Slowdown or Breather Before the Next Runup?

 

Tranquil moonrise in South Cocoa Beach.

Real estate sales activity in November was slow as is historically typical for the month. There were eleven closed single family homes in Cocoa Beach and Cape Canaveral in the month and 29 condos and townhomes. Median days on market has increased with closed condos at 35 days on market and 75 days for single family homes. Median price for closed condos was $400,000 and $1,020,000 for single family homes. Cash sales represented just less than half of single family home sales and 72% of sold condos.

New contracts were slow as well with only 26 new condo contracts during the month and thirteen new SF home contracts. As with the closed sales, the new contracts on homes during the month were concentrated in the higher-priced properties while condo contracts were more plentiful in the lower priced properties.

Inventory this morning stands at 240 condo units and townhomes for sale in the two cities and 32 single family homes. There is only one home for sale asking less than a half million. Median asking price for the condos is $397,000. Over a third of the condos have been on market for over 100 days. Median DOM for the entire condo inventory is at 68 days which is much higher than earlier in the year. All signs point toward a slowing market but, and it's a big but, this is always a slow time of year. Our market generally blasts off after New Years so we'll have to wait and see if the slowdown is seasonal or systemic. We have several well-known headwinds like rising insurance costs, rising condo fees and higher mortgage rates so it's anyone's guess whether we will be back off to the races come January. 

High today for Cocoa Beach, December 4, 2023 is 79° F with light winds. Very few snowbirds have arrived yet and visible human activity around town is minimal. I can feel the beach exerting a strong pull right now and I'm guessing others are feeling it as well. It's advisable to enjoy this last quiet period before Christmas if one isn't fond of crowds.

"It's hard to accept the truth when the lies were exactly what you wanted to hear." __unknown

What's Up With Condo Fees?

It's been quite a year for Florida property owners. The good news; a slow hurricane year. The bad news; insurance. The stories about wildly increasing homeowner's insurance premiums have been circulating since policy renewals began arriving earlier in the year. I started saving comments about rate increases from various internet forums where Florida homeowners were discussing insurance increases. Here are the most recent quotes I've saved. I have many others.

• Ours went from $2500 in 2018 to $6500 this year
• $4,600 this year up from close to $4,000 last year. A few miles from the coast Volusia County
• In Central Florida, it jumped from $1100 last year to $2500 this year
• In Land O Lakes, went from $1800 to $3900 per year 
• Up from $3,000 to $8,673. What do I win?
• Ours went from $1800 in 2020 to $5000 now
• From $4.3K to $8.4K. 30 miles inland. Roof replaced in '23. It was $1.3k back 4 years ago.
• My beach town house that was built in the ‘30s and has never had a claim went from $8000 to $22,000.
• We were $1600 for years… last year, $3600… this year, $6000. Orlando not near water
• $3300 in 2016, $6,000 2023 high and dry St Pete.
• $4500 to $9700
• Mine went up 50%. From $4,000 to over $6,000. 100 miles inland, ten year old metal roof, 1750 sq ft. That was with Castle Key,
• I just received a homeowner's insurance bill for $17,000!!! Last year it was $8000 and the year before $4000!
• We jumped 55% this year, 225% in the past four years. 

The drastic insurance increases hit condominiums hard as well with many local associations getting six figure increases in their master policy premiums. With a balanced condo budget in place, an unexpected six figure expense requires either a special assessment or, if ongoing like annual policy premiums, an increase in fees to cover it. Not every association has gotten their renewal yet and not all those who have, have figured out how they're going to pay for the increase yet. Some have done a combo special assessment and a fee increase to cover both the increased insurance cost and compliance with the newly required structural reserves. We'll continue to see both as associations come into compliance by the end of next year.

Those that haven't been keeping up with condo fees might be a little surprised how high fees have gotten. Of the current inventory of condos for sale, over 16% have monthly fees of $800 or more with several over $1000. Some of them have not done their structural reserve study yet which in almost all cases will require even higher fees. Deadline is December 31, 2024. Prospective condo buyers need to read recent meeting minutes to see if fee increases are being discussed and also need to know whether the milestone inspection and structural reserve study has been done yet. If the condo fees are much lower than similar complexes, it would be prudent to plan for an increase by end of next year. The silver lining is that once the fees settle into their new, higher levels, special assessments should become less common and far more affordable when they do happen. 

