Coastal Resort Mrket - How did we get here?

From a practical standpoint, I always look at two things when analyzing real estate prices:

1: Can you recoup most (or all) of your mortgage payment in the rental market?

A whole 'nother can of worms...

That brings up another aspect to the housing market scenario. I studied the "shadow markets" for some multi-family developers in some hardhit markets.

The 2008 National Apartment Report from Marcus & Millichap referenced the ?shadow market? of rentals and their affect on the multi-family rental industry about 37 times. The ?shadow market? generally refers to condos and single-family homes that were originally intended to be sold but have been turned into rentals instead.

For the most part, the report predicts that the competition apartments might face from single-family homes and condos will be offset by the growth of the renter pool due to the housing market. And they are predicting that because of the increased renter demand, that vacancy rates will drop and rents will go up.

Here are some highlights from several hard hit regions:
Las Vegas: ?The surplus of homes purchased by investors will force apartment owners to compete with shadow-rental stock; however, tighter residential lending standards and uncertainty in the housing market will encourage renters to delay home purchases, supporting demand.?

Phoenix: ?The shadow-rental market will cause metrowide vacancy to push higher in the near term, and concessions will likely return closer to historical norms. The renter pool is expected to continue to expand however, as tighter residential mortgage requirements and the resetting of adjustable-rate mortgages create a climate where current renters are hesitant to leap into the for-sale market.?

Sacramento: ?Further strengthening renter demand is the housing market, which may not hit bottom until 2009 or later and is discouraging current renters from making home purchases.?

It never ends. The after affects of buying and lending hit everyone.

In regards to your second point, the housing affordability indexes haven't hit level ground. There has always been a question in my mind as to the sufficient number of available affordable homes for the work force who support this area. Hopefully, more high-tech industry will continue to be attracted here. (this is where the economic development council needs to be focusing more attention). The affordability vs current market are still not in line.

Sorry to go off topic, I couldn't resist.

Our local market is driven by investment, the state of which is reflected by the stock market and upper income consumer spending. This is a second home vacation market - it'll recover when upper income earners look at their life savings and decide, we have cash to blow. Considering who's in charge in Washington and the tax hikes coming down the pipe in the next year, I'm not optimistic about a robust recovery for the local area any time soon. The buyers the area requires simply won't have the money.

Our local market is driven by investment, the state of which is reflected by the stock market and upper income consumer spending. This is a second home vacation market - it'll recover when upper income earners look at their life savings and decide, we have cash to blow. Considering who's in charge in Washington and the tax hikes coming down the pipe in the next year, I'm not optimistic about a robust recovery for the local area any time soon. The buyers the area requires simply won't have the money.

there...he said it.

30Ashopper...what about the retiree market?

coastal edge you have to understand things about people like shelly. TO HER THE GLASS IS ALWAYS AND I MEAN ALWAYS 1/2 EMPTY. My question to shelly is very simple.lets put the shoe on the other foot and look at your record.you being right about real estate now is not the question but how many years ago did you call for its demise? 10,12,15 years? i'm willing to wager if shelly was in the area in the late 90's she was negative and calling for the bust of the real estate mkt from 1999-2006 and each and every year as it appreciated 20-40% year after year. I know from 1995-2006 i said it couldn't keep appreciating at these incredible rates and sure enough it did. shelly is forgetting about the 1000's who made buckets of money here and KEP IT. remember much of this financing by flippers was 100% loans so in the end the bank is the one who lost not many of the flippers.before this is over banks like regions and suntrust and 1000's of other banks could be mortally wounded.there are awesome deals right now BUT IT COULD BE 5-10 YEARS BEFORE ANYONE BUYING EVEN NOW COULD SEE ANY APPRECIATION. Even after all the damage in places like water color homes don't seem to be selling for less than $300-$350 a square foot .Just like the negativity toward stocks this past year. Sharp traders made fortunes buying all huge dips and those who bought for a trade in feb-march got the biggest fastest returns in history with many stocks rising an incredible 1-4 times in only 5 months. if one was very early they still made good money on most stocks. naysayers on 30-a will never buy no matter how low prices go thinking they will go even lower and 10-15 years from now they'll be saying why didn't i buy.None of us knew the future and can only gloat after the fact that we knew this would happen. Sure all of us in the early 2000's knew this would pop someday but it went on much much longer than any of us dreamt of. In that time of denial by many naysayers people got filthy rich and many did exit with there money in tact. theres 2 sides to every story.

there are awesome deals right now BUT IT COULD BE 5-10 YEARS BEFORE ANYONE BUYING EVEN NOW COULD SEE ANY APPRECIATION.

