Unfortunately it appears the real estate boom, called for by ecopal's linked article from a tallahasee real estate conference, missed the direction of their call.
Smiling Joe has posted the October real trends #'s for Sowal, and it really looks like to me the y-o-y trends are worse than they even look like on paper (and on paper they look bad) and November it can be taken as a given, will surely be even worse.
Why do I say they look even worse then the data bears out on paper??? Let's look at dollar value of sales year over year.. Oct. 2004 520M, vs. 347M for Oct. 2005. Residential lots sales - $226M in Oct. 2004, vs. 82M in 2005. Contrast these substantial declines, with the part anecdotal, part emperical fact that listings of lots and residential homes for sale in Oct. 2005 is much much more than was for sale in 2004 on a total dollar basis, and we have the makings of a downswing that has only started, not a boom starting. It will take months and months to bear itself out, as sellers of real estate historically do not aggressively reduce their asking prices, until it's much too late. Some don't have to sell at all, particularly in South Walton. Then there are another group that probably should sell, but hang on anyway, and weather the storm. Then, unfortunately, even in South Walton you have speculators and people who stretched, who have to sell if they bought in 2004-05, because they can't afford a prospectively large capital loss, can't afford to carry the dramtically higher insurance and tax rates, in the face of rents that have been VIRTUALLY stagnant for 6 years, compared to valuations. It is these marginal buyers, who will become the marginally aggressive sellers - and there is no way around it, even in South Walton where the beaches are beautiful. To be sure, some sellers never "have" to sell and this is true of This will be doubly problematic in an area like SOWAL, where much of the activity from 2000 to 2005 has been purchases by speculators, who don't have to live there: i.e. it's an investment.
It is clear when the bulls on SoWal real estate now use phrases like "longer term" and cite the wonderful qualities of SoWal that attracted them to the place in the first instance, that the writing is on the wall.
However, having said all that, although I expect real estate values to resume a normalized annual appreciation rate of 7-9 % per year, after the next 12-18 month downturn, which I would ballpark at roughly 15-25% depending on the kind of property and location.
For those looking to hedge their exposure to South Walton real estate, but don't want to compete with all of the listings that are growing dramatically, by owner, by broker, unofficially and otherwise, the only liquid mechanism available to do so at this time is public trading equity of St. Joe Company, JOE. The perfect time to start shorting JOE however was about 4 months ago in June or July, which was as one might expect 2-4 months after the cognisenti in South Walton had realized the real estate values had stopped rising. Yes folks real estate peaked in SouthWalton somewhere between Thanksgiving of 2004 and March of 2005. It didn't go down, but it didn't continue to rise. Dentists in Birmingham, and Proctoligists in Atlanta starting reading magazine articles this spring about a pending potential real estate bubble, and they were the marginal buyers/speculators. It took the cognisenti on Wall Street, who don't have their finger on the pulse of South Walton real estate as closely as you all do, several weeks, maybe 12 weeks, to figure this out and start selling their holdings down, but there is much more downside to go, should valuations plumet an additional 20% in the area, as I expect is a good possibility and not extreme at all, given the multiple 100% increase in valuations over the past few years...
If you're someone who truly has a 25 year time horizon and have a bunch of cash, get ready to be a buyer, but don't be silly and buy the first significant dip we're about to see born out by the data soon... hold your powder until you see significantly large scales of foreclosures, probably not for 18 months or more, when interest rates on Adjustable Mortgages are back to normalized levels of between 7.5-8.5% - and payments on those mortgages rise 60% as a result, putting the final squeeze on the unfortunate marginal segment of owners.
Replies
119Beach Comber
Well your analysis is very enlightening and probably true about the over speculation of those folks who should not have pushed as far as they did. Hopefully continued historically low interest rates will help in preventing such a large scale devaluation of property in the panhandle.
Just imagine how bad the Panama City Beach market will suffer if our prestine South Walton property is going thru such a strong correction. Talk about foreclosures.
Just imagine how bad the Panama City Beach market will suffer if our prestine South Walton property is going thru such a strong correction. Talk about foreclosures.
Beach Lover
Run....for The Love Of Eternal God, Run For Your Lives!!!
SoWal Insider
GaltsSkier, have you sold your house yet?
beats on hood
DeNial is a river in Egypt.
That's where I be right now, yo. In denial. I love SoWal.