“Most successful people are just a walking anxiety disorder harnessed for productivity.” __Andrew Wilkinson

A Sad Listing Tale

When I pulled stats for my previous post the number of condo listings that were older than six months (25) got me thinking about the stories and reasons behind their failure to sell in a reasonable period of time. The first thing that comes to mind is that the units are overpriced. Sometimes reasonably priced listings can take longer to sell because access to the property is limited or there are other issues that have added friction to the selling process. Then there are properties that, because of location, lack of amenities or with building maintenance issues, attract a smaller pool of buyers than the crowd looking for a direct ocean unit in a well maintained building with a good view. Overprice one of these less desirable units and you have a good recipe for a lingering listing. Below is a timeline of one of the older listings on the MLS. It has been for sale for over a year.

The unit is a typical 2/2 unit in a popular oceanfront complex with less than 1300 square feet and a garage. It is ground floor, south-facing and has been remodeled. The furnishings are noted as "negotiable". The buyer's broker compensation being offered is at the lower end of the scale and the initial asking price of $549,000 was slightly above the recent selling prices of similar units in the same building on higher floors with an ocean view. The sellers bought the unit three years ago for $320,000, already remodeled and with the same furniture that is now listed as "negotiable".

The listing agent uploaded over fifty high-quality photos and a video tour and had an open house the first week on the market. He had a second open house a week later and dropped the price by $10K the following week. The open houses and price drops continued until today when there have been 18 total price reductions and 17 open houses. The asking price today is $112,000 less than the initial asking price. 

When the unit was first listed there were 115 total condos and townhome units for sale in Cocoa Beach and Cape Canaveral. Today a year later, there are 226. Why hasn't this unit sold?

This one looks like a combo of several things. We certainly can't fault the listing agent. He's held a record 17 open houses, provided good photos and a video tour and has coded everything correctly in the MLS. I mention the MLS because we still have listings that are missing condo names which might hinder a buyer's search who is looking for a unit in a particular building, especially one who has an MLS auto-alert for new listings in specific complexes.

This unit, being ground floor with no ocean view is dealing with a smaller audience of buyers than are units with ocean views. The initial asking price was above recent selling prices of similar units in the same building on higher floors with good ocean views. The price reductions lagged declining selling prices for the entire trip to where we are today. Not including the same furniture that came with the unit is a silly move that only adds friction to the process. Whether the low incentive to the buyer's agent has had any effect would only be known to those agents affected, if any. 

Despite all other factors I firmly believe this unit would have sold quickly if the original asking price had been $50,000 less than it was. That would still be $62,000 higher than today's asking price. After about the third or fourth open house and price reduction you would think a reasonable seller would realize that a drastic price move was necessary. Everything about this tale suggests that we are not dealing with a reasonable seller here. I don't know if this complex has started their milestone inspection and structural reserve study but if not, our obstinate seller is in for an unpleasant reckoning.

Anyone out there hoping to sell should take this story to heart. Whatever you and your agent think your property is worth, the market will deliver it's judgement which might be different than your expectations. The 'price high and maybe we'll get lucky' strategy might be counter-productive. Lacking other obvious reasons, if your listing is older than a couple of months with no offers, it is likely priced higher than the market thinks it should be. Considering the trend of recent sales, comps from earlier this year may not be a good indicator of what asking price will attract action now. A prudent seller will listen to the market. If all it's delivering is silence, that is a message, too. The market is different than it was earlier this year and higher interest rates are affecting both mortgage-seeking and cash buyers. Listen and adapt if necessary.

"Okay. You have to stop the Q-tip when there's resistance." Chandler to Joey

I'd Love It If We Made It

The prevailing trends in the Cocoa Beach and Cape Canaveral real estate market are increasing supply and increasing days on market. Half of the condo units on the market have been for sale for over 100 days. Only three of the 24 units closed so far in October were on the market over 100 days. That suggests that the ones that sold were priced fairly and that those older unsold listings are overpriced. It's logical that increasing supply going into the slow season would increase average days on market but widespread optimistic pricing is contributing to the slowed pace of sales. 

Despite high mortgage rates, nine of the 24 sold units so far this month used a mortgage to purchase. The 24 sold were on the market for a median 34 days with a median selling price of $435,000. We've had two units to close in October for over a million dollars, a 5th floor direct ocean unit at Ocean Oasis in downtown Cocoa Beach and a third floor corner at Meridian in north Cocoa Beach. Selling prices were $1.545 MM and $1.477 respectively. Over half (14) of the sold units commanded over $300 per square foot with seven of those over $400/sq ft.

We began the year with an average inventory of around 135 units through March but then began creeping up and hit 164 by mid-June. The supply continued to increase and inventory of condo units this morning is at 225 units. 

