Tuesday, November 17, 2009

That's not a Baby Ruth

As of this morning, November 17, we are eight condo sales away from matching the total for the entire year of 2008 in Cocoa Beach and Cape Canaveral. Sales recovered from a miserable first half of the year with a tremendous second half push that caught most everyone by surprise. Let's parse the numbers as they stack up today.

The bulk of the sales activity this year was concentrated in the lower price ranges with half of all condo sales closing below $180,000. Only 72 condos closed for more than $300,000.

Inventory levels for the active parts of our market are once again at healthy levels. The sub-$180,000 condo inventory will last less than 13 months at the average sales rate of 2009 so far. If we use the more recent sales rate, that supply will be gone in less than one year. As we move up the price scale, the absorption rate extends. In the $200,000 to $300,000 price range, we have a 17 month supply using the average sales rate for the year, slightly less using the more recent rate.

The bracket between $300,000 and $500,000 is holding a 23 month supply, slightly less using a more recent sales rate. High but far below levels of the last two years. Even I, perennially cautious, am encouraged by these numbers. But, wait. There's something unsavory floating in the champagne, orange sherbet punch. My half-empty sensibilities are to be rewarded when I look into the luxury condo numbers.

Of the 363 recorded MLS condo sales in the two-city market, only 23 were for more than $500,000 and only 12 were for more than $600,000. Of the 23 sales, more than half were at the Meridian where buyer's agents were being paid as much as 5% to bring a buyer.

Inventory for over-$500,000 condos stands at 66 this morning. Only four remain at the Meridian, all resales, and the excessive buyer's agents' commissions disappeared with the last developer's unit. If I use all >$500,000 sales so far this year to determine supply I get 30 months worth of inventory in this price range. However, if I strip out the Meridian sales and the Meridian listings to get a more accurate picture of the luxury segment, I see that we have a 59 month supply. However, as bad as this looks, it is not an accurate picture. This is just the number of MLS-listed units. The shadow inventory in luxury units is substantial. There is but one Magnolia Bay unit listed on the MLS with dozens remaining unsold. One Ocean Club unit is offered on the MLS, the only recorded sale in the empty building. No Villa Verde units are MLS-listed in that entirely unsold building. There are others but these hint at the size of the invisible supply that is hanging on the sidelines.

What are we to conclude from this exercise? Overlaying my elementary arithmetic on elementary economics, I foresee a bottom up recovery in the Cocoa Beach and Cape Canaveral housing market. The lower price range appears to be at or close to a stable supply and demand level with the mid-range not far behind. The turd in the punch bowl at our recovery party is obviously the luxury condo segment. With the supply so skewed from the demand I can only predict more price erosion and an indeterminate recovery time for $500,000 plus condos. For those of you thinking of venturing into this market segment, be aware of the numbers and the very real possibility of more depreciation before the bottom is reached. Buzzword for you is Cuidado! If you're unlucky enough to be trying to sell a unit above a half million dollars my advice is to price aggressively unless you can wait for years and are willing to risk further price erosion. In addition, you may also want to consider following the Meridian's successful strategy of luring buyer's agents with excessive commission and/or bonuses. It's a distasteful practice but one that has been proven to work.

In other news, the surf has been magnificent and is still beautiful this morning after days of good waves. A visiting friend from Miami paddled out with me this weekend and caught his first waves after 16 years out of the water. He was as stoked as a 12 year old grommet and is now in love with Cocoa Beach. I am honored to live in this special place.

"Two out of three ain't bad."

Sunday, November 08, 2009

Estimates of Time

Have you ever noticed that estimates of time are almost always optimistic? "Your car will be ready at 1. The doctor will see you at 10. I'll meet you at 12. We'll have an answer on your loan on the 3rd. The game will start at 8." The universe conspires to delay everything. At any rate, I have adjusted my behavior to accommodate this universal leakage of time. I expect everything to be late. Life has become less frustrating.

