Sunday, December 18, 2005

Pre-construction realities

I am still not certain of the accuracy of our new MLS, so, I'm not posting my normal sales stats. However, from direct observation, there has been a surprising surge of activity in the last two weeks with buyers out in force, taking advantage of the huge and still-increasing inventory.

We are seeing quite a few pre-construction buyers in soon-to-close buildings dropping prices close to the original pre-construction prices. This is a trend I believe will continue through 2006. By the way, in one new riverfront building, over three quarters of the units are currently for sale. Zero have flipped so far. The days of plunking down 10% on a pre-construction unit and doubling or tripling your money in a year or so are definitely over. We will probably see many of these "investors" clinging to their expectations and refusing to sell at realistic levels. They will soon be paying thousands of dollars a month for their "investment" unit, hoping for resumed appreciation. That said, if you want a beach get-away in a great little beach town, now is a great time to be looking. You can still buy a nice direct river condo two blocks from the beach for under $300,000.

My opinions about investment returns and direction of our market are not shared by the bulk of the real estate community. In fact, the National Association of Realtors continues to use words like "slowed market" and "soft landing" and, while admitting to probable slowing sales, they project no drop in prices. Being cautious and realistic, I think a possible pullback is likely in some areas of our market. As the current crop of new, high-end units hits the market, the high inventory will encourage some investors to moderate their expectations and many will likely reduce their asking prices rather than make payments. Hopefully those who actually close will begin using their new units and will bring their friends and family to our beautiful beaches and enjoy our area for all it has to offer. Not a bad consolation prize. If my home stays at a level valuation for years I am still the winner. I get to fish the river, breathe the fresh ocean air and I still paddle out for a fun surf when conditions are good. Yesterday the surf was a blast and I enjoyed trading waves with one friend and an occasional dolphin for a couple of hours. Until next time, take everything you hear about real estate with a grain of salt and do your homework. It really is about location, location, location.

One last comment. Nothing I have said here applies to single-family homes in Cocoa Beach. That market is entirely separate from the condo market and is affected by mostly different dynamics. I doubt we will ever see more than 10 new homes built in a year again in Cocoa Beach. There is no more land. Most new homebuilding here begins with a teardown. For that reason, we will never have a sudden big increase in new inventory like we've just seen in high-end condos.

Sunday, December 04, 2005

A Tale of Two Cities

It was the best of times, it was the worst of times. As this applies to Cocoa Beach and Cape Canaveral, our current market is the best of times for buyers and the worst of times for sellers.

Like a carrot on a stick urging the horse forward, buyers are retreating just as sellers are coming to terms with the changed market. We have seen an incredible 124 price reductions of MLS listed properties in Cocoa Beach and Cape Canaveral in the last 30 days. Most notable was a developer's reduction of two pre-construction townhome units from $595,000 to $450,000, a drop of over 24%. Will we begin to see developers drop prices in unsold units to prices below what early buyers paid? Possibly. However this plays out, these signs do not point towards a continued bull run. My advice is to stay away from all pre-construction unless you plan to live in the unit. If you are purchasing, research recent sales and be aggressive with your offer and back up your offer with stats. Feel free to quote my stats here as they come from our MLS and are meticulously sorted to eliminate anomalies and mis-stated listings. If the seller is unyielding, move on to another property. There is a record inventory right now and it's increasing daily, so, there is plenty to choose from.

My object here is not to dissuade you from purchasing but to urge you to exercise caution and not to expect the quick profits of the last six years. I'm not predicting a drop in prices but I think it is possible, at least in some areas of our market, most likely new high-end condos. As always, Cocoa Beach is the best place in Florida to live and the coming months may present a good opportunity to acquire a special property. Contact me if you'd like to go out there and play this hand.

The opinions here are my own and, as you may have guessed, are not popular within my industry. I'm just calling it like I see it.

My flow of stats may be interupted in the coming weeks as we shift our MLS to a new system. I will resume the postings of stats as soon as I'm sure of the credibilty of the data.