State of SoWal Real Estate - Spring 2009

500% reduction off peak price will do that sometimes.

How can you have a decrease of more than 100%??

33 months of inventory but how many months of good stuff. The stuff that sells the week it hits the market. You are looking at the market in a general sense. You really have to look at pockets and values. You can look at an area and see 100 homes for sale. I may look at it and see only 5 that are of market value and a good buy. I would not call it Risky Behavior at all. A builder still builds. An investor still invest. A flipper still flips. There will always be risk in any type of market. Most of the buyers we deal with today are extremely sophisticated and are able to be buyers because they did not get caught up in the herd mentality of 2003-2005. These buyers are approaching the market sensibly. The majority of our sales this year I would feel confident putting back in todays market and selling for a profit. When I sell today I always tell the buyer this needs to be a long term hold to feel the value but it does not mean we don't try to buy properties they could get right back out of if they need to. The buyers understand the market. Basically, the purchase could compete the day they buy. That to me is not risky but just good business. You make money in life when you buy. Not when you sell.

there are still flippers out there? what are they flipping? in order to make money you eventually have to sell don't you?

there are still flippers out there? what are they flipping? in order to make money you eventually have to sell don't you?

Yes, they are selling. There will always be flippers. Todays flipper has to add value to the property though. These are buyers that know the market very, very well.

33 months of inventory but how many months of good stuff. The stuff that sells the week it hits the market. You are looking at the market in a general sense. You really have to look at pockets and values. You can look at an area and see 100 homes for sale. I may look at it and see only 5 that are of market value and a good buy. I would not call it Risky Behavior at all. A builder still builds. An investor still invest. A flipper still flips. There will always be risk in any type of market. Most of the buyers we deal with today are extremely sophisticated and are able to be buyers because they did not get caught up in the herd mentality of 2003-2005. These buyers are approaching the market sensibly. The majority of our sales this year I would feel confident putting back in todays market and selling for a profit. When I sell today I always tell the buyer this needs to be a long term hold to feel the value but it does not mean we don't try to buy properties they could get right back out of if they need to. The buyers understand the market. Basically, the purchase could compete the day they buy. That to me is not risky but just good business. You make money in life when you buy. Not when you sell.

The problem is that most of that overpriced inventory is held by folks that need to get out and they are hoping for a miracle sale so they don't have to bring any money to the closing table. Eventually, a good chunk of that inventory will hit the short sale/foreclosure list and the prices will drop drastically. There aren't enough buyers to absorb all of that inventory for many, many years. That's why what looked like a good deal several months ago, doesn't look like such a good deal anymore. A good example is those Sanc at Redfish condos that auctioned off around $400k last year (I believe the buyers premium took the actual prices to mid $400's to around $500k--but I am not certain). There are now two shorts listed below $400k and they aren't selling. There are similar examples in areas up and down 30A.

How can you have a decrease of more than 100%??

I was just doing that math in my head and decided I better come in here and correct - 70% depreciation off peak. oops. Even with the market downturn an index in the s&p 500 would have been a far better investment choice.

Inventory for the same areas.

March, 2005- 854
March, 2006- 2089
March, 2007- 2433
March, 2008- 2505
March, 2009- 2245

I'll add my 2 cents so take it for what it's worth. The March 2009 inventory is pretty staggering. However, I personally believe the March 2009 inventory potentially represents only half of what is actually "For Sale." I believe there are thousands of lot/home/condo owners who want to sell their property but have moved beyond the formality of listing their property. The overwhelming mindset is "what's the point??" The March 2009 inventory is represented by 2 types of owners; those who have to sell or those who have equity as a result of purchasing prior to the run-up. So over supply should continue much longer than the current inventory levels/trends may suggest. Case in point-I drove thru numerous 30a neighborhoods/subdivisions last summer/fall and saw the vast majority of properties listed. I drive the same places today and see a dramatic reduction in For Sale signs.

