s real estate market.   Here too, there’s a definite light at the end of the tunnel.

When the rains finally kick in, drought-stricken rivers and parched reservoirs are replenished from the bottom up.  Likewise when buyers flood back into a correcting real estate market, the rush typically begins at the bottom of the market and systematically wends its way into the upper price tiers.   This phenomenon is solidly apparent from the latest TRENDGRAPHIX statistics for the month of April.

While total unit sales for April were up by more than 10 percent versus last April, 88% of these closed sales involved properties priced below $350,000.  Likewise, while pending sales were up an impressive 45 percent over last April, 83% of them involved properties priced below $350,000.   With short-sales and foreclosures exerting significant pressure on sellers to lower their prices in order to remain competitive, the inventory of homes in this price range has now been reduced to an almost-healthy 7.8 month supply. (Six to seven months is considered balanced and healthy)  Indeed, the rush to buy at such irresistible prices is causing a bottom to form under this particular segment of the market

Not so the case for homes priced above $350,000, where the “drought” is still very much in effect, with no equivalent rush to buy yet in progress.  Closed sales of properties priced between $350,000 and $1 million are 57% below last April.  As well, pending sales are down 22% for the same period.  This paucity in sales is due to the fact that the list prices on many of the homes in this price range have yet to reflect what comparable homes are actually selling for.

The median price of homes that have sold between $350,000 and $1 million—according to the most recent TRENDGRAPHIX—is $475,000. Half of the homes sold for more; half for less.  Meanwhile the average list price is $588,000.  That means to compete successfully in this price range you must be willing to lower your price by an average of almost 20 percentage points; or seriously consider not listing your home at all until the market supports your desired price.

The spread between average list price and actual median sale price is even more dramatic in the over $1 million price range.  In April, the average list price of $2.32 million was offset by an actual median sale price of $1.3 million.  Half of the homes sold for more; half for less. That means to successfully compete in today’s million-dollar-plus market you must often be willing to reduce your asking price by as much as 40%; or not list until the market improves.

Let there be no doubt about it. The drought in home sales is definitely easing.  Inventories of available properties are down to their lowest levels in 40 months; and the number of properties with sales pending—1,207—are at their highest level since March 2004, besting the previous month by 18%. Closed sales climbed to 734 for the first time since March 2007—and the April median sale price for both single family homes and condominiums rose above the March 2009 figure. This extends the upward price appreciation into its third consecutive month; perhaps indicative of a market shrugging off the doldrums.

Further, there is no longer anything approaching a wholesale drought with respect to consumer confidence, an important gauge of consumers’ willingness to make such a significant purchase. Just last Tuesday, The Conference Board Consumer Confidence Index, which had already improved considerably in April, posted another large gain in May. The Index now stands at 54.9, up from 40.8 in April.

It’s interesting how the two droughts differ from one another.  When a drought in rainfall is nearing its end, we enjoy more of the precious wet stuff with each passing shower. When a real estate drought subsides, the choice of incredible buying opportunities dries up a little bit more with each passing sale.

  • User Gravatar audrey singer
    May 29th, 2009

    Brilliantly written, well-thought out and easy to understand.

  • User Gravatar Property Management Bradenton
    May 31st, 2009

    the window to lock in a low fixed rate is closing. it is inevitable that rates will go up, probably towards the end of the year. As long as you are buying right, below market and with cashflow, then capitalize on the opportunities.

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