Has the flipper mentality of instant profit ruined real estate investment or will intelligence and patience return?

I actually work in the trenches of RE and because of all the negativity I stopped following it as closely on forum boards and random news channels and began to focus on my business. The results were amazing. The market in my little world is hot. We are actually having a hard time finding product once again for certain buyers. Buyers were set on all these low bottom deals and many of these deals are simply gone. When you see products that can not be rebuilt for the cost of construction, look closely. A builder will not be repeating that performance. Some foreclosure homes will have 5 bids plus in an hour of being on the market. Try to buy one of those in this down market! The home WILL sell and will not be available for purchase later. I have no clue where we are in the market place but I know we are busy. I think the prices have gotten so good that folks are getting back in. As I said earlier, the buyer never left. The value did. Once a property hits the right price it is gone in days. BTW, these buyers have money, most pay cash and will not be letting there property go at a loss anytime in the near future. If you were one that was concerned that you were not going to get a chance to own a piece of paradise in the past now I can really begin to see where that may be headed. Wealthy people are buying great deals near the water with intent on a long term hold. The area(30A) is truly being bought up by the wealthy. I would predict that in 10-15 years the 30A area will be for the wealthy only. Locals, get a good look at Freeport because with time that's where many of us will be(as soon as they put a damn grocery store).

I would like to add the deals right now are vacant land and many are beginning to look at vacant land as the next direction. Builders get ready. It has been a long road for many builders and once the construction loans loosen up, we will start to see homes come out of the ground again.

Walk to the beach lots for under $60,000! Come on. Some of this stuff is cheaper then third world country lots. It will not last.

None of this is speculation or a guess. Look at the stuff leaving the market.

Before Shelly writes, "is this time to buy?" I have no clue. I just go to work and let the market decide that.

Has the flipper mentality of instant profit ruined real estate investment or will intelligence and patience return?

Flips are over but improving homes and vacant land buildouts for profit can happen today.
Once construction loans loosen up, look out. Walk to the beach for $60,000! When your neighbor paid $450,000. I think you stand a good chance on a spec if you watch your cost. The cheap homes along 30A are gone. Time to build more.

Agree with BobbyJ, at the right price, the property is gone in a flash; and the deals are cash.

So, if you are interested in this area as a long term investment and a great place to live or have a second home, now is the time to get a good buy. It is happening.

Now, if we can just get the banks/lenders to move a bit faster on some of the abandoned developments...

coastal edge you have to understand things about people like shelly. TO HER THE GLASS IS ALWAYS AND I MEAN ALWAYS 1/2 EMPTY. My question to shelly is very simple.lets put the shoe on the other foot and look at your record.you being right about real estate now is not the question but how many years ago did you call for its demise? 10,12,15 years? i'm willing to wager if shelly was in the area in the late 90's she was negative and calling for the bust of the real estate mkt from 1999-2006 and each and every year as it appreciated 20-40% year after year. I know from 1995-2006 i said it couldn't keep appreciating at these incredible rates and sure enough it did. shelly is forgetting about the 1000's who made buckets of money here and KEP IT. remember much of this financing by flippers was 100% loans so in the end the bank is the one who lost not many of the flippers.before this is over banks like regions and suntrust and 1000's of other banks could be mortally wounded.there are awesome deals right now BUT IT COULD BE 5-10 YEARS BEFORE ANYONE BUYING EVEN NOW COULD SEE ANY APPRECIATION. Even after all the damage in places like water color homes don't seem to be selling for less than $300-$350 a square foot .Just like the negativity toward stocks this past year. Sharp traders made fortunes buying all huge dips and those who bought for a trade in feb-march got the biggest fastest returns in history with many stocks rising an incredible 1-4 times in only 5 months. if one was very early they still made good money on most stocks. naysayers on 30-a will never buy no matter how low prices go thinking they will go even lower and 10-15 years from now they'll be saying why didn't i buy.None of us knew the future and can only gloat after the fact that we knew this would happen. Sure all of us in the early 2000's knew this would pop someday but it went on much much longer than any of us dreamt of. In that time of denial by many naysayers people got filthy rich and many did exit with there money in tact. theres 2 sides to every story.

