Monday, January 16, 2023

The Year of Reckoning

Shuttle on the pad in 2011


There are 135 existing MLS-listed condo and townhouse units for sale this morning in Cocoa Beach and Cape Canaveral plus two units at The Surf, the almost-completed, new oceanfront building in downtown Cocoa Beach. New contract activity so far this year has been slower than we enjoyed through most of 2022 with only twenty two units going under contract since Jan. 1. During the same time 35 new condo listings hit the market. Sales activity typically spikes February through April every year so we'll have to wait to see if sales can overtake the flow of new listings during that period. Condo inventory got as low as 34 units for sale last March because of strong sales during that time. Half of the units for sale right now have been on the market for two months or longer including a bunch of weekly rental units that were selling like hot cakes last spring and early summer but have since cooled considerably. The AirBnB investment hysteria of 2022 appears to have lost momentum. 

As condos begin performing their newly mandated structural inspections and reserve studies this year I expect to see an increasing number of new condo listings as the impact becomes apparent. I think that impact will include lower selling prices. That's not a guarantee but higher monthly fees for most condos is almost a certainty. Those who live in older buildings with unaddressed concrete issues would be well-served to be thinking about how much the new structural reserve fund will add to their fees. Concrete restoration is costly and buildings that already have well-funded reserves will not escape the impact of the new reserve accounts. Prospective condo owners should include the possibility of substantially increased fees as part of their purchasing decisions. 

The launch of the Falcon Heavy yesterday evening was spectacular and the two boosters were visible  from separation to landing at the Cape. Next launch is Wednesday morning.

"Tell people what they want to hear and you can be wrong indefinitely without penalty." _Morgan Housel

Thursday, December 29, 2022

REMINDER: Condo Registration Due Dec. 31

 All condos in Cocoa Beach and Cape Canaveral with at least one building over two stories must submit their registration to the State by the end of this year, Saturday, December 31. It's very simple and can be done online (link below). Do not miss this first step in compliance with the new legislation passed in July. It is not optional.

  • 718.501(3)(a), F.S./Senate Bill SB 4-D requires all condominium and cooperative associations with buildings 3 stories or higher to report the following information to the Division of Florida Condominium, Timeshares and Mobile Homes on or before January 1, 2023.

    • Contact Name, Phone Number, and Email Address
    • Name of Project
    • Project License # ( To find license # please click here)
    • The number of buildings on the condominium property that are three (3) stories or higher in height.
    • The total number of units in all such buildings
    • The addresses of all such buildings.
    • The counties in which all such buildings are located.

    You may provide your association's information to the Division by simply completing and submitting the Building Reporting form below. You may also submit this information via email at: ctmhbuildingreporting@myfloridalicense.com or by USPS mail or hand delivery to:

    Division of Florida Condominiums, Timeshares and Mobile Homes
    Attention: Building Reporting
    2601 Blair Stone Road
    Tallahassee, FL 32399-1030

  • "Ever thine. Ever mine. Ever ours." __Ludwig van Beethoven 

Tuesday, December 20, 2022

What Now?

Here we are at the end of another year and we find ourselves with an uncertain real estate market in Cocoa Beach and Cape Canaveral. A lot has changed in this market since January. Inventory of condos and single family homes is more than double what we began the year with and it's still increasing. Inventory bottomed in March with inventory getting as low as 34 condo units and 10 single family homes for sale in our two cities. This morning we have 127 condos and 25 homes for sale. Condo sales during the first four months of 2022 averaged 73 units per month but slowed abruptly in May just as inventory started rebounding and continued slowing through December. In October we sold exactly half the units we did in October 2021 and that was with twice the inventory.

Mortgage rates rose at the fastest pace in 28 years this year. In January 2022 the national average rate for a 30 year fixed rate mortgage was 3.22%. It was 7.08% the last week of October but has pulled back to 6.31% in last week's survey. A 30 year mortgage at today's rate has a payment that is 43% higher than it was a year ago. A $300,000 mortgage with payments of $1300 that was available in January would be $1858 at today's rate. Add higher taxes, insurance and condo fees, and it begins to affect demand.

