Interesting Market Dynamics??

[homeboy]

The market over the past 12 to 18 months has been extremely active. However, there appears to be some very strange dynamics going on including people way overpaying for new construction. Watercolor is the best example of this dynamic. The new properties are going for a significant premium over resales in the neighborhood. While the vast majority of resales are still being sold at a loss (especially after considering funrishings cost and real estate commissions), the new homes are going at a significant premium to the resale prices. Many of the resales are selling for less than prices paid in 2003-2004 timeframe. That seems to indicate that the new home buyers are walking into almost immediate depreciation of 10-20% or more. This might make sense when you buy a car, but not when you are buying a home. The same seems to be true in Watersound and Rosemary. Alys resales (the few that have occurred over the last year or so) are going at huge losses and new sales are really, really slow in this development.

As the resale market prices don't seem to be gaining upward steam, seems like the folks that are buying new homes in these developments are going to be hurting when it comes time to resell???

Not sure what is driving people to pay these premium prices for new homes versus buying a resale and putting some money into rehab for a lot less money?

 

[spaglioni]

Supply and demand, Homeboy. Some people want brand new and maybe the new stuff has better location, etc... Buying previously owned might require upgrades that bring the cost close to building/new. I'm down in Santa Rosa where several empty lots have sold along Allen Loop, and in our neighborhood a big house is going up versus the homeowner buying a similarly huge house just outside of our sub-division. Me personally? We bought last May @ $128/sq. ft., financed for 30-years and have our piece of paradise. Finally, look to "Uncle Sugar" in Washington, DC...as long as they are printing money and holding down rates, expect prices to keep rising.

 

[chanster]

homeboy i don't agree with you 100%

I've got almost every sale from 30-a the last 18 months. I'll agree than new home prices in waterolor and rosemary are getting within striking distance of the bubble highs in 2005 but thats not true in tons of lower cost neighborhoods. Lots like in lakeside at bluemountain were bought for 40-55k and builders are building for 125-150 a square foot. The 55k lots are now 75-80k but they were 400k. So the lots are still 70% off highs. theres tons of neighborhoods like this. but the upper end areas like watercolor have come screaming back to near all time highs in some cases. even watersound west and phase 4 watercolor behind suntrust have risen a huge 50-70% off the bottom of 2 yrs ago. so it all depends were you're at.

 

[homeboy]

New home sales in Watercolor, but not all other areas, are getting a bit frothy in price. However, resales (non shorts or foreclosures) are still selling at prices way, way below market highs. In fact, many are selling at 2003-2004 levels (no increase in price for 10 years!). Resale prices are not actually increasing appreciably (unless you compare arms length sales to foreclosures/shorts). That was my point--those new home buyers are in for a shock when they decide to sell in a year or two or three when they will likely be taking major hits.

 

[spaglioni]

Homeboy...if they are buying for a "flip", I agree with you. My point was that we've been through the cycle. I owned in Sea Bluffs before Bella Vita and Adiago were built next to us. We scored big selling in 2004, it was too crazy. We are back and not "flipping"...this is our opportunity to own on 30-A and, thankfully, not have to rent our place to afford it. If you are interested in owning, and not flipping, then opportunities abound. See everyone soon for the summer....cannot wait.

 

[erceill]

I am a appraiser. What you are seeing is the most desirable subdivisons are rising in price. Higher end homes are rising faster. New construction should always be higher than existing homes. They are the newest trends and no depreciation or use. In new homes you get to pick the layout and all the features, flooring, tile, marble. You would be suprised at how changing the colors, furniture, lighting and plumbing fixtures will do to the value of a home in this market. Everybody always if they have choice prefer new in anything.

Even old houses if they have all new wiring and plumbing will sell for a lot more. If you think house prices have gone up take a look at lot prices. They have probably 33% in the past year. What is happening is that the distressed properties, short sells & foreclosures, have left the market. There were 17% of the closed sales over the past year that were distressed properties. There is currently 5% of the active listings that are distressed properties. The most desirable location and quality is in short supply. Even foreclosures and short sells are not cheap anymore.

The median price for all detached sfr's in area 18 of mls, Watercolor to Bay county, has risen by 5.8% over the past 3 years. The median price for detached sfr's above 750k has increased by 16.3% over the past year.
The sales volume has increased by 35% and inventory has declined by 21% over the past 12 months to the previous 12 month interval. The market is still oversupplied with 10.5 months of available inventory. The sales to list ratio has remained below a normal level of 95-99% at 92%.

