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