Speaking of condo fees, we've seen a wave of condo associations in our area forced to make substantial increases in fees to cover increasing insurance premiums and higher expenses across the board. That trend is still in the first inning. All associations with buildings over two stories in our two cities will have to begin funding the newly mandated structural reserve fund over the next two years after they've performed their inspections and structural reserve studies. The insurance premium inflation that is likely to continue plus that new reserve funding is going to hit hard in many complexes and will force further increases in monthly fees. I expect demand for condos to chill as the higher fees become reality. I also expect today's prices to retreat in response to the lower demand and higher costs. There has not been a lot of discussion about this unpleasant new reality but it is here and must be addressed by the end of 2024. Based on many years dealing with many condo associations I expect a good number of them to ignore this for as long as possible. 

Anyone reading this with a unit in an older building would be well-advised to start thinking about possible inspection findings in their buildings and how that is going to affect them and the value of their unit. Associations can no longer wait until project time to levy a high special assessment to pay for concrete repairs. The new law requires that ongoing contributions to the structural reserve be sufficient to pay for the project at the time it needs to be done. The sooner the engineer says the concrete project needs be done, the higher the increases to fees need to be. 

Sellers of affected condo units (every condo in CB and CC over two stories) will be required to share the structural inspection results with potential buyers or disclose that it hasn't been done yet. As of right now, no disclosure is required but potential buyers need to be aware that today's condo fees whatever they may be are likely going up even in buildings in perfect condition. 

What will our local real estate market look like in 2023? My expectation based on everything I've already mentioned is that demand for condos will continue to cool and prices will begin retracting as the fallout from the new inspection/reserves requirements becomes apparent. This might not happen until the second half of the year if most associations procrastinate on their inspections as I expect them to. Single family homes will continue to be in short supply and I don't think their prices will be as affected as condos although they have their own headwinds in the form of increasing insurance costs and higher mortgage rates. I think 2022 will mark the peak for prices during this cycle. I believe the high selling price for units in some buildings has already happened. 

As always, I could be so far off the mark that I'm shamed into buying all readers a drink in consolation. Offer stands and these predictions will be evaluated next December. Feel free to make your own anonymous predictions in the comments.

Happy Hanukkah, Merry Christmas and Happy New Year, y'all.

I did not consider, even passingly, that I had a choice when it came to surfing. My enchantment would take me where it would.” __William Finnegan

Sunday, November 27, 2022

Breach of Fiduciary Duty. It's Easy.

Half of the current inventory in Cocoa Beach and Cape Canaveral has been on the market for two months or longer. Two thirds of the properties that have received an accepted contract so far in November were on the market less than a month and all but two of the rest had reduced asking price substantially. That suggests to me that new listings are being priced more attractively than the majority that have been sitting on the market since summer and that some of those existing sellers who are dropping their high asking prices are finding buyers.

Deciding on an asking price was fairly simple for the first half of 2022. A seller and their agent could estimate fair market value and add 10 to 20% on top of that and expect multiple offers as soon as the listing hit. That has changed. When the slowdown began in the summer many listings were sitting with optimistic asking prices and didn't notice when contract activity tapered off. Listing agents who were paying attention began tempering sellers' expectations and the ones that adjusted asking prices to the new slowed market were the ones who successfully picked off buyers from the shrinking pool of hopeful purchasers.

With the crazy high rents for next year's snowbird season it's probably reasonable to expect many still unsold condos to pull their listing until after March and rent for the season. The sellers that do this are gambling that their asking prices will be more attractive to buyers late next spring and summer than they are now. What are the chances? Perhaps the stock market will have recovered and cash buyers will be comfortable again with cashing out investments to buy a beach getaway. Perhaps mortgage rates will not be higher than they are now. Perhaps those whose employment was curtailed will have landed in a better position and resume their search for a Florida property. All three of those things have affected the number of prospective buyers of Cocoa Beach properties. Our market is directly tied to these and other macro conditions that we have no control over so, as always, deciding whether to sell or wait is at best an educated guess. 