Condo fees are going up for the reasons described in my last post. 2023 renewal insurance premiums were high enough to trigger fee increases at several complexes and now the majority are preparing for the results of the new reserve study and projected increases necessary to comply. I've been saying it for a while now but the reality is that condo living in Florida is about to get much more expensive. There is no reason to believe that prices will remain steady as the fee increases begin to happen. I think an across-the-board pullback in condo prices is almost certain to be happening by next year. The first indications are already being felt with the increasing days on market and abundance of price drops. Buyers are less likely to find themselves in a multiple offer situation than they were a few months ago and have more bargaining power than before. Based on the current asking prices, most sellers are, so far, unwilling to accept the changed reality and, if history informs, will be slow to respond to the changes. The good news for buyers is that there are sellers who are realistic and want to sell. Hint: those are less likely to be found in the group of units that have been on the market for months. 

Good luck to all market participants. Reality-based buyers and sellers are the ones who will make it to the closing table. The rest will continue to cosplay their roles until they accept reality or quit the game.

"The prerequisites for failure were all in place." __unknown

Triple Whammy

Condo fees in our area are going up, dramatically so for some complexes. Quite a few associations are facing an unpleasant trifecta of increasing insurance costs, increasing costs of maintenance and the new structural reserve requirements. VeroNews.com spells out the triple whammy of increasing costs for condo owners. Realistically there is a fourth whammy. In addition to repairs, insurance and reserves, inflation has proven to be an unwelcome surprise. Associations contracting for concrete restoration now are finding out that the costs for concrete projects have ballooned in a few years. The backlog of condos contracting for major restoration projects is growing as everyone scrambles to meet the December 31, 2024 deadline. The concrete restoration companies have more work than they can get to and pricing naturally reflects that. As we approach the deadline at the end of 2025 this will only become more pronounced. The median monthly condo fee of the units for sale right now is slightly over $550 and certain to be higher by end of next year by which time all complexes will have done their inspections and begun funding the new structural reserves.

Anyone looking to purchase a condo in Florida should be prepared for fee increases next year unless the association has already renewed their master policy and established and begun funding the structural reserves. Prospective buyers should be requesting a copy of the milestone inspection report and reviewing the association financials carefully. The majority of local condos have not completed their inspection and subsequent reserve study so in those complexes a prudent buyer should factor in a not-small fee increase once those are completed. All other things being equal, a condo unit with $550 a month fees is worth more than an identical unit with $800 fees unless that $550 a month unit is about to jump to $800. Hint: many of those units at $550 now will be much closer to $1000 by the end of next year. Offer accordingly.

Our condo inventory has continued to creep upwards with 195 condo and townhouse units for sale today in Cocoa Beach and Cape Canaveral. A third of those have been on the market for 90 days or longer. Only 36 units have gotten an accepted contract since September 1. Of the 51 units closed since first of September, slightly over half were cash deals. Half of the 51 sold units sold within 30 days of listing. With increasing supply and dwindling buyer interest anyone trying to sell a condo needs to realistically evaluate the competition. A seller with a unit that has been on the market for longer than a month should be asking themselves why one of the 36 buyers that found a unit since September 1 didn't offer on theirs. One question for those sellers: If you haven't gotten an offer at your current price how much of a price reduction do you think will be be necessary to entice a buyer next year once fees have gone up?

I may be entirely wrong about rapidly ascending condo fees but the evidence suggests otherwise. Maybe insurance will become cheaper. Maybe the legislature will eliminate or modify the reserves legislation. Maybe.

I don't know how much rain we got this week so far but I'd guess close to a foot. Add in Canadian smoke in the air and it's been a strange beginning for an October. Cheers.

"Any regulatory framework emerging from closed door meetings will benefit those in closed door meetings." _Denver Riggleman

Rising Tide of Inventory

Inventory of homes and condos for sale in Cocoa Beach and Cape Canaveral continues to increase. There are a total of 176 condos and townhomes and thirty single family homes for sale in the two cities. The median days on market for the current inventory of condos is at two months. Considering that over 80% of the condos closed so far in July sold in the first four weeks on market it seems that the majority of the current inventory is probably overpriced. There is less indication of widespread overpricing among single family homes with median days on market of current inventory at 39 days. 

Cash continues to dominate the condo market with 70% of the closed condo sales in July going for cash. I expect the over-priced listings to continue to languish while fairly priced new listings pick off the buyers. Anyone with a condo listing older than four weeks is advised to look at recently sold prices of comparable units and to adjust their expectations and asking price accordingly. Buyer mania has cooled and hoping to set a record selling price is not producing results for those who are still trying except for those few with extraordinary properties. Realistically priced units are selling.

"I would exercise caution with pre-construction condos and be aggressive (low) with offers. We have shifted from a seller's market to a buyer's market in high-end condos in a very short time." __Larry - March 4, 2005

Does This Make My Butt Look Big?

