Tuesday, November 17, 2009
That's not a Baby Ruth
As of this morning, November 17, we are eight condo sales away from matching the total for the entire year of 2008 in Cocoa Beach and Cape Canaveral. Sales recovered from a miserable first half of the year with a tremendous second half push that caught most everyone by surprise. Let's parse the numbers as they stack up today.
The bulk of the sales activity this year was concentrated in the lower price ranges with half of all condo sales closing below $180,000. Only 72 condos closed for more than $300,000.
Inventory levels for the active parts of our market are once again at healthy levels. The sub-$180,000 condo inventory will last less than 13 months at the average sales rate of 2009 so far. If we use the more recent sales rate, that supply will be gone in less than one year. As we move up the price scale, the absorption rate extends. In the $200,000 to $300,000 price range, we have a 17 month supply using the average sales rate for the year, slightly less using the more recent rate.
The bracket between $300,000 and $500,000 is holding a 23 month supply, slightly less using a more recent sales rate. High but far below levels of the last two years. Even I, perennially cautious, am encouraged by these numbers. But, wait. There's something unsavory floating in the champagne, orange sherbet punch. My half-empty sensibilities are to be rewarded when I look into the luxury condo numbers.
Of the 363 recorded MLS condo sales in the two-city market, only 23 were for more than $500,000 and only 12 were for more than $600,000. Of the 23 sales, more than half were at the Meridian where buyer's agents were being paid as much as 5% to bring a buyer.
Inventory for over-$500,000 condos stands at 66 this morning. Only four remain at the Meridian, all resales, and the excessive buyer's agents' commissions disappeared with the last developer's unit. If I use all >$500,000 sales so far this year to determine supply I get 30 months worth of inventory in this price range. However, if I strip out the Meridian sales and the Meridian listings to get a more accurate picture of the luxury segment, I see that we have a 59 month supply. However, as bad as this looks, it is not an accurate picture. This is just the number of MLS-listed units. The shadow inventory in luxury units is substantial. There is but one Magnolia Bay unit listed on the MLS with dozens remaining unsold. One Ocean Club unit is offered on the MLS, the only recorded sale in the empty building. No Villa Verde units are MLS-listed in that entirely unsold building. There are others but these hint at the size of the invisible supply that is hanging on the sidelines.
What are we to conclude from this exercise? Overlaying my elementary arithmetic on elementary economics, I foresee a bottom up recovery in the Cocoa Beach and Cape Canaveral housing market. The lower price range appears to be at or close to a stable supply and demand level with the mid-range not far behind. The turd in the punch bowl at our recovery party is obviously the luxury condo segment. With the supply so skewed from the demand I can only predict more price erosion and an indeterminate recovery time for $500,000 plus condos. For those of you thinking of venturing into this market segment, be aware of the numbers and the very real possibility of more depreciation before the bottom is reached. Buzzword for you is Cuidado! If you're unlucky enough to be trying to sell a unit above a half million dollars my advice is to price aggressively unless you can wait for years and are willing to risk further price erosion. In addition, you may also want to consider following the Meridian's successful strategy of luring buyer's agents with excessive commission and/or bonuses. It's a distasteful practice but one that has been proven to work.
In other news, the surf has been magnificent and is still beautiful this morning after days of good waves. A visiting friend from Miami paddled out with me this weekend and caught his first waves after 16 years out of the water. He was as stoked as a 12 year old grommet and is now in love with Cocoa Beach. I am honored to live in this special place.
"Two out of three ain't bad."______Meatloaf