I haven't complied the most recent data for area 17 in a couple of months so I didn't go the numbers here are just for area 18. Prices will most likely continue to rise and as interest rates start to spike up, which they will in a couple of years, prices will rise even more as monthly payments will go up. People sitting on the side lines waiting for the bottom will jump in and buy. That is what you are seeing this year. People that are market savy are buying. The market hit bottom last year. Last year was the time to buy at the very bottom.

 

[Kurt]

I am a appraiser. What you are seeing is the most desirable subdivisons are rising in price. Higher end homes are rising faster. New construction should always be higher than existing homes. They are the newest trends and no depreciation or use. In new homes you get to pick the layout and all the features, flooring, tile, marble. You would be suprised at how changing the colors, furniture, lighting and plumbing fixtures will do to the value of a home in this market. Everybody always if they have choice prefer new in anything.

Even old houses if they have all new wiring and plumbing will sell for a lot more. If you think house prices have gone up take a look at lot prices. They have probably 33% in the past year. What is happening is that the distressed properties, short sells & foreclosures, have left the market. There were 17% of the closed sales over the past year that were distressed properties. There is currently 5% of the active listings that are distressed properties. The most desirable location and quality is in short supply. Even foreclosures and short sells are not cheap anymore.

The median price for all detached sfr's in area 18 of mls, Watercolor to Bay county, has risen by 5.8% over the past 3 years. The median price for detached sfr's above 750k has increased by 16.3% over the past year.
The sales volume has increased by 35% and inventory has declined by 21% over the past 12 months to the previous 12 month interval. The market is still oversupplied with 10.5 months of available inventory. The sales to list ratio has remained below a normal level of 95-99% at 92%.

I haven't complied the most recent data for area 17 in a couple of months so I didn't go the numbers here are just for area 18. Prices will most likely continue to rise and as interest rates start to spike up, which they will in a couple of years, prices will rise even more as monthly payments will go up. People sitting on the side lines waiting for the bottom will jump in and buy. That is what you are seeing this year. People that are market savy are buying. The market hit bottom last year. Last year was the time to buy at the very bottom.

Excellent post - thank you!

We would be very interested in any reports you have. It is nice to have someone with direct experience with sales and accurate figures. Please post again.

 

[Kurt]

Homeboy...if they are buying for a "flip", I agree with you. My point was that we've been through the cycle. I owned in Sea Bluffs before Bella Vita and Adiago were built next to us. We scored big selling in 2004, it was too crazy. We are back and not "flipping"...this is our opportunity to own on 30-A and, thankfully, not have to rent our place to afford it. If you are interested in owning, and not flipping, then opportunities abound. See everyone soon for the summer....cannot wait.

Congrats! See you soon.

 

[homeboy]

My report is based on figures from the Walton County property appraisers website. I looked at all the resales (defined as a qualified resale of a SFH that had a previous qulaified sale--ie: it was not raw land the last time the property sold) in Watercolor, Seaside, Rosemary, Alys for 2012 and most of them in Seacrest.

Here is what the data shows--

--If you bought before 2002, you are generally not underwater (only considering cost to market value and ignoring all carrying costs, sales commissions, furniture, etc).

--If you bought after 2002, in general, you are in the hole regardless of how you define basis.

--There are exceptions to both of these general statements but they hold true in the majority of cases.

--For homes bought after 2002 and sold in 2012---Every resale in Alys went at a loss. Almost every resale in Seacrest went at a loss. About 70% of resales in Rosemary, Seaside and Watercolor went at a loss. If you also add commissions, that increases the losses to 85-90%. If you add in the loss on furnishings, even higher.

--New homes are definitely going at a significant premium to resales ( as confirmed above by an expert). However, most resales are furnished and most new homes are not. That can add up to many, many tens of thousands (maybe even 100k or more in the nicest homes) in additional costs for those new homes versus the resales meaning the premium is even higher.

If you want to do the research to confirm my facts, it is all there for the taking on the Walton county website.

I would be interested to see how prices (noted above by erceill) for resales have been going over the past 12 to 18 month in the database he/she was using (throw out all new homes from the data set for comparison purposes). Maybe, in the larger area, things are different than in the developments I mentioned above.

My original premise that the new home buyers, especially in the big developments, are in for immediate losses that will be tough to recover is supported by the facts on the walton county propery appraisers website. If that data is wrong or incomplete, then my conclusion may be wrong. Or, if prices do in fact start rising at a decent clip, then I might be wrong. However, keep in mind that I failed to include carrying costs in the equation, if I did, only 2 or 3% of the resales would have made the cut for a profit.

If you plan to buy and hold for enjoyment like one of the posters noted above, then good for you. I plan to do the same as retirement nears regardless of chances for profit. However, if you intend to make a profit on your investment, that is not likely to happen in our lifetimes when considering total cost of ownership (interest, taxes, insurance, utilities, etc, etc).