(This is a repeat of a post from 2009 that is still relevant today. As I've mentioned in recent posts, there are condos that will not satisfy any lender's requirements regardless the loan officer's eager optimism and buyers and their agents may be wasting their time looking at them.)  

Does this make my butt look big? Everyone knows there is only one correct answer to this question no matter who is doing the asking. There is another popular question that also has but one answer. That question is one that is posed to loan officers and mortgage brokers every day, "Do you foresee any issues with my getting a loan on this property?" Day one in loan officer school the class is asked this question and then instructed to shout in unison, "No, not at all." over and over until the phrase is firmly imprinted on their brains. Then, when "the question" is posed by an actual borrower, the neuro lingual programming takes over without any conscious thought and "the answer" comes forth confidently. Doesn't matter that the Florida condo that the borrower is asking about is 1800 miles away from the lender's office or that the last Florida condo loan that the loan officer did was in 2006. "We can do it" he says with a confident smile. Right. He can do it until he can't and that usually doesn't becomes evident until well down the road towards closing.

All borrowers who are buying a Florida condo would be well advised to talk to a lender in the market in which they are purchasing. There are issues with Florida condo loans that lenders will not encounter anywhere else. A great credit score and previous relationship with a distant lender might not be enough when the hurdles to closing start appearing. A good local lender who is active in our market will have knowledge about Florida-specific loan issues and will likely have encountered many of the sure-to-happen problems with previous loans. That knowledge allows him to be proactive rather than reactive in addressing these issues. Anticipating and working to solve an issue before it presents itself can be the difference in making a closing date or not.

Disclaimer: I'm not saying out-of-area lenders can't close deals here. It happens all the time, but, from plenty of personal experience, I can say without hesitation that the odds of having problems are increased when the lender is not local. Just don't expect a loan officer to admit that his performance out of state may be compromised by lack of local experience. Remember the NLP "answer" from class. I can close deals and represent buyers anywhere in the state of Florida but I don't venture outside my market because I can't do the best possible job for my client in a market I don't know. Greed and false confidence encourages many realtors and lenders to venture out onto the thin ice, often to their client's detriment. Be skeptical when yours fearlessly claims proficiency in an unknown market.

You may leave here for four days in space

But when you return it's the same old place

The pounding of the drums, the pride and disgrace

You can bury your dead but don't leave a trace

Hate your next door neighbor but don't forget to say grace 

___________Barry McGuire - Eve of Destruction, 1964

Mortgage Failure

Check out the honeybee swarm I saw on a palm tree at the Cocoa Beach Golf Course a few days ago. They were all gone two days later.

I read a startling comment today from a Florida lender who said that in South Florida, "less than 10% of loans submitted for full condo review will receive condo approval & close." I've seen my share of rejected condo loans but that number surprised me. Those applying for a condo mortgage will hear about the condo questionnaire but may not fully appreciate the root canal that getting one completed can be. Florida conventional condo mortgages have their own separate qualifying guidelines that are set by Fannie Mae and Freddie Mac and the initial steps in getting a condo loan approval includes having the condo association complete the dreaded condo questionnaire. There are two forms of this document depending on the amount of down payment being made, full condo review as mentioned in the opening sentence and the limited review which a higher down payment can allow. To qualify for a limited review, the unit must be purchased as a primary residence or 2nd home and typically requires 30% down payment although there are ways around this. Investor units do not qualify for limited review. Things that matter and can lead to a loan denial with a a full review that don't matter with a limited review are association financials including reserves, percentage of owner residents and percentage of units past due among other things.

The reviews have always been quite thorough and, earlier this year, became even more so with the addition of questions about building condition and existence of safety concerns. The vague nature of the new questions has led to some associations refusing to complete questionnaires for fear of exposing themselves to liability. There are questions that start with "Is the association aware of..." and "Is it anticipated that...". I can understand the reluctance to sign one's name to a question like this. Here is a more in-depth look at this growing trend of refusing to complete the questionnaire from the Orange County Register (CA). There are a few associations in our market that already refuse to fill out the questionnaire effectively making the units there cash-only. 

Buyers hoping to buy a Florida condo who plan to use a mortgage to purchase need to discuss with their buyer's agent their down payment percentage and whether the purchase is for residence or investment so the agent can avoid units in buildings that won't be able to satisfy the underwriters. Becoming familiar with the requirements on the Florida condo full review will help educate buyers and agents alike about what criteria are critical to approval. Here's a copy of the Fannie Mae full review questionnaire that a buyer's lender is going to want answered by the association. Save a lot of time and effort by avoiding condos that can't satisfactorily answer these questions or be prepared to put 30% down to downgrade to the limited review or pay cash.

"A debate between an expert and a crank does nothing other than elevate the crank." _Mehdi Hasan