Thursday, October 05, 2006

Deal, no deal?

Depends on the deal. Brand-new, over $500,000 condo? The answer is, no deal. Existing, priced-right condo below $500,000? It appears that, for now, the answer is likely to be, we have a deal. As I mentioned in my last post, sales activity has picked up. Our office continues to be busy with sales of existing condos and single-family homes. New construction appears to be pretty much dead in the water, although a few units at drastically-reduced prices have moved recently. How about a brand new, 2500 sq.ft. never-lived-in, 4 bedroom 2.5 bath townhouse with 2 car garage in Cape Canaveral for $382,000? Sold in September. The direct ocean 3 bedroom, 1753 sq.ft. unit in south Cocoa Beach that I mentioned in an earlier post for $399,900 sold for $375,000. Portside prices have started creeping back up as almost all the units have closed. The cheapest recorded resales in September were $185,000 for a 2 bedroom and $214,000 for a 3 bedroom.

There have been some remarkable price reductions since October 1. Most notable has been the reduction of four unsold units at the not-yet-started Cocoa Cabanas condo. Two units have been dropped from $985,000 to $750,000 and 2 others from $985,000 to $775,000. A beautiful 2000 sq.ft. direct ocean corner unit at Wavecrest next door has been reduced from an original price of $630,000 to $489,000 this morning. One motivated investor across the street at Magnolia Bay is offering a new boat to buyers. He probably needs an edge with a total of 25 other investor-owned units in the complex offered on the MLS. These sellers can glimpse the likely future by looking down the street to the recently-completed Crescent Palms where 11 units are still active on the MLS out of a total of 15. A little pain is being felt there.

Magnolia Bay

I was reminded of a nasty little secret about pre-construction purchases yesterday by a local TV news story. Seems that some pre-construction buyers of homes in a new Orlando neighborhood are having trouble getting mortgages because the appraisals for their new homes are coming in below the purchase price. Usually in a Florida real estate deal with a FAR or FAR/BAR contract, a buyer getting a mortgage would make her purchase contingent on acquiring a mortgage. Should the property fail to appraise making the mortgage unobtainable, the buyer can cancel the contract and have her deposit returned. Alternatively, the seller can reduce the purchase price to the appraised value and the deal can proceed. Unfortunately for the Orlando buyers, they used a developer's contract, which is common in pre-construction, and they have no financing contingency. If they cannot close, the developer can keep their deposits. This was never an issue in the rapidly appreciating years of the recent past but it is now. What happens when that new condo that Investor X reserved for $600,000 appraises for $525,000? Does he walk from his $60,000 deposit or does he go ahead and close and take the $75,000 immediate paper loss? Not exactly a win/win offering. It's not even a good deal for the developer who pockets the deposit. He doesn't want to be left with a handful of forfeited deposits and unsold, under-appraised units.

Among the scores of offered properties, some good deals exist. Those of you looking to buy but afraid of further price erosion should approach your search with the intention of finding those properties that are already priced in anticipation of more depreciation. These properties exist. They're just buried among the hundreds of optimistically-priced units that are competing for attention.

Here are our current stats. Most of the closed sales of condos in September were older, existing units. The newer units listed on the MLS are, for the most part, assignment of contract sales by investors and very few of those are moving.

MLS stats from Cocoa Beach and Cape Canaveral

Active condos for sale, all prices________1029
___condos over $500,000_____________214

Single family homes, all prices__________145

Closed condos in Sept 2006_____________36
Closed single-family Sept________________8

Snook are being caught at the Port, the Inlet and the beaches when the surf is calm enough. I had a wonderful fillet last weekend that a friend was kind enough to share. If you get a chance, get out there and try for one of these tasty fish when the ocean permits.