All of that said, I bought property in 2005. I feel I bought smart but I would obviously take a loss if I sold today. However, I am very glad I purchased when I did. If I did not, all of those funds would have been squandered in the stock market. I can enjoy my property and have confidence that one day I'll have an opportunity to recoup my costs and maybe even make a profit. I'm thrilled that business is picking up for some local realtors as I know the ones still in the game have earned their opportunity. Considering local and national conditions, I'm also thrilled with the optimism and positive energy in SoWal. It's hard to complain these days about a glass half full.

I would like to echo what Ray and Fisher allude to above, and let me preface my comment by saying I know little to nothing about the real estate business.

It seems there is a keen interest as to when we hit 'the bottom' as if there is an implied expectation that once the market touches that magic mark, it will be back up, up, up like a rocket;those who don't buy this time will have either missed the boat (again) and be left to lament or will suddenly buy something in a 'better late than never' mindset.

Again, naive as I might be, I can't imagine that property values will do anything other than remain level for a long time. There certainly isn't any evidence that I can see to believe that the engine for another boom is being primed to fire-up again. God help anyone who actually desires another bubble, by the way.

All in all, I think a long period of stability is in order for our corner of the world. Time is the tincture that discourages those who view real estate as a get rich quick scheme. Downtime also allows for the further attrition of realtors who had no business getting involved in the first place, and there are still more than a few out there hanging on by their fingernails hoping that the boom money in the bank lasts until the bubble starts to expand again.

My hope as someone who lives here year round, and plans to do so for a long time, is that in ten years or so we have people who will have bought property for the right reasons (ie will be good owners be it part or full time) and a community of real estate professionals who enjoy a lucrative career by utilizing local expertise instead of just showing up to make a buck.

One more quick comment that I will be interested in hearing what the realtors have to say...

During this downtime, if I was a realtor, I would do my best to make it more difficult to obtain a Florida real estate sales associate license. Specifically, I would lobby hard to do away with reciprocity agreements with other states (especially Georgia, Alabama and Mississippi) and perhaps advocate changing the passing score on the exam to 80% instead of 75%. This would shut out a large number of the carpetbaggers and scalawags who are just waiting for this market to boom again. You might even consider denying a broker's license to anyone who has more than two foreclosed properties on their credit report as that would be a red flag for a realtor who may not have much real estate common sense.

Just a thought.

One more quick comment that I will be interested in hearing what the realtors have to say...

During this downtime, if I was a realtor, I would do my best to make it more difficult to obtain a Florida real estate sales associate license. Specifically, I would lobby hard to do away with reciprocity agreements with other states (especially Georgia, Alabama and Mississippi) and perhaps advocate changing the passing score on the exam to 80% instead of 75%. This would shut out a large number of the carpetbaggers and scalawags who are just waiting for this market to boom again. You might even consider denying a broker's license to anyone who has more than two foreclosed properties on their credit report as that would be a red flag for a realtor who may not have much real estate common sense.

Just a thought.

Great point!! Take this one step further to include every aspect of selling real estate.......not just licensing for mortgage brokers, but those who work for banks as well. Title agents and appraisers, too. When I searched for employees, most of the disciplinary action for the MBB was in S. FL, but NW FL had its share of the crooks as well. I think the shake out has occurred on these groups however just in normal attrition over the last 2-3 years.

The problem is that most of that overpriced inventory is held by folks that need to get out and they are hoping for a miracle sale so they don't have to bring any money to the closing table. Eventually, a good chunk of that inventory will hit the short sale/foreclosure list and the prices will drop drastically. There aren't enough buyers to absorb all of that inventory for many, many years. That's why what looked like a good deal several months ago, doesn't look like such a good deal anymore. A good example is those Sanc at Redfish condos that auctioned off around $400k last year (I believe the buyers premium took the actual prices to mid $400's to around $500k--but I am not certain). There are now two shorts listed below $400k and they aren't selling. There are similar examples in areas up and down 30A.

I have to agree with this. Though I do think that a good chunk of those people will just decide to suck it up and hang on.