Until lot prices stop falling (when lot inventory gets to reasonable levels and foreclosures have dried up), only then will home prices stop falling. That has not happened yet and it likely won't happen for several years. The free falling prices have probably come to an end, but a slow decline will continue (unless Obamas money printing creates rampant inflation).

Flips are over but improving homes and vacant land buildouts for profit can happen today.
Once construction loans loosen up, look out. Walk to the beach for $60,000! When your neighbor paid $450,000. I think you stand a good chance on a spec if you watch your cost. The cheap homes along 30A are gone. Time to build more.

How far is a "walk to the beach"? Depending on the distance, I think within two years you will see prices in the $30 to $40k range for places within a reasonable walk to the beach. In fact, there are already some LISTINGS BELOW $60k for walk to the beach lots (village of BM as an example or even Cypress Dunes for $40k today if you don't mind a short bike ride to beach access) and they aren't exactly flying off the shelf at those prices. Still way too much inventory and foreclosures for stable prices. The RE price slide is not over yet.

Has the flipper mentality of instant profit ruined real estate investment or will intelligence and patience return?

Real estate really isn't a very good investment, by in large you get back exactly what you put into it in the end. You would be far better off as an investor putting your money in the stock market. Real estate is more about enjoying a place to live or a second home.

For example, add up of the typical real estate "investment" in sowal - 4-6% annual appreciation. Add "free rent", subtract loan costs, insurance, taxes, maintenance costs, and inflation. When you sell you're left with what, maybe a negative gain or if you're lucky and you pick the right property, maybe 2-3% return? Compare that to say buying apple at 80 and selling it at 300.

there...he said it.

30Ashopper...what about the retiree market?

Sure, the folks who retired, sold their house in Austin or Dallas or Altanta and moved down. They have the money. Five years ago a guy making 50K a year could get a 650K loan for a house and flip it. Today that same loan would require 15-20% down (130K cash up front) stellar credit and income around 200K a year.

Some foreclosure homes will have 5 bids plus in an hour of being on the market. Try to buy one of those in this down market! The home WILL sell and will not be available for purchase later.

Absolutely correct. I put in an offer on a property which was on the market for seven days, and the seller had four other offers, all within two days of each other. The good deals are waiting to be gobbled by end users and savvy long-term investors. If you are a buyer, you better have your financing pre-approved or proof of funds ready to submit with your offer, and clear your contingencies as quickly as possible, such as insurance costs, mortgage rates, etc, and perhaps even home inspection. With five offers, if you really want the property, you better come in with a strong purchase price offer, high Earnest Money Deposit, and very few contingencies, if you really want the property.

That brings another thing to mind -- Pricing. There are two ways to price property:
1) price higher than your expected selling price, leaving room for negotiation.
2) price at the expected realistic selling price (not some lofty dream-like hopeful number), leaving very little room for negotiation.

With strategy #1, you will not get as many potential buyers to see your property, because it isn't priced at a "good buy."

With strategy #2, you should expect to receive several offers, with at least one being fairly close to listing price if not above listing price. When a property is perceived to be a good value, buyer's don't want to lose the opportunity to buy, because about only 1-5% of the current inventory is priced right (in buyers' perceptions). They will come in with strong offers, while the properties priced with negotiation room (strategy #1) will still be waiting as the median price continues to decrease slowly.

Agree with BobbyJ, at the right price, the property is gone in a flash; and the deals are cash.

So, if you are interested in this area as a long term investment and a great place to live or have a second home, now is the time to get a good buy. It is happening.

Now, if we can just get the banks/lenders to move a bit faster on some of the abandoned developments...