That's where I be right now, yo. In denial. I love SoWal.
Beach Fanatic
It's spelled c-o-g-n-o-s-c-e-n-t-i.
Meow
GaltsSkier, have you sold your house yet?
Oh Bob...you do make me laugh!!! Galtsskiergonebyby!!!!
Beach Fanatic
I don't believe any one on this board is unaware of the current real estate market, however I DO believe those of us on this board care deeply for South Walton and are trying successfully to have a positive outlook for our beautiful beaches. That is all I have to say on this matter...for now.
Beach Fanatic
Your house is where you live. It should not be viewed as an "investment" SoWal is one of the most beautiful and unique places in America. I live most of the time in Sedona, Az. another beautiful place. But to me, 30-A is the most wonderful place on Earth.
Edited
SoWal Insider
Your house is where you live. It should not be viewed as an "investment" SoWal is one of the most beautiful and unique places in America. I live most of the time in Sedona, Az. another beautiful place. But to me, 30-A is the most wonderful place on Earth.Coming from a resident of Sedona, that is quite a compliment!
Edited
SoWal Expert
Coming from a resident of Sedona, that is quite a compliment!
No kidding! Sedona is in my Top 10 beautiful places!
SoWal Insider
Did I pull a RO on spelling?? I was not PUI!
Beach Lover
This is a very thoughtful analysis, well based on historical patterns of resort-area real estate market behavior.
That investor with the 25-yr timeframe and a bunch of cash may not have to wait the 18 months you predicted, though ... foreclosures aren't a factor (yet?) but many actual selling prices have begun to decline significantly from the late '04/ early '05 peak you accurately cite.
That investor with the 25-yr timeframe and a bunch of cash may not have to wait the 18 months you predicted, though ... foreclosures aren't a factor (yet?) but many actual selling prices have begun to decline significantly from the late '04/ early '05 peak you accurately cite.
Beach Fanatic
There will always be people who jump onto a real estate boom wagon when they shouldn't. Rule of thumb is that you shouldn't buy it if you can't carry it. Or...as ye live by the sword, etc. Coastal real estate was long overdue for a correction, lull, whatever you want to call it, before the storms of 2004/2005. The storms definitely exacerbated the problem, as many people are not well informed as to how South Walton fared, relatively speaking. If one more person asks "how much damage we sustained" last summer, I will scream. The answer is none, in fact, a net positive for the Grayton beach. And for the record, we have had reasonable increases in the rental rates on our home every single year and continue to book it pretty solidly for the spring and summer seasons, with the shoulder season rentals increasing.
No one is happy about increases in property taxes (even though they're still underassessed) or increases in insurance, but no one was particularly surprised, either. And at least in FL, everyone shares the pain, not just coastal properties. As for interest rates, over 80 percent of properties valued at over $1M are cash sales in our areas (largely 1031 exchanges, I would assume). Interest rates are not really a factor in such cases.
I follow the listings and closings in the area pretty regularly and they do not support the claims of cynics. Some properties are overpriced, with most owners not caring whether they move or not. Other properties are listing lower because owners just want out now and can still see a considerable profit with the lower listing. Many properties are closing at very close to the listing price, especially if they are well located.
All goes to say that "location, location, location" still means a lot and so does thinking of real estate as a long-term investment. Well located real property will always offer the best return for one's dollar, assuming one can afford the capital outlay and carrying costs. But if the rule of thumb for stocks is that you should play only if you could afford to lose half of your investment, real property stacks up pretty well against that.
I would like to see some perspective in these threads, meaning...real estate dynamics are not usually boom-or-bust. It is a cyclical industry. Day traders need not apply.
No one is happy about increases in property taxes (even though they're still underassessed) or increases in insurance, but no one was particularly surprised, either. And at least in FL, everyone shares the pain, not just coastal properties. As for interest rates, over 80 percent of properties valued at over $1M are cash sales in our areas (largely 1031 exchanges, I would assume). Interest rates are not really a factor in such cases.
I follow the listings and closings in the area pretty regularly and they do not support the claims of cynics. Some properties are overpriced, with most owners not caring whether they move or not. Other properties are listing lower because owners just want out now and can still see a considerable profit with the lower listing. Many properties are closing at very close to the listing price, especially if they are well located.
