Wednesday, August 24, 2005

Calm in Cocoa Beach

I shot this view one morning last week looking back at Cocoa Beach from about 8 miles offshore. Conditions have been extremely calm and beautiful on the ocean recently.

The market is still calm, as well. Sellers for the most part don't seem to be responding to the slowed rate of activity and I continue to see very optimistic pricing. We currently have a 90 week supply of over-$500,000 condos in our MLS. That number will grow as current and planned projects add supply. I think the long-term effect will be beneficial for lower-priced properties but I would not want to be holding a pre-construction contract in the high range unless I planned to live in the property. Investors in a few of the luxury buildings have been progressively reducing prices as completion approaches and the reality of having to close becomes imminent. Are the great days of rapid appreciation over? Who knows. I browsed listings in my old home of Destin, Florida and found quite a few listings in oceanfront buildings for over $1000 per square foot. Compared to that market, our $350 to $400 per square foot range appears downright cheap.

Mortgage rates took a breather last week and actually pulled back a bit. According to Freddie Mac, the national average for a 30 year fixed-rate mortgage is 5.8%.

MLS Stats for August 24, 2005

contracts last 14 days

condos over $500,000____ 3
condos under $500,000__ 31

homes over $500,000____ 2
homes under $500,000___ 4

active listings

condos all prices_______451
condos over $500,000__ 137

homes all prices_______ 57
homes over $500,000__ 36

Another interesting statistic is the number of new condos for sale. According to the MLS there are 133 condos built in 2005 currently for sale.

The calm ocean will be changing very shortly as Tropical Storm Katrina approaches. Expect a windy weekend. If you'd like an honest informed agent to help you find property in Cocoa Beach and Cape Canaveral, email me or call me at 321.917.5786.

Wednesday, August 10, 2005

Irrational Exuberance

Will this man kill the real estate market?

Alan Greenspan would like to think that he can cool the real estate market with monetary policy and rhetoric. Even with repeated speeches about bubbles and irrational exuberance, the fact remains that long term rates have moved down over the last year as the Fed raised short-term rates. We're starting to see a reversal of that trend as mortgage rates creep upward. This is not a surprise after this long run of historically low rates. Should you be concerned about mortgage rates as a real estate investor? Definitely. If you're still holding on to an adjustable-rate mortgage, it may be time to lock in while long term fixed-rates are still below 6%. The bigger question for many is should I take profits or should I continue to add properties to my portfolio. That is a more difficult question to answer.

There's a change in the air here in Cocoa Beach and Cape Canaveral and it's more than just the approach of peak hurricane season. As I mentioned in a recent column, things are slowing in the real estate market here and it's not evident whether it's the normal dog days slowdown or the end of the ride for runaway appreciation. Regardless, the reality is, at least to me, that the easy money has been made and things are changing. If you want a place in a great little beachside community, Cocoa Beach is still right at the top of my list. If you want to speculate on real estate here hoping for double-digit annual appreciation, you may want to reconsider. We are seeing strong resistance to the ever-rising prices and properties are not moving like they were only a few months ago. If you already own investment property here, I would hold on. We may see the market take off again in January as it usually does. Until January, however, expect little activity. Pre-construction? That's another story altogether.

If you're thinking about investing in pre-construction condos, stop right now and think through your strategy. If you can't afford to close and begin making mortgage payments, I would advise you to not play this game. The stakes are too high and you have way too much competition. Many recent pre-construction prices (not all) have already factored in strong appreciation and, if that appreciation does not happen, you may be looking at closing on a unit that is not worth any more than you paid at pre-construction. Of particular danger are the multi-building developments. If you buy pre-construction in an early building during a market softening, you will be competing with the developer when you try to sell your unit. We are seeing this exact scenario being played out right now at several developments, most notably Island Pointe in Merritt Island and at Solana on the River in Cape Canaveral. Early buyers are trying to sell their completed units for a profit while the developer is still offering pre-construction units in the later buildings. It's comparable to trying to beat the house in a casino game. The house always has the edge. Keep an eye on Magnolia Bay in Cocoa Beach and Mystic Vistas in Cape Canaveral.

OK, that's the negative news for the week. On the positive side, Discovery is safely back on Earth and Cocoa Beach is still a wonderful place to live and visit. The fish are biting and a small storm swell is expected tomorrow from Tropical Storm Irene. If you'd like to find a special property in our community, I can help. As a buyer, you have more power right now than at any time in the last few years. Call me at 321.917.5786 or email me.

If you're spending time at the beach, don't forget your sunscreen and drink plenty of water. Have fun and watch for baby turtles and nesting mother turtles early evenings.

MLS Stats for August 10, 2005

contracts last 14 days

condos over $500,000____ 6
condos under $500,000__ 26

homes over $500,000____ 0
homes under $500,000___ 1

active listings

condos all prices_______443
condos over $500,000__ 129

homes all prices_______ 62
homes over $500,000__ 36

Wednesday, August 03, 2005

A different kind of bubble

I was reminded yesterday why I love and live in Cocoa Beach. The morning began with one of those sunrises that make you want to charge into the day and live life to the fullest.

After checking the morning update for new properties and for the previous day's activity, I attended a short meeting where we discussed a specific sale last week by a condo owner who was so determined to avoid paying a real estate commission that he advertised and sold his condo entirely on his own. He was successful and achieved his goal of paying no commission, yet he accepted an offer of $175,000 that was conservatively $50,000 less than reasonable value. In this particular case, good comps would have been easy for the owner to get, yet he was so fixated on commission that he shot himself in the foot.

After the meeting, I settled into my office to write a new update about the whole subject of valuation when I received a phone call. "Dude, tide's almost low and the waves are fun." What's an earnest real estate agent to do? This agent bailed on work and paddled out for a lunchtime surf break. I'll trade real estate bubble for ground swell bubble most any day.

The ocean today was warm and the water was as clear as the Bahamas. The waves were small and fun. At least one other real estate guy was seen in the water.

This is one of those things that we have to think about when we talk about the "bubble". Will appreciation cool off? Probably. Will Cocoa Beach become undesirable? Never. Days like today remind me that special places like my home of Cocoa Beach have an attraction that will not go away no matter what the real estate market does as a whole. If you're investing in real estate, special places make more sense and seem more prudent than generic locales. And you can always ride a wave in your back yard as you enjoy the financial benefits.

Cocoa Beach is geographically restricted. Ocean to the east and Banana River to the west. Simply put, there is no more available land for new construction. We also have density and height restriction (no more buildings over 4 floors). What this means is that our supply will not be increasing much more. The character of our small city should always be much as it is today. Jim Cramer likes to say, "When investing, buy best of breed." Considering our location, our finite supply and, of course, our surf, Cocoa Beach qualifies as best of breed. As always, I could be wrong. I'm definitely biased. Here's a shot of one of my retired neighbors playing yesterday afternoon.