"All estimates of time are overly optimistic. Adjust accordingly."___Larry

This recent major uptick in monthly year-over-year condo sales got me to thinking about whether or not we are getting a signal of a trend shift. Year over year monthly numbers are the best metric available to me by which to measure the sales trend. The first half decade of the new millennium saw closed condo sales on a steady year over year increase until 2005 when the number of months that showed an increase were equal to the number of months that showed a decrease. Even though the numbers for the last half of that year were abysmal by comparison, 2005 exceeded 2004 in total sales by 1%. The boom years were over although most did not recognize the signals or did not want to believe them. By the end of 2006 it was apparent to all but NAR that a major decline was happening. We had not a single month in 2006 with higher monthly year-over-year numbers. The total number of condo sales for the year of 2006 was 38% below 2005.

The trend continued in 2007 with eight months showing lower year over year numbers with total year over year sales down another 21%. We began 2008 with the same hopes of a "spring selling season" that many were clinging to the two previous years. It was not to be and 2008 saw nine months with lower year over year numbers and the total sales for the year declined another 6%, thankfully a slower pace of decline.

We began 2009 with sales at the slowest pace of the last five years and clocked five sequential month over month declines until the trend shifted in June. Since June we have substantially beaten last years numbers every month but one with the last two months seeing blow-away comparisons. Even though this year's total sales will still be less than 50% of the peak year, 2005, there is evidence to support optimism. Buyers taking advantage of the first-time home buyer credit almost certainly contributed to the recent bump in the numbers. The extension and modification of the credit through next June will likely continue to add more to the sales through that time. Draw your own conclusions, retain some skepticism but be aware that the market is active with substantial numbers of buyers cherry picking the inventory. While inventory is still heavy in the over-priced, new luxury condo segment, finding a screaming deal in a lower-priced oceanfront building has become a needle-in-a haystack exercise. The ability to recognize a jewel when it appears and the willingness to pull the trigger has become vital. Market knowledge will pay handsomely. Do your homework and, if you want an inside advantage, I'm here to help. You can email me at larry@southcocoabeach.com

Our inventory numbers for Friday the 13th of November, 2009 are:

MLS-listed Properties in Cocoa Beach and Cape Canaveral

Condominiums, all prices______579

Single family homes, all prices__122

Condos over $500,000________65

Homes over $500,000_________47

"The world's greatest fool may say the Sun is shining, but that doesn't make it dark out."

___________Robert Pirsig

Tuesday, November 03, 2009

Non-repeating history

I'm back after getting the boat to Abaco from Florida. Photo above from yesterday morning at the home mooring off Lubbers Quarters with Elbow Cay in the background. This 42' Lagoon Hybrid sailing cat is now available for charter, either bare boat or captained in the crystal clear waters of Abaco from CruiseAbaco.com

Our little real estate market has been on fire this normally slow time of year. After setting a four-year record for closed sales in the month of September, October followed suit with another four-year record. [EDIT] Due to a glitch in the MLS, the numbers I reported yesterday were not accurate. The charts are now corrected. October was unseasonably strong but not our biggest month of the year for closed condo sales as I reported yesterday. It was, however, the busiest October since 2005. The bulk of the activity, as has been true all year, was concentrated in the sub-$300,000 range and short sales and foreclosures accounted for just less than a quarter of all closed sales. November looks to continue the trend with both barrels loaded with pending sales. During the last 13 days, 36 condos and townhomes have gone under contract in Cocoa Beach and Cape Canaveral as reported on the MLS.

Foreign buyers taking advantage of the weak US dollar are part of the recent activity. Without making any predictions, the evidence suggests that our market is stabilizing. Even as some prices drift lower, some condo complexes have seen closed sales notch upward. Will prices resume the downward slide after a false recovery? No one knows but with prices in many cases well below 50% of the peak, buyers are stepping in. Markets work on supply and demand and demand is at a four year high right now. First chart below is 2008 and 2009 only.

Notice in the four year chart below that October 2009 has the highest number of sales of any October in the last three years. A trend with legs? We'll see. I'm encouraged.

"History is more or less bunk. It's tradition. We don't want tradition. We want to live in the present and the only history that is worth a tinker's damn is the history we make today."
______________Henry Ford