All goes to say that "location, location, location" still means a lot and so does thinking of real estate as a long-term investment. Well located real property will always offer the best return for one's dollar, assuming one can afford the capital outlay and carrying costs. But if the rule of thumb for stocks is that you should play only if you could afford to lose half of your investment, real property stacks up pretty well against that.
I would like to see some perspective in these threads, meaning...real estate dynamics are not usually boom-or-bust. It is a cyclical industry. Day traders need not apply.
Admin
Thanks for more words of wisdom Donna.
I still say the next 20 years are going to make the last 20 in SoWal seem sleepy, with giant commercial and residential construction along the 98, 331, and 20 corridors. Over a 40 year timeline we are still in the beginning stages of development.
I still say the next 20 years are going to make the last 20 in SoWal seem sleepy, with giant commercial and residential construction along the 98, 331, and 20 corridors. Over a 40 year timeline we are still in the beginning stages of development.
Beach Fanatic
Thanks for more words of wisdom Donna.Kurt: I couldn't agree with you more - and you have a wonderful knack for keeping it pithy :clap_1:
I still say the next 20 years are going to make the last 20 in SoWal seem sleepy, with giant commercial and residential construction along the 98, 331, and 20 corridors. Over a 40 year timeline we are still in the beginning stages of development.
Beach Fanatic
Prices seem to be about 20% lower than last year on many properties.
Is it time to buy or to wait for prices to drop more?
There are some desperate sellers out there; some flippers who got caught holding the bag. So I am inclined to think that there are more bargains to be had in certain classes of property if you are patient.
Desperate sellers will tend to be primarily in condos and vacant homes with big overheads and vacant lots with build out times. The question is how fast will these bargains be bought up?
The longterm outlook for 30A maybe one of the best in the coastal south.
30A has constraints on amount of potential devleopment. Currently the supply is ahead of the demand but that is only a temporary phemomenon.
So as some wise posters have already said: if you don't need to sell now don't or you could be sorry.Also, if you really like 30A and want to have a place here now maybe a good time to do some bargain hunting.
Future developable property on 30A is finite and it will become even more valuable as 30A becomes discovered as the most exclusive area to live in the region.
In addition global warming will only help 30A. In fact, go help the cause and go buy a big gas guzzeling SUV to help speed up the process - just kidding.
With more hurricanes and rising sea levels the higher elevation of many 30A properties (although I would be less interested in riskier water frontage property than property close to but a lot or two away from the Gulf/ocean/bay.) may make them more desirable than most Florida property.
Why pay higher prices for low elevation,and more hurricane and flood prone property in grid locked southern Florida when winters here are becoming warmer?
Is it time to buy or to wait for prices to drop more?
There are some desperate sellers out there; some flippers who got caught holding the bag. So I am inclined to think that there are more bargains to be had in certain classes of property if you are patient.
Desperate sellers will tend to be primarily in condos and vacant homes with big overheads and vacant lots with build out times. The question is how fast will these bargains be bought up?
The longterm outlook for 30A maybe one of the best in the coastal south.
30A has constraints on amount of potential devleopment. Currently the supply is ahead of the demand but that is only a temporary phemomenon.
So as some wise posters have already said: if you don't need to sell now don't or you could be sorry.Also, if you really like 30A and want to have a place here now maybe a good time to do some bargain hunting.
Future developable property on 30A is finite and it will become even more valuable as 30A becomes discovered as the most exclusive area to live in the region.
In addition global warming will only help 30A. In fact, go help the cause and go buy a big gas guzzeling SUV to help speed up the process - just kidding.
With more hurricanes and rising sea levels the higher elevation of many 30A properties (although I would be less interested in riskier water frontage property than property close to but a lot or two away from the Gulf/ocean/bay.) may make them more desirable than most Florida property.
Why pay higher prices for low elevation,and more hurricane and flood prone property in grid locked southern Florida when winters here are becoming warmer?
Beach Lover
While there is definite softness in the Gulf Coast market, as with most investments, the smartest investors are the ones who make their move when things look their worst, and get out when things look their best. That is something very counter to human nature.
Those that invest when all the news is bad will look brilliant when things turn. Are we there yet?
Once good news starts to come in it is too late.
Those that invest when all the news is bad will look brilliant when things turn. Are we there yet?
Once good news starts to come in it is too late.
SoWal Expert
While there is definite softness in the Gulf Coast market, as with most investments, the smartest investors are the ones who make their move when things look their worst, and get out when things look their best. That is something very counter to human nature.