There's a situation maybe a bobby or other posters can comment on. In my situation i recently bought on 30'a and paid 20-30% less than recent comps in my neighborhood. my question is in reference to all of 30-a.There's obviously many people who bought from 2002-2007 who are under water and throw in tons of people who bought in the 90's and got home equity loans and have no equity left. When they see tons of homes selling for 1/2 of what they owe will they walk? For instance a person who bought a home for $3.3 mil in watercolor or watersound and its worth $1.5 mil. Why would they hold being underwater $1.8 mil? Even if there wealthy why not let if go and rebuy something else in cash ? I think down the line this will put huge pressure on the mkt for a while. Thats why when i went to buy i had to get a price well under the comps to protect against the possible coming price drops.Plus i'm content to hold for 10 years or longer . Buyers are very smart now and they try to buy based on the lowest comps. Also as a note above says what about the huge pent up demand from sellers who haven't been able to sell yet? This mkt will stagnant at best for many years.

There's a situation maybe a bobby or other posters can comment on. In my situation i recently bought on 30'a and paid 20-30% less than recent comps in my neighborhood. my question is in reference to all o 30-a.There's obviously many people who bought from 2002-2007 who are under waterwater and throw in tons of people who bought in the 90's and got home equity loans and have no equity left. When they see tons of homes selling for 1/2 of what they owe will they walk? For instance a person who bought a home for $3.3 mil in watercolor or watersound and its worth $1.5 mil. Why

The high irony is that you and the person who sold you your property (assuming it wasn't foreclosed) will be viewed as 'the bad guys' by those around you who are stuck holding the investulation hot potato!

The high irony is that you and the person who sold you your property (assuming it wasn't foreclosed) will be viewed as 'the bad guys' by those around you who are stuck holding the investulation hot potato!

And you will get no appreciation from your neighbors who you have helped by causing their property taxes to fall.

There's a situation maybe a bobby or other posters can comment on. In my situation i recently bought on 30'a and paid 20-30% less than recent comps in my neighborhood. my question is in reference to all o 30-a.There's obviously many people who bought from 2002-2007 who are under waterwater and throw in tons of people who bought in the 90's and got home equity loans and have no equity left. When they see tons of homes selling for 1/2 of what they owe will they walk? For instance a person who bought a home for $3.3 mil in watercolor or watersound and its worth $1.5 mil. Why

Walking is not real easy. You have to be out of money. I can go into more detail later on your question. Going surfing!

Lol my neighbors will not like me no doubt. Its funny my neighbor paid 1.3 mil cash in 2005 and he could care less as it was stock options that paid for it and he said it would have been lost in stocks anyway.Mine was a short sale and the bank took a brutal hit. My question is will my new comps push the whole neighborhoods assessed values down? Will my new taxes be based on what i paid? somehow i doubt that as they'll be much higher i assume. I paid almost 40% less than my last assessed tax value.

Ray, if you bought short sale, it was a distressed sale and should not be used as a true comp for appraisal purposes, nor assessment purposes, as it was not an Arm's Length transaction. The tough twist is that often, there are no sales other than the distressed properties, so comps are difficult at best to come by for appraisals.

The March 2009 inventory is represented by 2 types of owners; those who have to sell or those who have equity as a result of purchasing prior to the run-up.

I think if that were true, those people "having to sell" would be listing their property at pricing that could sell. That is far from the case in most listings currently on the market. Sure, they may "need to sell," but if they "have to sell," and their property is listed for more than double the adjacent and similar property, they certainly don't appear to be in a situation that they must sell.

Ray, if you bought short sale, it was a distressed sale and should not be used as a true comp for appraisal purposes, nor assessment purposes, as it was not an Arm's Length transaction. The tough twist is that often, there are no sales other than the distressed properties, so comps are difficult at best to come by for appraisals.


