July 20 Coastal News Blog
Resort Real Estate Just Coasting along
Are We There Yet?
After 6 years of interesting growth and decline, do we know where we are? Are we "off-track" or just in another cycle that has taken a lower than usual dip to the south? How you read the answer will depend on the reason for heading to the coast in the first place.
Coastal-Edge perspective on where we are and how we got here...
A roadmap explaining where the coastal resort industry is headed isn't necessary for the locals. These are the individuals who have chosen to migrate to the coast for non-market-related reasons: the sea breeze, morning walks on powder white sand, and remarkable sunsets. These individuals are exactly where they want to be - at the beach. The locals, or end-users, are coastal resort investors who are commited to the community. Their return on investment begins the day they set foot at the beach. But there is another set of individuals who head coastward for an entirely different reason - for the sake of investment.
Clearly, it's still true that investing in coastal resort property is one of the wisest long-term investments one can make, but many individuals invested with high stakes expecting outrageous short-term return. When the market suddenly spiraled out of control it pulled many of those investors down with it.
The Road to Ruin: Wall Street
When the already troubled stock market (decline began shortly after Y2K or 2000) took another deeper, fear induced plunge after 9/11/2001, financially driven investors sought out brick and mortar investments. They were looking for something solid that they knew would stand should the stock market fail. So they headed to the one place where they could invest in their own future - Real estate. Those investors knew little to nothing about real estate, they were stock market "junkies" who needed a new investment fix. What started out as a very wise choice ended up taking the entire country down a long and difficult road.
The Feeding Frenzy
In the beginning, these investors began wisely buying up the most pristine properties, but they soon went back to their old habits. The minute they saw an increase in value, they began to "flip" their coastal and resort property as if it were stock. Buying, selling; buying, selling. Much of the most beautiful and sought after resort markets were being bought up by people who didn't know or care anything about it. The coastal resort market went crazy, and the investors wanted more.
Many "new" developers appeared on the horizon wanting bigger pieces of the pie. They built countless communities for "ghost dwellers" -- those frenzied Wall Street speculators. These speculators would drive up demand by buying entire blocks, 10-20 units, at a time without any intention of living in them; they bought them to "flip" them.
Many developers didn't realize what was happening, they only saw increased demand. They didn't realize that there may only be one end-user for every 10 units they built. They began submitting new plans, new applications for bigger financing and numerous permit requests. The lenders and banks jumped onboard -- BIG TIME. This was the ultimate doom for the industry, but not before the rest of the country came along for the ride. The stock market began to rebound on the tails of a robust real estate market, and everything looked great.
Clarification:
Of course there were, and are the legitimate builders. The true "place makers" and visioneers, but the industry suffered because of the many who just looked toward the immediate bottom line - a familiar Wall Street trend.
Scenario - Katrina.
August to December 2005 started the beginning of the end for the real estate boom. A hurricane blew the real estate industry into a new kind of frenzy -- an old-fashioned Wall Street "sell-off."
After hurricane Katrina, all those "ghost dwellers" or non-committal Wall Street flippers panicked -- as they always do when there's a national crisis. They began to sell off their real estate holdings as if they were penny stocks. They didn't honor contracts; they had no intention of living in those tens of thousands of spec homes and condos. This was all about investment and money. It wasn't that coastal real estate soured or turned bleak, but it was the actions of speculation that cast clouds of uncertainty. It was the speculators who didn't understand the unmistakable value of the coast, and refused to appreciate it for what it has to offer.
The developers were left with useless paper and no cash, and the real consumers who had a dream were left with unmet promises and the banks and lenders were caught with their pants down.
How did this all spread inland?
A boom is a boom. Inland developers saw what was happening on the coast and figured this was just a natural surge. Sadly they were wrong. Million dollar spec homes were now easy to build because the banks had seen so much money being infused into the marketplace, the banks and lenders totally lost their senses.
Conclusion
Real estate needs to be treated as just that REAL estate. REAL buyers, with REAL money, and REAL jobs -- REALity.
Back to the beginning -- Are we there yet? For those who still have dreams of migrating or retiring to warmer climates and balmy sea breezes, hold on to your dreams. Those falsely inflated prices by our bubble-blowing friends on Wall Street have been falling back down to almost reasonable again. On the present course, it wont be long until the cycle returns to a slightly new "normal."
The coast is still beautiful, the sunsets are still just as magnificent and there is definitely a LARGE supply of coastal properties from which to choose.
The true "place makers" and visioneers will continue to plan, invest, build and develop, and Coastal-Edge will continue to provide market intelligence: the key is to "know before you grow."
In the end, it is the opinion of Coastal-Edge that coastal and resort real estate is still just as valuable as before - the breeze is still balmy, the sand still washes between your toes as you walk down the beach and the sun still sets in blankets of gold, orange, red and purple. The coast is more than getting the biggest bang for the buck; it's a wonderful way of life.
Coastal-Edge will continue to monitor the news and keep you up-to-date on the latest.
Below: Chronological look at the Dow and the construction industry
Hmmmmm.....