A suggestion for the handful of sellers who intend to rent to snowbirds while continuing to try to sell their unit: Please let your renters know before they arrive that you will be having agents and their clients coming by to see the unit during their vacation. Best is to arrange a certain day and/or time period for showings so they don't always have to be on call and ready for a visit by strangers. I run into a few pissed-off snowbirds every season who were never told about this in advance and who are rightfully put-out by the inconvenience and who sometimes express their anger by making showings unpleasant. Not optimal for selling.

Deadline Approaching - Condo Board Members Do Not Ignore

The deadline for registration for condos that was mandated in new legislation this summer is approaching. All affected condos (every condo in Cocoa Beach & Cape Canaveral over two stories) must register with the State by December 31 which is just 34 days away. The association then has two years before they must have completed both their milestone inspection and their structural reserve study. The structural reserve study can't be completed without the results of the inspection so associations need to be making arrangements for their inspections soon. The first inspection may trigger a secondary inspection so it would be prudent to build in some wiggle room with scheduling. Structural engineers who will be doing these inspections are going to be very busy the closer we get to the Dec. 31, 2024 deadline. Associations who wait too long to schedule their inspection might find themselves tardy with the reserve study because of it. I would expect it to take several months to schedule and complete the inspections and reserve study. A nice little incentive for condo Board members built into the legislation is that it is a "direct breach of fiduciary duty liability for failure to comply" with this law. Follow this link for the simple registration process. Deadline Dec. 31 this year.

The sheep will spend its entire life fearing the wolf, only to be eaten by the shepherd.” _unknown

Wednesday, November 16, 2022

Peak AirBnB. Buzzkill?

Hurricane Nicole pushed a lot of sand around and the dune plants were covered in a thick layer of blown sand after the storm while the actual erosion was minimal. Unfortunately my porch was similarly coated. There have been a few articles written speculating on why Cocoa Beach and Cape Canaveral were spared the erosion both north and south of us. Credit has been given to our periodic beach renourishment. While that certainly helped I think there is another greater factor. 

Every local surfer knows that during big winter north swells the Cape shadows Cape Canaveral and Cocoa Beach from that swell. It can be double-overhead in Satellite Beach while the Pier is waist high at the same time. The north wind and waves as Nicole was approaching that was chewing up oceanfront structures in Volusia County and Satellite Beach was way less impactful in Cocoa Beach because of that shadow and that saved us from damaging erosion. This is not the first time I've seen this phenomenon here.

Having written about the Cocoa Beach real estate market for eighteen years now, I am often asked about my thoughts on the state of the market. Ever-increasing selling prices of properties are usually the main subject of these discussions. People like to mentally tabulate their net worth gains whether they're thinking of selling a property or not. These discussions have increasingly included speculation about a slowdown or pull back and what might be the trigger. I'll take a stab at that.

I believe we have reached and passed the peak in prices for most property types. There are certain unique properties that are less affected by macro market conditions and may continue to appreciate but for most I think we've hit the wall for the current cycle. Condos are certainly not among those unaffected types. Appreciation has been strong since the bottom in prices around 2010. Many condos bought between 2010 and 2015 that sold this year closed for two to three times the purchase price. When I narrow my focus to properties closed in the last six months that were purchased after 2018 I'm seeing examples of as much as 48% annual appreciation. While the annualized number is remarkably high, the bulk of those gains accumulated during the crazy runup in prices this year. The high prices are what prompted many of these sellers to sell even though they only purchased a year or two ago.

