Wednesday, November 16, 2022

Peak AirBnB. Buzzkill?

Hurricane Nicole pushed a lot of sand around and the dune plants were covered in a thick layer of blown sand after the storm while the actual erosion was minimal. Unfortunately my porch was similarly coated. There have been a few articles written speculating on why Cocoa Beach and Cape Canaveral were spared the erosion both north and south of us. Credit has been given to our periodic beach renourishment. While that certainly helped I think there is another greater factor. 

Every local surfer knows that during big winter north swells the Cape shadows Cape Canaveral and Cocoa Beach from that swell. It can be double-overhead in Satellite Beach while the Pier is waist high at the same time. The north wind and waves as Nicole was approaching that was chewing up oceanfront structures in Volusia County and Satellite Beach was way less impactful in Cocoa Beach because of that shadow and that saved us from damaging erosion. This is not the first time I've seen this phenomenon here.

Having written about the Cocoa Beach real estate market for eighteen years now, I am often asked about my thoughts on the state of the market. Ever-increasing selling prices of properties are usually the main subject of these discussions. People like to mentally tabulate their net worth gains whether they're thinking of selling a property or not. These discussions have increasingly included speculation about a slowdown or pull back and what might be the trigger. I'll take a stab at that.

I believe we have reached and passed the peak in prices for most property types. There are certain unique properties that are less affected by macro market conditions and may continue to appreciate but for most I think we've hit the wall for the current cycle. Condos are certainly not among those unaffected types. Appreciation has been strong since the bottom in prices around 2010. Many condos bought between 2010 and 2015 that sold this year closed for two to three times the purchase price. When I narrow my focus to properties closed in the last six months that were purchased after 2018 I'm seeing examples of as much as 48% annual appreciation. While the annualized number is remarkably high, the bulk of those gains accumulated during the crazy runup in prices this year. The high prices are what prompted many of these sellers to sell even though they only purchased a year or two ago.

It's not surprising to see properties bought a decade ago during the post-crash bottom sell for three times the purchase price but it is concerning to see properties bought less than two years ago sell for almost double the purchase price. Weekly rental condos have been among the most rapidly appreciating types. There has been quite a lot of media attention this year alluding to the wealth to be made owning vacation rental properties. While short-term rentals can generate quite strong cash flows, the reality is that those who paid this year's prices and who must hire management will be netting quite a bit less than the get-rich podcasts may have promised. I think we'll look back on 2022 as peak AirBnB. Earlier this year there were feeding frenzies of buyers with every new vacation rental listing. Multiple offers first day on the market were expected and most units sold over asking price. We had multiple sales of weekly units without garages closing for over $700 per square foot. These prices are unjustifiable in my opinion. We saw short-term rental rates skyrocket during the pandemic and while they may remain at these elevated levels, I don't see much room for increases. The increased competition in our area has taken away rental pricing power and reduced occupancy for all but the most desirable properties. New owners are finding that a nice but not great unit is not enjoying the same occupancy the rental history may have showed and the 20% to 35% short-term management fee is taking a big bite out of what does come in. We have yet to feel the impact of the new structural inspection and reserve requirements as well as the expected increases in master wind and flood policies. These will force increases in condo fees which will be substantial for some older complexes. The vacation rental condos are predominately cash deals so fortunately higher mortgage rates have not had much impact on them.

The prospective buyers for other types of condos and single family homes are, however, affected by those much higher mortgage rates and are facing similar uncertainty about insurance. Many have decided to call off their search and wait to see what happens. A smaller pool of buyers is not positive for prices. Those buyers who feel that they may have missed their opportunity may get a shot in the coming months and years at lower prices if they are willing to make peace with the uncertainty of overhead moving forward. 

And that is my Debbie Downer evaluation of the state of the Cocoa Beach and Cape Canaveral real estate market in November of 2022. Perhaps next year I will be proven wrong. I would welcome that. Wherever the prices go, Cocoa Beach remains a special place in Florida and we were reminded early this morning of one of our unique attractions when we were finally rewarded with the launch of Artemis 1 around 1:30 AM. It was a beauty as it ascended towards a bright half moon hanging over the ocean welcoming the Orion spacecraft on it's first lunar visit. We are headed back to the moon after a long break.