"right now" is not the only time to get in on a good deal. Those good deals will keep popping up for 3-5 years. There's no need to rush into anything. In fact, rushing in today will likely result in an investment you'll take a loss on over the next year or two. Which isn't to say now isn't a good time to go shopping, it's just that if you shop today or a year from now or two years from now, you'll still be in a good position find reasonable priced property.

There is so much inventory out there, and the foreclosures continue to occur. The "great unwind" in the sowal realestate market will take years to complete.

Absolutely correct. I put in an offer on a property which was on the market for seven days, and the seller had four other offers, all within two days of each other. The good deals are waiting to be gobbled by end users and savvy long-term investors. If you are a buyer, you better have your financing pre-approved or proof of funds ready to submit with your offer, and clear your contingencies as quickly as possible, such as insurance costs, mortgage rates, etc, and perhaps even home inspection. With five offers, if you really want the property, you better come in with a strong purchase price offer, high Earnest Money Deposit, and very few contingencies, if you really want the property.

That brings another thing to mind -- Pricing. There are two ways to price property:
1) price higher than your expected selling price, leaving room for negotiation.
2) price at the expected realistic selling price (not some lofty dream-like hopeful number), leaving very little room for negotiation.

With strategy #1, you will not get as many potential buyers to see your property, because it isn't priced at a "good buy."

With strategy #2, you should expect to receive several offers, with at least one being fairly close to listing price if not above listing price. When a property is perceived to be a good value, buyer's don't want to lose the opportunity to buy, because about only 1-5% of the current inventory is priced right (in buyers' perceptions). They will come in with strong offers, while the properties priced with negotiation room (strategy #1) will still be waiting as the median price continues to decrease slowly.

Is it really that low a percentage Joe?

Real estate really isn't a very good investment, by in large you get back exactly what you put into it in the end. You would be far better off as an investor putting your money in the stock market. Real estate is more about enjoying a place to live or a second home.

For example, add up of the typical real estate "investment" in sowal - 4-6% annual appreciation. Add "free rent", subtract loan costs, insurance, taxes, maintenance costs, and inflation. When you sell you're left with what, maybe a negative gain or if you're lucky and you pick the right property, maybe 2-3% return? Compare that to say buying apple at 80 and selling it at 300.

Speaking purely on the basis of "investment," I agree with part of your statement, that real estate has a low rate of return, and maybe negative rate of return. However, that doesn't include appreciation when you go to sell it.

Buying a home is a lifestyle choice. Buying a second home is a luxury expense, just like buying a boat is a luxury expense. Can the numbers work to make the pleasure worth the cost? -- yes. Can they not work for others? This is also true.

Real Estate is more of a place to park money than a true "investment." The hope being that over the long term, when you sell it, it will be worth more than when you paid for it. If you look over a history of time, you will see that is the case. We are far ahead of the market of the 1980's when interest rates were above 20% and houses were plentiful. People who bought in our area back in 2000-2002, can still undersell the banks, and still break even in most cases, or even make a profit. Generally speaking, though there are exceptions, the people who are currently pinched are purchasers from 2004-2007.

Movements in real estate market are typically much slower than other markets such as stocks, which are traded on a second by second rate. I know there is money being made in the stock market right now, but not by your average investor, who is buying mutual funds or index funds. Those people are typically sitting on cash, looking for a good place to park money. Cherry picking some of the better valued properties may work in the long run for these people. Many are hesitant to jump in and buy, but others have been slowly buying when they see good values. The majority of my buyers have been looking for 1-2 years, and I alert them to new listings the moment they come on the market, and they are willing to preview the better buys immediately.

Is it really that low a percentage Joe?

In my opinion, yes. I will add that looking at median prices of listings which expire, sell, go pending, and new listings coming on the market, on average, the new listings are coming on the market at prices higher than those which are expiring, as well as those which have sold and are going pending. Much of the new inventory is still over-priced. However, I see some Realtors pricing to sell, but that requires educating the seller, who finally sees the light after chasing the market downward for three years, dropping price by 50% or more. From what I've seen, the vast majority of sellers still shop their Realtor by going with the one who offers to list the property for the highest price. The only problem with that is that when the listing expires a year later, the market has dropped even further and the seller is out of pocket for the principle, interest, taxes, insurance, maintenance and maybe managment expenses. Let's take an example of a $1,000,000 house (the price being that amount purchased for in 2005). The owner financed 90%, or $900,000 at 6% (likely more) interest rate. He or she still owes $800,000 on the house, which would now sell for $450,000. So, the seller doesn't want to, or simply has no cash to, write a check at the closing table and decides to list with an agent who agrees to list at $699,000. The house and property, having no unique features, is not going to bring in one potential buyer, because the appraised value is really around $450,000. The house is listed for one year with no buyers looking and no sale. Meanwhile, the owner is paying:

interest and principle - $58,000 (during this one year period. Keep in mind that they have been paying this expense for three years, since they first started to try and sell the property)
Taxes- $7500.
Insurance - $6,500
I'm not even going to include maintenance expense because the house likely needs a paint job and some repairs as it has been financially neglected.

So, we have an annual expense to the owner of $72,000. Since the seller isn't being realistic in his asking price, he or she may as well multiply this amount by ten, because it may take that long to get back to the price he or she wants. It doesn't take a genious to see that $72,000 x 10 is $720,000 in cost to the owner. Either the seller needs to realize that it is cheaper to write a check for 350,000 or spend and additional $720,000 to hopefully get $699,000 for the house. Today's sellers still find this difficult to understand.

Maybe it won't take ten years for this current market, filled with short sales (soon to be REOs). My question is how long will it take for a house currently valued at $450,000 to appreciate to an amount of $699,000 (that would be a 55% increase in value)?

Speaking purely on the basis of "investment," I agree with part of your statement, that real estate has a low rate of return, and maybe negative rate of return. However, that doesn't include appreciation when you go to sell it.

Buying a home is a lifestyle choice. Buying a second home is a luxury expense, just like buying a boat is a luxury expense. Can the numbers work to make the pleasure worth the cost? -- yes. Can they not work for others? This is also true.

Real Estate is more of a place to park money than a true "investment." The hope being that over the long term, when you sell it, it will be worth more than when you paid for it. If you look over a history of time, you will see that is the case. We are far ahead of the market of the 1980's when interest rates were above 20% and houses were plentiful. People who bought in our area back in 2000-2002, can still undersell the banks, and still break even in most cases, or even make a profit. Generally speaking, though there are exceptions, the people who are currently pinched are purchasers from 2004-2007.

Movements in real estate market are typically much slower than other markets such as stocks, which are traded on a second by second rate. I know there is money being made in the stock market right now, but not by your average investor, who is buying mutual funds or index funds. Those people are typically sitting on cash, looking for a good place to park money. Cherry picking some of the better valued properties may work in the long run for these people. Many are hesitant to jump in and buy, but others have been slowly buying when they see good values. The majority of my buyers have been looking for 1-2 years, and I alert them to new listings the moment they come on the market, and they are willing to preview the better buys immediately.

I know that story first hand. Bought in 2001, plan on selling to get out of SD. Few properties in the area have sold yet, but based on the lowest, most reasonable listing, I'll walk away with about 3% appreciation. I totaled up all the costs, (homeowners fees, insurance, maintenance) threw in the benefit of not paying rent, and I make about 3-4% assuming it sells for what I think it will sell for.

Can't wait to get out of SD! (about two years from now most likely.) Point Washington and Blue Mountain are my current favorite picks for a place to move to.

Sorry that you are in that situation. I know that some current owners would love to have a 3% appreciation on their purchase. I'd love a that return on my pension plan which had miserable results during that same time.

We will come out of this market and there will once again be people who buy because they want the luxury of owning a vacation beach home, as well as full time residents who love being near the beach. Time heals all wounds.