It's not surprising to see properties bought a decade ago during the post-crash bottom sell for three times the purchase price but it is concerning to see properties bought less than two years ago sell for almost double the purchase price. Weekly rental condos have been among the most rapidly appreciating types. There has been quite a lot of media attention this year alluding to the wealth to be made owning vacation rental properties. While short-term rentals can generate quite strong cash flows, the reality is that those who paid this year's prices and who must hire management will be netting quite a bit less than the get-rich podcasts may have promised. I think we'll look back on 2022 as peak AirBnB. Earlier this year there were feeding frenzies of buyers with every new vacation rental listing. Multiple offers first day on the market were expected and most units sold over asking price. We had multiple sales of weekly units without garages closing for over $700 per square foot. These prices are unjustifiable in my opinion. We saw short-term rental rates skyrocket during the pandemic and while they may remain at these elevated levels, I don't see much room for increases. The increased competition in our area has taken away rental pricing power and reduced occupancy for all but the most desirable properties. New owners are finding that a nice but not great unit is not enjoying the same occupancy the rental history may have showed and the 20% to 35% short-term management fee is taking a big bite out of what does come in. We have yet to feel the impact of the new structural inspection and reserve requirements as well as the expected increases in master wind and flood policies. These will force increases in condo fees which will be substantial for some older complexes. The vacation rental condos are predominately cash deals so fortunately higher mortgage rates have not had much impact on them.

The prospective buyers for other types of condos and single family homes are, however, affected by those much higher mortgage rates and are facing similar uncertainty about insurance. Many have decided to call off their search and wait to see what happens. A smaller pool of buyers is not positive for prices. Those buyers who feel that they may have missed their opportunity may get a shot in the coming months and years at lower prices if they are willing to make peace with the uncertainty of overhead moving forward. 

And that is my Debbie Downer evaluation of the state of the Cocoa Beach and Cape Canaveral real estate market in November of 2022. Perhaps next year I will be proven wrong. I would welcome that. Wherever the prices go, Cocoa Beach remains a special place in Florida and we were reminded early this morning of one of our unique attractions when we were finally rewarded with the launch of Artemis 1 around 1:30 AM. It was a beauty as it ascended towards a bright half moon hanging over the ocean welcoming the Orion spacecraft on it's first lunar visit. We are headed back to the moon after a long break.

"Ever notice that people who have an hour to waste usually try to spend it with someone who does not?" - Bernard Meltzer

Wednesday, October 19, 2022

Slowdown

Inventory of residential real estate for sale in Cocoa Beach and Cape Canaveral has increased more than 150% since April this year but the pace of increase has slowed in the last couple of months. I'm not seeing much softening of selling prices but new contract activity has slowed significantly. Closings lag contracts by several weeks so the impact of this slowdown will become apparent next month. If the slowdown continues, sellers will be forced to temper their optimism if they hope to attract attention from a dwindling number of buyers. While Ian's impact locally was very limited, I think it's reasonable to assume some reduced buyer enthusiasm from the media coverage of Ian's damage and impact on the future cost of insurance for Florida properties. We had a couple of false slowdown alarms earlier this year so we may be back off to the races by Christmas. I do not expect selling prices nor pace of sales to maintain their vigor but I have been wrong before. Participants are encouraged to weigh the available evidence before jumping into this market.

There were sixty closed sales of condos and townhomes in our two cities in the month of September. Prices ranged from $1,585,000 for a remodeled 22 year old oceanfront corner 3/3 at Solana Shores to $129,400 for a 64 year old, 338 square foot 1/1 a block from the ocean in south Cocoa Beach. Median selling price for condos was $385,000 with a median dollar per square foot of $333. Three years ago only the nicest, remodeled direct ocean units with garages were bringing over $300/sf. In September there were 17 sales of condos for more than $400/sf.

There were 14 closed sales of single family homes in September. Prices ranged from $2 MM for an oceanfront Cocoa Beach home on a double lot to $415,00 for a small, fixer-upper in north Cocoa Beach probably destined to join the swelling ranks of AirBnB properties locally. If the conversion of single family homes to vacation rentals continues much longer Cocoa Beach schools are going to be without a source of students. This is a growing problem without an obvious solution. Municipalities in Florida are prohibited from banning vacation rentals. The City of Cocoa Beach has been discussing strategies for dealing with the issue but there doesn't seen to be an easy fix.