"Ever notice that people who have an hour to waste usually try to spend it with someone who does not?" - Bernard Meltzer

Wednesday, October 19, 2022

Slowdown

Inventory of residential real estate for sale in Cocoa Beach and Cape Canaveral has increased more than 150% since April this year but the pace of increase has slowed in the last couple of months. I'm not seeing much softening of selling prices but new contract activity has slowed significantly. Closings lag contracts by several weeks so the impact of this slowdown will become apparent next month. If the slowdown continues, sellers will be forced to temper their optimism if they hope to attract attention from a dwindling number of buyers. While Ian's impact locally was very limited, I think it's reasonable to assume some reduced buyer enthusiasm from the media coverage of Ian's damage and impact on the future cost of insurance for Florida properties. We had a couple of false slowdown alarms earlier this year so we may be back off to the races by Christmas. I do not expect selling prices nor pace of sales to maintain their vigor but I have been wrong before. Participants are encouraged to weigh the available evidence before jumping into this market.

There were sixty closed sales of condos and townhomes in our two cities in the month of September. Prices ranged from $1,585,000 for a remodeled 22 year old oceanfront corner 3/3 at Solana Shores to $129,400 for a 64 year old, 338 square foot 1/1 a block from the ocean in south Cocoa Beach. Median selling price for condos was $385,000 with a median dollar per square foot of $333. Three years ago only the nicest, remodeled direct ocean units with garages were bringing over $300/sf. In September there were 17 sales of condos for more than $400/sf.

There were 14 closed sales of single family homes in September. Prices ranged from $2 MM for an oceanfront Cocoa Beach home on a double lot to $415,00 for a small, fixer-upper in north Cocoa Beach probably destined to join the swelling ranks of AirBnB properties locally. If the conversion of single family homes to vacation rentals continues much longer Cocoa Beach schools are going to be without a source of students. This is a growing problem without an obvious solution. Municipalities in Florida are prohibited from banning vacation rentals. The City of Cocoa Beach has been discussing strategies for dealing with the issue but there doesn't seen to be an easy fix.

I have recently heard a couple of stories of new homeowners being surprised that their property tax bill was significantly higher than the previous owner's. They had expected, because the seller was homesteaded at a low rate, that they could homestead and continue to enjoy that artificially low rate. That's not how it works. Once a homesteaded property is sold, the taxable value is increased to current levels and taxed accordingly. When the new homeowner homesteads that property they get a reduction in taxes from that new, higher level and, more importantly, a cap on the annual increase in taxable value. Do not expect to pay the same low property taxes as the long-time, homesteaded seller even if homesteaded again post sale.

"It's hard to accept the truth when the lies were exactly what you wanted to hear." _unknown


Saturday, September 24, 2022

Closings in Hurricane Season

 

Anyone who has a closing on a Florida property next week is probably going to be delayed unless they can close with no insurance. Citizens and most other Florida property insurers will not bind a new policy when a named storm is within "the box" which is approximately the entire area shown above or when we have a tropical storm watch or warning. The box is simply a  huge area of the map in which no named storm can exist at the time of binding a new policy. As of this morning, we have a storm, Ian, in the central Caribbean and as of this writing is just south of the box but will be in it momentarily. The map displayed is not exact but a close approximation of the "box". Any Florida closing scheduled for next week that involves a new policy for property insurance is likely not going to happen even if the storm is hitting Louisiana and not directly impacting or threatening us. Make plans accordingly.

"Why take by force what the gullible and guileless will volunteer?" _Sal Bayat

Saturday, September 03, 2022

Consider the Bunny

This market isn't finished yet despite the tripling of inventory since spring. This morning of the second attempt to fly the Artemis 1 mission to the moon, there are 114 existing condos and townhomes for sale in Cocoa Beach and Cape Canaveral plus another four pre-construction offerings. There are 31 single family homes for sale with only one asking less than $525,000.