In my opinion, yes. I will add that looking at median prices of listings which expire, sell, go pending, and new listings coming on the market, on average, the new listings are coming on the market at prices higher than those which are expiring, as well as those which have sold and are going pending. Much of the new inventory is still over-priced. However, I see some Realtors pricing to sell, but that requires educating the seller, who finally sees the light after chasing the market downward for three years, dropping price by 50% or more. From what I've seen, the vast majority of sellers still shop their Realtor by going with the one who offers to list the property for the highest price. The only problem with that is that when the listing expires a year later, the market has dropped even further and the seller is out of pocket for the principle, interest, taxes, insurance, maintenance and maybe managment expenses. Let's take an example of a $1,000,000 house (the price being that amount purchased for in 2005). The owner financed 90%, or $900,000 at 6% (likely more) interest rate. He or she still owes $800,000 on the house, which would now sell for $450,000. So, the seller doesn't want to, or simply has no cash to, write a check at the closing table and decides to list with an agent who agrees to list at $699,000. The house and property, having no unique features, is not going to bring in one potential buyer, because the appraised value is really around $450,000. The house is listed for one year with no buyers looking and no sale.

Any first hand accounts of what happens to the folks who simply can't sell at a reasonable price? Are they just sitting on the property, going into foreclosure, both?

Meanwhile, the owner is paying:

interest and principle - $58,000 (during this one year period. Keep in mind that they have been paying this expense for three years, since they first started to try and sell the property)
Taxes- $7500.
Insurance - $6,500
I'm not even going to include maintenance expense because the house likely needs a paint job and some repairs as it has been financially neglected.

So, we have an annual expense to the owner of $72,000. Since the seller isn't being realistic in his asking price, he or she may as well multiply this amount by ten, because it may take that long to get back to the price he or she wants. It doesn't take a genious to see that $72,000 x 10 is $720,000 in cost to the owner. Either the seller needs to realize that it is cheaper to write a check for 350,000 or spend and additional $720,000 to hopefully get $699,000 for the house. Today's sellers still find this difficult to understand.

Maybe it won't take ten years for this current market, filled with short sales (soon to be REOs). My question is how long will it take for a house currently valued at $450,000 to appreciate to an amount of $699,000 (that would be a 55% increase in value)?

What appreciation can we expect? Depends on the area of course.

Every case is unique. Some people have assets which the lender could go after, so a short sale may not be an option for them. Some may try and work out reduction of principle and interest with the lender. Some say, "screw this crap -- the bank can have it" (foreclosure). Others may simply write a check and call it a bad investment.

We will come out of this market and there will once again be people who buy because they want the luxury of owning a vacation beach home, as well as full time residents who love being near the beach. Time heals all wounds.

and time at the beach heals them faster

How far is a "walk to the beach"? Depending on the distance, I think within two years you will see prices in the $30 to $40k range for places within a reasonable walk to the beach. In fact, there are already some LISTINGS BELOW $60k for walk to the beach lots (village of BM as an example or even Cypress Dunes for $40k today if you don't mind a short bike ride to beach access) and they aren't exactly flying off the shelf at those prices. Still way too much inventory and foreclosures for stable prices. The RE price slide is not over yet.

Not flying off the shelf but they are selling. Lots are still the wild card to the whole RE scenario. Lots of great vacant land deals. Not so many great DSF homes under $350,000. Therefore, I feel the market is wide open for speculative building in this price range at the beach. I could sell that product all day long. Once this catches on, those cheap lots will begin to sell just like the cheap homes have been selling. Look at Grayton Cove. Those homes never even had to go on the MLS. A foreclosure sign out front and all six homes sold in weeks. The price was right and the buyers pounced. My father is a builder and has been very slow for 2 solid years. His phone has begun to ring again and has been bidding several jobs. The slide may not be over but something is changing. That is what I love about RE. It is constantly changing and can be a different market a mile away.

I recently heard of someone purchasing a lot in WaterColor for $65,000 that was in foreclosure.

Just wanted to throw that out there.

It always makes me wonder exactly how doom and gloom some folks are willing to go. The simple fact is that there is no more South Walton coming. We don't get more land every year, but we do get more visitors, full time owners, and investors. Short of a rendering plant in Pt. Washington I don't see anything in the pipeline that is going to make this area less desirable.

I have skimmed through all of these latest posts, but wanted to say thank you to the posters, even before I go back and read them in depth. This is the kind of conversation that teaches me a lot about the reality and mentality of sowal real estate. Knowledge is power...thanks!

Before a neighborhood short sale knocks on your back door, the reality of it all is "easier" to ignore. knock knock.... Knew it was coming, but, damm....sure am glad I bought for the "right" reasons! ;-)