Saturday, March 27, 2021

Some Magic, Some Tragic

A quick flashback: I was reading old posts and found the one below from eleven years ago and it was such a great story I thought I'd share again for those that may have missed it. An update; Humphrey is happily retired in Australia and while he's done plenty of roads trips in Oz, none have been solo.

In a much-circulated article this week, the Wall Street Journal reported that there are more real estate agents than properties for sale in the US. It's been that way for a long time in Cocoa Beach and Cape Canaveral. If I search for a Cocoa Beach agent on Zillow, I get 250 hits. That is 200 more than the number of agents who have listings in Cocoa Beach and Cape Canaveral and 165 more than the total number of residential listings in the two cities. How can this be sustainable? It's actually worse than it looks. In addition to the 250 there are agents like myself that aren't part of the Zillow scrum so the number of pigs at the trough far exceeds the capacity of our tiny and shrinking feed bucket. Except for a handful of super agents and teams, the majority of the agents who do manage to list or sell a property here will only record one or two transactions in a year. With total residential inventory of 85 properties that is rapidly shrinking, I think we can safely expect many agents to reach a crisis point this year. Many of them already work out of offices off the beach so they can shift their focus to their home markets. Those working out of beach offices will have to either accept lower income or start crossing bridges to Merritt Island and mainland markets. Those markets are experiencing similar inventory drawdowns so competition among agents will get even more intense. I see no reason not to expect hungry agents to begin offering discount services to keep food on the table. Compete or eat is an easy decision.

Prices. They're ranging between high and ridiculous. We've had ten units without garages sell in oceanfront complexes since January 1 for over $300 per square foot. We're at and above 2006 peak prices in many older buildings. Conditions are different now but I would still advise buyers to be cautious. As I was writing this a new listing for a small oceanfront one bedroom unit hit the market at the incredible price of $459,900. Successful buyers will probably have to pay above fair value if they hope to purchase something but there is little need to blindly pay asking price or above without first knowing what fair value is. In the case of the $459,900 unit, the comps suggest fair value as possibly six figures less than asking. Having said that, there may be someone willing to pinch their nose and pay it.

I watched two surfers on foil boards being whipped into waves by jet skis way offshore last Sunday during the big beautiful north swell and get rides that were several blocks long at speeds that a regular board can't achieve on the same waves. When I caught my first small wave on a heavy 10' rental several decades ago I never dreamed that one day I'd see surfers flying along on tiny boards that didn't even touch the water while riding wave after wave for over a quarter mile. I feel old. Happy Easter everyone.

"Some of it’s magic, some of it’s tragic, but I had a good life all the way." __Jimmy Buffett

Monday, March 15, 2021

Sweet Sixteen

When I began writing this blog sixteen years ago in March of 2005, the Space Shuttle was still flying, the national average 30 year fixed rate mortgage was 5.77% and anyone, regardless of income, assets or employment, could qualify for multiple mortgages. New condo construction was happening everywhere and investors were reserving pre-construction units as fast as they were announced. Some developments used a lottery system to allocate units to prospective buyers. Most developers were allowing reservations on newly announced units for 10% of asking price and were imposing no restrictions on flipping prior to closing. It was not uncommon for early investors to make five or six times their initial investment when flipping their pre-construction contracts. It seemed everyone was a real estate investor and many people were holding multiple pre-construction contracts on new projects anywhere they could get their hands on one. Mortgages were readily available and holding contracts obligating one to purchase millions of dollars of new condos seemed perfectly normal nevermind that some of those investors were making less than the mortgage payment on even one of their reserved units. It worked out very well until it didn't.