I have recently heard a couple of stories of new homeowners being surprised that their property tax bill was significantly higher than the previous owner's. They had expected, because the seller was homesteaded at a low rate, that they could homestead and continue to enjoy that artificially low rate. That's not how it works. Once a homesteaded property is sold, the taxable value is increased to current levels and taxed accordingly. When the new homeowner homesteads that property they get a reduction in taxes from that new, higher level and, more importantly, a cap on the annual increase in taxable value. Do not expect to pay the same low property taxes as the long-time, homesteaded seller even if homesteaded again post sale.

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


Saturday, September 24, 2022

Closings in Hurricane Season

 

Anyone who has a closing on a Florida property next week is probably going to be delayed unless they can close with no insurance. Citizens and most other Florida property insurers will not bind a new policy when a named storm is within "the box" which is approximately the entire area shown above or when we have a tropical storm watch or warning. The box is simply a  huge area of the map in which no named storm can exist at the time of binding a new policy. As of this morning, we have a storm, Ian, in the central Caribbean and as of this writing is just south of the box but will be in it momentarily. The map displayed is not exact but a close approximation of the "box". Any Florida closing scheduled for next week that involves a new policy for property insurance is likely not going to happen even if the storm is hitting Louisiana and not directly impacting or threatening us. Make plans accordingly.

"Why take by force what the gullible and guileless will volunteer?" _Sal Bayat

Saturday, September 03, 2022

Consider the Bunny

This market isn't finished yet despite the tripling of inventory since spring. This morning of the second attempt to fly the Artemis 1 mission to the moon, there are 114 existing condos and townhomes for sale in Cocoa Beach and Cape Canaveral plus another four pre-construction offerings. There are 31 single family homes for sale with only one asking less than $525,000.

In the month of August 63 MLS-listed condo and townhome units closed with a median selling price of just over $400,000. Over half of the sold units commanded over $300 per square foot. A couple of years ago only the very nicest direct ocean units were selling for more than $300/sf. In August ten units in buildings not even on the ocean and without garages closed for more than $300/sf. Over half of the condo sales were cash deals and weekly rental units were still closing at the top of the $/sf range. Twenty five units sold in seven days or less with six of them selling before hitting the market. Highest price sale of the month was $1,200,000 for a 4th floor, 15 year old 3/2 beauty at The Meridian in north Cocoa Beach. Lowest price was $165,000 for a clean little, 56 year old, 2nd floor 1/1 in Cape Canaveral a couple of blocks from the ocean.

There were 15 single family homes closed in Cocoa Beach in August and two in Cape Canaveral. Five of the sold houses closed at prices above one million. The starting price for a fixer-upper, non-waterfront house is now about $500,000 thanks to AirBnB mania. The idea of making big money renting to vacationers is fueling demand for the 50+ year old houses close to the beach and is causing problems in our once-peaceful neighborhoods. The City of Cocoa Beach has been discussing new fees and penalties for noise complaints from the growing number of single family vacation rentals. They are a little tardy on taking action but the measures they are discussing will hopefully help preserve the family nature of our neighborhoods.

Hopefully we'll get to see the Artemis mission fly today after many delays and issues with the vehicle. Labor Day weekend is traditionally one of the busiest weekends of the year here but today will probably break all previous records with hundreds of thousands of people coming to see the launch added to the NKF surf contest crowd and passengers coming and going from four cruise ships in port. Yours truly will be hunkered down for the duration. Enjoy the beautiful weather and expect mind-numbing traffic.

"Consider the example of the monkey -- who, the higher he climbs, the more he shows his behind." _St. Bonaventure, the 13th-century Franciscan philosopher speaking about power and wealth