Those that invest when all the news is bad will look brilliant when things turn. Are we there yet?
Once good news starts to come in it is too late.
Not all properties are bargain deals yet, nor will all of them ever be, but there are plenty of good buys on the market now, and many of those are negotiable. If you see something you like, you should make an offer at the price you feel is right for you. Much truth is written in your statement above, Coast is Clear. People should not be looking for quick flips, but longer term investments. Quick flips, even if sales pick up somewhat, are very risky presently, and in my opinion, will be for a while.
Many people are waiting for the bottom to hit and the curve to begin an upswing. The problem is that the "zone" (See author, Barry Sears) only last for a split second. Once it is recognized, the zone vanishes.
Beach Lover
...cognisenti in South Walton had realized the real estate values had stopped rising. Yes folks real estate peaked...
It took the cognisenti on Wall Street, who don't have their finger on the pulse of South Walton real estate as closely as you all do, several weeks, maybe 12 weeks, to figure this out and start selling their holdings down, but there is much more downside to go, should valuations plumet an additional 20% in the area, as I expect is a good possibility and not extreme at all, given the multiple 100% increase in valuations over the past few years...
Nice post, but why the big word (and using it twice!
) Any rate, you mispelled it. Here is the correct spelling of cognoscente and definition for the less cognoscenti. 
Correct either with an e or i at the end.
directionally challenged
While there is definite softness in the Gulf Coast market, as with most investments, the smartest investors are the ones who make their move when things look their worst, and get out when things look their best. That is something very counter to human nature.
Those that invest when all the news is bad will look brilliant when things turn. Are we there yet?
Once good news starts to come in it is too late.
Smart Cookie, Coast :clap_1:
SoWal Insider
People should not be looking for quick flips, but longer term investments. Quick flips, even if sales pick up somewhat, are very risky presently, and in my opinion, will be for a while.
Interesting spin on second-home as investment from Philly Inquirer column: Good Time to Buy Second Home?
So is this a good time to shop for that second home you've wanted?
Perhaps - but only if you expect to keep the second home for many years and view it as an indulgence rather than an investment. The days of flipping second homes for quick profit appear to be over, for now at least.
Edited
Beach Fanatic
Shelly:
I liked the article because it reminds the potential buyer of a second home to think about all the costs, as well as gains, involved in their particular situation. Though one can't predict all costs -- or all gains and other benefits -- it makes sense, of course, to figure out the costs involved in different scenarios. The article made specific assumptions (how much the house would increase in value, a 5 year time frame, etc.). You'd want to play around with different assumptions based on your personal needs. For example, how long a time frame? As for increases in the home's value, that's a tougher one, though I'm still optimistic about SoWal (if you don't plan on buying and flipping) and I think it will be much nicer than many other places that have gone "upscale" that have are primarily concrete and buildings with no green.
The other thing to consider is what you would do with your money if it wasn't tied up in a house. Frankly, a lot of people (e.g., two career couples) waste their money on things that don't increase in value (e.g., cars, too much expensive coffee even when blind taste testers consider some lower-cost coffees to be better, expensive lunches, etc.). One of the reasons that I wanted to get our property in SoWal, aside from how much we'd enjoy it and it's much warmer than Michigan in the winter, is that it would force us to be more disciplined about saving and managing our income. And that has worked very well -- and we don't miss anything we used to waste money on, though the kids are starting to get a bit embarrassed about our aging van.
As for renting to guests, we've been very happy. The rentals don't cover all the costs for sure (and one should never count on rentals to pay the bills), but I finished our taxes recently and the rentals covered about 2/3 of all our expenses. Not bad at all as far as I'm concerned. That's after 3-4 year of owning the property and the major expenses of furnishing the cottages are over, though taxes, insurance, etc. will continue to go up (but so has the value of the cottages). Of course, I put a lot of work into marketing, keeping our guests happy, working together with the management company, and maintaining the cottages -- but I enjoy that kind of work and I've certainly learned a lot in the past few years. One reason to do all this work, by the way, is that it does seem that there will be a LOT of rentals available and renters will have more choices than before -- so quality and service (and repeat renters) will become increasingly important if you want people to choose your rental over another.
