Saturday, June 25, 2011

Meet the buyers [updated]

Got a link to an interesting story from Brian B. (thanks) about the new middle and upper class Chinese buying investment properties outside China. While I haven't seen any Chinese buyers here in our market I thought I'd do some digging on the geographic breakdown of recent purchasers in our market. Results were not what I expected. Out of the last 150 condo purchases in Cocoa Beach and Cape Canaveral 38 units or 25% were for primary residences. (This is assuming that those who listed the same mailing address for tax purposes are intending to live there.) Next biggest group of purchasers were other Florida residents, primarily local and Orlando area. Of these, several were buying another unit in the complex where they already live. New York led the other states with 11 purchasers followed by Pennsylvania with 9. The rest were scattered across mainly eastern states with only 8 of the last 150 purchasers of Cocoa Beach and Cape Canaveral condos residing west of the Mississippi. The big shocker for me was the lack of Canadian and European buyers. Out of the last 150 only 5 were Canadian and we had 2 lonely Europeans.

[update] Of the 150 sales I researched above, 131 were MLS listed. In 73% of those 131 sales the buyers paid cash. Foreclosures made up 12% of the total and short sales 15%. There were 35 MLS single family home sales in the same period with 54% of those selling for cash.

Our numbers do not seem to support the trends we see reported for other areas of Florida, especially coastal south Florida. The big numbers of foreign buyers we hear about in the Miami/Ft. Lauderdale markets do not exist here, at least recently. The last 150 sales that I used for this study stretched from March 15 through June 6, the last posted sale as of today at the Property Appraiser's site.

I was offshore on Thursday this week and jumped overboard for a little snorkeling on the ledges north of the Cape in 35' to 55' of water. The water was clear enough that I could see the bottom from the surface in 40'. While the coral there is sparse, the amount of other life was amazing. Clouds of sardines were constantly cruising by followed closely by king mackerel while underneath them the bottom was alive with giant goliath groupers, mangrove snappers, sea bass, triggerfish and other cool stuff. Was my first time exploring underneath the hull up there but I'll be doing it again.

"A fanatic is one who can't change his mind and won't change the subject." _____Winston Churchill


  1. Update Question: "73% of 131 sales were cash." That seems incredibly high. I know that the credit rules have tightened (after being much too lax). I also have heard that financing a purchase in some condo buildings is very difficult (too many units underwater or not enough in reserves by the Board). How difficult is it to obtain financing in this small geographical area? Is it only an issue with new buildings? My main concern is resale - if for some reason we have to sell (even if not anticipated) will a potential buyer have difficulty obtaining a traditional-type loan?

  2. The rate of cash sales of condos has been steadily increasing since 2007 and has been at about 3/4 of all sales in our area (Cocoa Beach and Cape Canaveral) most of this year.

    In 2007 85% of all condo sales involved a mortgage. By 2009 cash sales represented more than half of all condo sales and one year later in 2010, 65% of all condo sales were cash transactions. We hit 75% cash deals out of all condo sales in March 2011. My observations from the clients I work with is that the high rate of cash deals is less related to difficulty obtaining financing than it is to the low rate of return on cash in other investments. While mortgage rates are below 5%, a middle-term CD is yielding just slightly more than 1%, so, for many buyers it makes sense to put their cash to work in depressed real estate rather than leave it in a declining currency earning minimal interest.

    Banks don't want to lend in buildings with insufficient reserves or with several owners delinquent on condo fees. They also don't want to see a lot of unsold units or a number of units owned by a single entity. Condo mortgages are more difficult than in the past but not impossible except for buildings like those just mentioned.

    All other things being equal, it's better to be in a building that qualifies for a mortgage but as long as the majority of sales are cash it's not going to make a unit unsaleable.