In the month of August 63 MLS-listed condo and townhome units closed with a median selling price of just over $400,000. Over half of the sold units commanded over $300 per square foot. A couple of years ago only the very nicest direct ocean units were selling for more than $300/sf. In August ten units in buildings not even on the ocean and without garages closed for more than $300/sf. Over half of the condo sales were cash deals and weekly rental units were still closing at the top of the $/sf range. Twenty five units sold in seven days or less with six of them selling before hitting the market. Highest price sale of the month was $1,200,000 for a 4th floor, 15 year old 3/2 beauty at The Meridian in north Cocoa Beach. Lowest price was $165,000 for a clean little, 56 year old, 2nd floor 1/1 in Cape Canaveral a couple of blocks from the ocean.

There were 15 single family homes closed in Cocoa Beach in August and two in Cape Canaveral. Five of the sold houses closed at prices above one million. The starting price for a fixer-upper, non-waterfront house is now about $500,000 thanks to AirBnB mania. The idea of making big money renting to vacationers is fueling demand for the 50+ year old houses close to the beach and is causing problems in our once-peaceful neighborhoods. The City of Cocoa Beach has been discussing new fees and penalties for noise complaints from the growing number of single family vacation rentals. They are a little tardy on taking action but the measures they are discussing will hopefully help preserve the family nature of our neighborhoods.

Hopefully we'll get to see the Artemis mission fly today after many delays and issues with the vehicle. Labor Day weekend is traditionally one of the busiest weekends of the year here but today will probably break all previous records with hundreds of thousands of people coming to see the launch added to the NKF surf contest crowd and passengers coming and going from four cruise ships in port. Yours truly will be hunkered down for the duration. Enjoy the beautiful weather and expect mind-numbing traffic.

"Consider the example of the monkey -- who, the higher he climbs, the more he shows his behind." _St. Bonaventure, the 13th-century Franciscan philosopher speaking about power and wealth


Sunday, August 14, 2022

The Clock is Ticking

Condo owners take notice. The first deadline required by the new Florida condo legislation is less than five months away on Jan. 1, 2023. Condo associations with buildings of three stories or more must file a report with the State by the end of this year. This new mandatory report is simple and can be done online. The registration form can be found here. The required information on the form is listed below.

718.501(3)(a), F.S./Senate Bill SB4D requires all condominium and cooperative associations with buildings 3 stories or higher to report the following information to the Division of Florida Condominium, Timeshares and Mobile Homes on or before January 1, 2023.

  • The number of buildings on the condominium property that are three (3) stories or higher in height.
  • The total number of units in all such buildings
  • The addresses of all such buildings.
  • The counties in which all such buildings are located.

The next deadline for the association is Jan. 1, 2024 by which time the milestone inspection and structural integrity reserve study must be completed. Considering that there are a limited number of engineers and architects who can perform the milestone structural study, it would be prudent for associations to be making steps now to arrange and schedule the inspections. Once inspections have been done, a structural integrity reserve study must be done. The amount being contributed to the structural integrity reserves can't be an arbitrary amount as many associations in our area do for the traditional reserves but must be 100% of the estimated repair costs by the time of the expected repairs. This reserve study will best be done by a specialist in reserve studies.

Compliance is mandatory and, as specifically spelled out in the Statute, Board members may be considered to have violated their fiduciary duty if the association does not comply. I have heard an opinion from a Florida condo association attorney that condos whose by-laws limit fee increases above a certain amount or percentage will likely not be protected should they use this as an excuse to not raise the fees enough to fully fund the structural integrity reserves. The same attorney opined that, as written, the law might be interpreted to include buildings of less than three stories to be required to maintain 100% funded structural reserves even though they are not required to do a milestone inspection or structural reserve study. The law as written is hazy but it would be prudent for owners in buildings less than three stories to consider beginning to reserve for upcoming concrete and other structural maintenance. The days of shoestring monthly fees offset by big special assessments for repairs not included in the budget are coming to an end. It is the new paradigm for Florida condos and the bottom line is that by 2025, monthly fees should be closer to what is actually needed to maintain a condo building. I'll repeat what I've been saying for a while now, condo fees are going up and in many cases are going up substantially. 

