Wednesday, January 25, 2006

Crunch time for new projects

In lieu of accurate MLS stats, here are housing start stats as reported by Florida Today this week. Click here for the whole article.

Single-family home permits in Brevard County in 2005:
7,273 compared to 6,180 in 2004

Median sale price of an existing home in Brevard:
$234,400 in December, up 25 percent from a year earlier.

Although this was a record for single-family home starts in Brevard County, a slowdown was obvious by December when the monthly number dropped to 551, less than the 2003 and 2004 December totals.

In other real estate news beachside, several new condo projects are approaching completion and other new projects are just breaking ground. Equipment has been moved onto the site of the old Cocoa Cabanas in South Cocoa Beach and the small condo project to be built there is offering pre-construction units starting just under $1 million. Across the street on the river, the first building of the 77 unit, Magnolia Bay project has topped out at the fourth floor with the construction crews making fast time. Investors who bought units there at pre-construction prices starting at $549,900 will soon be marketing their units as closing approaches. If any of them have researched nearby activity on the MLS, they must be nervous. In the Crescent Palms, a new 15 unit building just south of this project, 14 of the 15 units are on the market with, so far, no takers.

Crescent Palms

Those investors will soon be closing on their luxury riverfront units and making mortgage payments and paying taxes on their investments. Hopefully, everyone made plans for the possibility of not being able to flip their contracts.

I've been talking about the risks of pre-construction for a year now and the reality of over-supply and optimistic pricing that concerned me last year is in full bloom. If you are holding a pre-construction contract for investment purposes, you need to make some contingency plans. You may be forced to close unless you are willing to drop your price to a point at which the unit will sell. Many of the current group of investors are unwilling to accept that the profit they expected is not going to happen. Many of them will be closing and carrying debt hoping to sell at some point in the future when the market has digested the current crop of new units. Selling now for break-even may be more prudent for some of them.

If you're looking for a second home or vacation condo, this same scenario is to your advantage. Stay tuned and contact me if you'd like a list of soon-to-close projects.