Coastal Resort Mrket - How did we get here?

[30ashopper]

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?

 

[Smiling 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.

 

[Smiling JOe]

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)?

 

[30ashopper]

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.

 

[Smiling JOe]

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.

 

[30ashopper]

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.

 

[Smiling JOe]

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.

 

[GoodWitch58]

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

 

[Bobby J]

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.

 

[Matt J]

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.