I hope this information adds to the perspective given in the article. Again, I think the best part of the article is that it encourages people to consider all the costs, as well as benefits, of owning a second home. What the article doesn't cover is (once you can cover the costs) whether the second home will bring you joy, happiness, memories, peace, new friends and a community to belong to, a porch to read on that you can call your own, a warm uncrowded place to go in the winter months for walks on the beach and sunsets (the author of the article calls these "extravagences" though he admits that he has a "glass-is-half-empty" outlook on second homes, so it would be easy to miss these benefits with that perspective).
I liked the article because it reminds the potential buyer of a second home to think about all the costs, as well as gains, involved in their particular situation. Though one can't predict all costs -- or all gains and other benefits -- it makes sense, of course, to figure out the costs involved in different scenarios. The article made specific assumptions (how much the house would increase in value, a 5 year time frame, etc.). You'd want to play around with different assumptions based on your personal needs. For example, how long a time frame? As for increases in the home's value, that's a tougher one, though I'm still optimistic about SoWal (if you don't plan on buying and flipping) and I think it will be much nicer than many other places that have gone "upscale" that have are primarily concrete and buildings with no green.
The other thing to consider is what you would do with your money if it wasn't tied up in a house. Frankly, a lot of people (e.g., two career couples) waste their money on things that don't increase in value (e.g., cars, too much expensive coffee even when blind taste testers consider some lower-cost coffees to be better, expensive lunches, etc.). One of the reasons that I wanted to get our property in SoWal, aside from how much we'd enjoy it and it's much warmer than Michigan in the winter, is that it would force us to be more disciplined about saving and managing our income. And that has worked very well -- and we don't miss anything we used to waste money on, though the kids are starting to get a bit embarrassed about our aging van.
As for renting to guests, we've been very happy. The rentals don't cover all the costs for sure (and one should never count on rentals to pay the bills), but I finished our taxes recently and the rentals covered about 2/3 of all our expenses. Not bad at all as far as I'm concerned. That's after 3-4 year of owning the property and the major expenses of furnishing the cottages are over, though taxes, insurance, etc. will continue to go up (but so has the value of the cottages). Of course, I put a lot of work into marketing, keeping our guests happy, working together with the management company, and maintaining the cottages -- but I enjoy that kind of work and I've certainly learned a lot in the past few years. One reason to do all this work, by the way, is that it does seem that there will be a LOT of rentals available and renters will have more choices than before -- so quality and service (and repeat renters) will become increasingly important if you want people to choose your rental over another.
I hope this information adds to the perspective given in the article. Again, I think the best part of the article is that it encourages people to consider all the costs, as well as benefits, of owning a second home. What the article doesn't cover is (once you can cover the costs) whether the second home will bring you joy, happiness, memories, peace, new friends and a community to belong to, a porch to read on that you can call your own, a warm uncrowded place to go in the winter months for walks on the beach and sunsets (the author of the article calls these "extravagences" though he admits that he has a "glass-is-half-empty" outlook on second homes, so it would be easy to miss these benefits with that perspective).
Beach Lover
" ...it does seem that there will be a LOT of rentals available and renters will have more choices than before -- so quality and service (and repeat renters) will become increasingly important if you want people to choose your rental over another"
That may be true locally, but on the Gulf coast overall the inventory must be significantly down with all the storm damage. It will be interesting to see how that translates in SoWal. Either people will flock to what is available, or they will assume that the coast is damaged and make plans to go somewhere else.
That may be true locally, but on the Gulf coast overall the inventory must be significantly down with all the storm damage. It will be interesting to see how that translates in SoWal. Either people will flock to what is available, or they will assume that the coast is damaged and make plans to go somewhere else.
Beach Fanatic
Good point, Coast is Clear. I forgot about that. There are so many different things that influence the market, rentals, etc.
Our rentals have been up slightly this year, though I think people may be waiting until later to book their vacations, especially for summer. The risk of waiting too long to book is that you may not get the place or week that is your first choice.
Our rentals have been up slightly this year, though I think people may be waiting until later to book their vacations, especially for summer. The risk of waiting too long to book is that you may not get the place or week that is your first choice.
Beach Fanatic
I can relate to your aging van, Paula. We have one of those, too. Actually, we also have an even older pickup truck. It does have a Seacrest Beach decal on the windshield, though. That adds a touch of class! Without it the security guard might have kicked us out.
I agree, I'd much rather have the real estate than the new car.
I agree, I'd much rather have the real estate than the new car.
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