I think if that were true, those people "having to sell" would be listing their property at pricing that could sell. That is far from the case in most listings currently on the market. Sure, they may "need to sell," but if they "have to sell," and their property is listed for more than double the adjacent and similar property, they certainly don't appear to be in a situation that they must sell.

Maybe they do need to sell but can't because they don't have the difference between the loan amount and what people are willing to pay? These are the folks that will ultimately just accept a masssive credit rating hit and walk away when their interest only, negative amortization, "I really can't afford this house but the bank was crazy enough to lend me money anyway" loans balloon.

Maybe they do need to sell but can't because they don't have the difference between the loan amount and what people are willing to pay? These are the folks that will ultimately just accept a masssive credit rating hit and walk away when their interest only, negative amortization, "I really can't afford this house but the bank was crazy enough to lend me money anyway" loans balloon.

Exactly--

Ray, if you bought short sale, it was a distressed sale and should not be used as a true comp for appraisal purposes, nor assessment purposes, as it was not an Arm's Length transaction.

Why were the short transactions not arms length transactions--

Were the buyers and sellers related to each other in all these transactions?

Did the sellers have to sell?

No is the answer to both of these questions. Sellers are not being coerced to sell. They could hold on if they wanted to or simply go into foreclosure. After foreclosure, the banks are not being forced to sell either. They are selling at prices that the buyers are willing to pay, not a penny more or a penny less.

The market for a home is the price it sells at

I'm not an attorney, so I'll let you argue whether the seller of a short sale property is under duress. If he or she is, the transaction is not an Arm's Length Transaction. In my non-legal opinion, the seller is in duress (hardship), and the buyer has an upper hand in the transaction.

I'm not an attorney, so I'll let you argue whether the seller of a short sale property is under duress. If he or she is, the transaction is not an Arm's Length Transaction. In my non-legal opinion, the seller is in duress (hardship), and the buyer has an upper hand in the transaction.

So, back in the days of the lotteries and bidding wars when the seller had the upper hand, were those transactions not arms length either? ;-)

Just because someone has a better negotiating position does not mean the transaction is non arms length in nature. The sellers in short sale situations can always walk away from the transaction if the price is too low. Same is true with foreclosures.

Market is what the buyer and the seller agree to. And, as you noted previously, most of the transactions occurring in the market are shorts and foreclosures. The market resides where those transactions are occurring. The only way to show that those transactions aren't in fact market, is to point to a similar property nearby that sold for a materially higher price in the recent past.

So, back in the days of the lotteries and bidding wars when the seller had the upper hand, were those transactions not arms length either? ;-)

Just because someone has a better negotiating position does not mean the transaction is non arms length in nature. The sellers in short sale situations can always walk away from the transaction if the price is too low. Same is true with foreclosures.

Market is what the buyer and the seller agree to. And, as you noted previously, most of the transactions occurring in the market are shorts and foreclosures. The market resides where those transactions are occurring. The only way to show that those transactions aren't in fact market, is to point to a similar property nearby that sold for a materially higher price in the recent past.

arms length goes to the realtionship of the buyer/seller.

I wish I was a bank. Write of the bad loan. Sell the asset, book it as income, and have Uncle Sugar reimburse me for the total loan amount and book that as income. It is a win win for the banks and the country!

arms length goes to the realtionship of the buyer/seller.

I agree. The relationship of buyers and sellers in short sales, foreclosure sales, etc are almost always unrelated making them arms length transactions.

However, SJ seemed to be relating arms length to the fact that a seller might be under duress to sell ,alomg it not an arms length transaction and therefore not a market value transaction. My point is that if a buyer and seller agree on a sales price, then by definition, market value was thereby established.

A non arms length transaction would be likened to some recent transactions in Alys whereby Ebsco bought back several properties at the original purchase price (so it seems per county records).

Non arms length examples would be someone selling to a relative at a "sweetheart" price or a developer getting friends to buy at an inflated price to set comps for the project. Typically foreclosures or short sales are not used or given less weight in an appraisal unless they comprise "a significant amount" of the transactions in an area.