Sellers of condo units are going to be required to furnish copies of the milestone inspections and structural integrity reserve study to buyers or, in lieu of, written notice that the association has not done them yet. I think it's reasonable to expect the new transparency about condition and higher fees to cool demand for condos. A substantial pull-back from current prices to reflect the increased carrying costs of condos would be a rational response to the new reality. Sellers who wait until the reserve study quantifies the additional reserve amounts will have waited too long. Anyone thinking of selling would be well-advised to consider doing it prior to the reserve study.

Buyers should pay close attention to the financials of condos they are considering and since none have done their newly required inspections and reserve studies yet, the physical appearance and condition of the building. New buyers of condos should expect today's fees, whatever they may be, to increase by the Jan. 1, 2025 deadline. There is no reason to be surprised by a big increase in fees by then. It's coming and just a matter of time.

"If we want something enough, our tolerance for risk goes up fast. When it’s midnight at the airport, you’ve been on the road for a week, and the line for licensed taxis home is 40 minutes long, the driver hanging around baggage claim looks increasingly trustworthy. Desire offers rationalizations instead of rationality:" __Prof Galloway

Sunday, July 24, 2022

Inventory Tsunami

Spotted this gopher tortoise cruising along the dune line at Cape Winds a few years ago. The variety of wildlife that lives in the narrow strip of dune between the beach and the buildings is surprising. We have a healthy population of swamp rabbits, black racers, corn snakes, tortoises, possums, racoons and the occasional bobcat and coyote squeaking out a life in that narrow strip.

Residential inventory is exploding in Cocoa Beach and Cape Canaveral. The number of existing condos for sale is up 50% since mid-May while the number of single-family homes on offer has more than doubled during the same period. As recently as April there were only 43 condo units and 12 single family homes for sale. The numbers this morning are 101 MLS-listed, existing condo units and 27 single family homes.

Thirty units have closed in the two cities since July 1 at prices between $2 MM and $125,000. Another 46 have accepted an offer since the month began. I would expect the inventory to continue growing as sales activity typically begins to slow as we approach the start of the new school year. Sellers are still pricing optimistically but I am seeing more price reductions as some of them respond to the reality check of an apathetic market. Over 40% of the existing listings have reduced their original asking price. Just a few months ago most new listings were enjoying multiple offers with many selling over asking price. Of the thirty closed units so far this month nineteen of the thirty sold for less than asking price. Sellers, take note; the market is different than it was two months ago and the new reality is more competition, fewer buyers and tighter conditions for condo loans. With the busy months of hurricane season fast approaching, the time to play chicken with the market is behind us. Anyone hoping to sell a residential property here would be well-advised to accept the market changes and make a plan to sell that works with the new reality. The strategy that worked well earlier this year when there was less inventory, lower interest rates and a less-stringent condo mortgage questionnaire is not the best plan moving forward. 

Buyers, enjoy your new status in the buy and sell dynamic. Those planning to get a mortgage need to understand what will make a condo complex fail the new mortgage condo questionnaire before they offer on a unit. If the complex is older with obvious deferred maintenance or it is primarily vacation rental units, a mortgage may be impossible. An experienced buyer's agent will have a good idea which ones those are.

"Bad artists always admire each other's work..."--Oscar Wilde

Sunday, July 17, 2022

New Reserve Requirements for Condo$

The anticipated changes addressing condo safety are now law. I have inserted the most impactful parts of the new law that will affect condo fees substantially in many buildings. The TL;DR summary: Procrastination regarding structural maintenance and funding of same is no longer an option for pennywise, pound foolish associations.

Condominium buildings 3 or more stories will now be required to have a “Milestone Inspection” within 30 years from date of occupancy, or, if the building is within 3 miles of the coastline (this covers all of Cocoa Beach), the inspection must occur within 25 years, and afterwards every 10 years. Existing condominiums built before July 1, 1992, will need to complete the initial milestone inspection by December 31, 2024

Phase 1 inspection requires the architect or engineer to perform a visual inspection of the properly and make an assessment of the building’s condition. If the phase 1 inspection reveals no signs of structural deterioration, then a phase 2 inspection is not required. A phase 2 inspection is required if structural deterioration is noted, the phase 2 inspection may require destructive testing.