In the short section of south Cocoa Beach between Patrick Air Force Base and the fork in A1A there were over 200 new condo units either under construction or slated to break ground shortly. Cheapest asking price was a lower floor Magnolia Bay for $549,900 which hadn't yet broken ground. The delay they experienced pushed their completion past the beginning of the crash and almost all investors walked away from their deposits without closing. That became common with projects that didn't close before 2006 and we saw several defaults from developers including several of those projects in south Cocoa Beach. When the buyers disappeared, some developers began renting unsold units to keep a little cash flowing with one converting an entire oceanfront building into vacation rentals. That latter one worked out quite well from what I can tell with the developer still holding and renting the majority of the units in the building fifteen years later.

Our inventory in March of 2005 was around 450 condo units (including pre-construction) and 50 single family homes in the two cities of Cocoa Beach and Cape Canaveral. That inventory would go on to more than double in the next twelve months as the party started to wind down and new investors raced for the exits. Their departures began the wave of short sales and foreclosures that took more than five years to unwind. The inventory contraction that began as those distressed sales worked through the system didn't stop when the distressed inventory was depleted in 2012 and has continued right through into 2021. This morning I see that we have 65 total existing condo units and 14 houses offered. Fourteen houses for sale in an area with a population of over 35,000 people. We had more than three times this inventory just one year ago. We have been in uncharted waters for some time now and I have no idea how this is going to work out although we are getting into extreme shallows now. Agents who have been used to executive-level incomes will probably need to be making some consumption adjustments. I predict we'll lose quite a few of the agents we've seen working this tiny market. It happened before and is sure to repeat as sales fall with the inventory. It's as natural as poor mango years following a good one.

The Cape Spaceport has been busy with a couple of launches in just the last few days. SpaceX now has over 1200 satellites deployed in their Starlink constellation which is bringing fast internet to remote areas worldwide. The Falcon rocket from yesterday's launch landed on the drone ship offshore completing it's ninth space mission. It's amazing to see the rapid advances in space flight and research and I feel fortunate to live in a place where I get to see some of it firsthand. 

"I would exercise caution with pre-construction condos and be aggressive (low) with offers. We have shifted from a seller's market to a buyer's market in high-end condos in a very short time." __Larry - March 4, 2005

Wednesday, March 03, 2021

Destination Unknown

In 2020 we had the 2nd highest number of closed sales of condo units in Cocoa Beach and Cape Canaveral since 2005, only four closings less than 2018's record sales of 734 units. That we did that during a pandemic and with about half the inventory of 2018 is a head-scratcher. We averaged about 140 units for sale at any one time in 2020 and are sitting at 84 existing units for sale this morning March 3, 2021. Can we do it again in 2021? If January and February are any indication the answer is yes. We closed 121 units in those two months this year compared to 91 in the same two months last year. We had sold a number of units equal to the entire inventory by February 12, just six weeks. Prices being paid continue to confound and I have promised myself to never again say "Good luck getting that" when I see a new overpriced listing. Having said that, as I look through the available listings I see a high floor direct ocean unit in Cocoa Beach with a garage asking $250,000. Even needing updating, that seems quite fairly priced considering the recently closed sales. Homework, y'all.

How about single family homes? In the first six weeks of 2021 there were 17 closed sales. Inventory of existing single family homes this morning in Cocoa Beach and Cape Canaveral is 13. Thirteen! 

Good luck to everyone looking to buy. It's as competitive as it's ever been and the good listings are going to those who are able to react quickly. I just closed a sale with a young agent who called immediately after a new condo listing hit the market and went to preview for his out-of-town clients and wrote an offer on their instructions site-unseen before the rush of other agents and buyers had been in the unit. They have an oceanfront unit today only because their agent was proactive and they trusted him. Out of town buyers need to find a buyer's agent they can trust and be prepared to offer on her recommendation without having physically toured the property. Inspections can be done after the unit is under contract. Obviously a buyer needs to determine what features they must have and convey that to their agent and have some flexibility should not all the boxes be checked by a particular property. Did I say find an agent you can trust? Paramount.

"Jazz students will study these key changes for decades to come." __@Elimatas1 on the National Anthem as sung at CPAC 2021