In addition to the association, the inspector's report must also be delivered to the local building official. The association must distribute a copy of the inspector-prepared summary to each unit owner regardless of the findings or recommendations in the report. Any repairs for structural deterioration must be commenced within 365 days after receiving such report or earlier as required by local authorities.

The required “Structural integrity reserve study” is the fly in the ointment for condo fees. For some well-maintained and newer buildings it will have little effect on fees but for buildings with deferred concrete repairs, the requirement to begin funding reserves immediately (or by December 31, 2024 )for a project in the near term will blow up monthly fees.


Associations have a little breathing room before December 31, 2024 but if they anticipate that the structural integrity report is going to find needed expensive concrete repairs it would be prudent to go ahead and boost fees by an arbitrary amount immediately to get a head start. I would expect some Boards to wait until the last minute to give some owners time to bail before fees go up. 

Interesting fact: the concrete used in older buildings is not the same as modern concrete. I have learned that concrete formulations began evolving rapidly in the 80s and continue to do so today. Newer buildings in almost all cases were constructed with better concrete than our older buildings especially those built before the 80s. Another issue to consider when looking to purchase a beach condo. Knowledge is power.

"It's hard to accept the truth when the lies were exactly what you wanted to hear." _unknown

Friday, July 08, 2022

Retrograde Burn Initiated

Inventory of existing condos and townhomes in Cocoa Beach and Cape Canaveral stands at 88 units this morning plus another four pre-construction units. Median asking price is $460,000. There are 29 existing single family homes offered with a historically high median asking price of $1,000,000. In addition, there are six yet-to-be-built homes offered for reservation in south Cocoa Beach.

Seven single family homes closed in the month of June at prices between $1,750,000 and $370,000, only one unit for less than $650,000. During the month 58 condos and townhomes closed at prices between $1,217,000 and $128,500 with a median selling price of $330,000.

New contract activity has slowed with only 40 condo units contracted in the last four weeks, over half in the first three weeks on the market. Nine single family homes have found a buyer during the same four week period. One notable statistic has been a shift in activity to lower priced units. Thirty of the 37 units contracted in the period were asking less than the current median asking price of $460,000. That illustrates a pretty wide gap between what's for sale and what's selling. Another shift is the number of buyers using a mortgage to purchase. Historically over half of our condo sales have been for cash. Since June 1, only 40% of condo sales were cash deals. That's surprising considering the rapid increase in mortgage rates this year. We had a welcome pull-back in rates this week with the average 30 yr fixed rate mortgage at 5.672% as of yesterday's survey.

My takeaway and observation is that there is a widening separation between buyers and sellers. Sellers in the higher price range above the median are enjoying less buyer interest except in the case of unique properties. Buyers getting a mortgage are looking at a monthly payment that is about 40% higher today than it would have been last year even after the big pull-back this week. Add in higher prices, condo fees and insurance and the climate for continued appreciation is not favorable. Those who are selling and not getting any activity need to ask themselves if this is a typical pause in a hot market or if something has changed and respond accordingly. What the neighbor got for their property in April may not be a realistic benchmark in a changing market. Buyers may still find themselves in multiple offer scenarios for desirable properties but now have the backstop of increasing inventory and cooling demand. The pressure to pay whatever it takes to win is not as applicable as it was two months ago. Best of luck to those looking to participate. Do your homework, know what's happening now with prices and inventory and adjust your strategy and expectations if the current conditions differ with your earlier expectations.

____________________________________________________________

Told you so - from a post I did in December 2014:

The Cocoa Beach Pier was sold to Westgate Resorts of Orlando who have begun total renovation of the 52 year old landmark. I expect big things and probably a challenge of the height and density limits for a new structure on the parking lot. That will be highly contentious if it happens.

And just reported: 

Cocoa Beach commissioners voted 4-1 Thursday to allow Westgate Resorts to build a six-story resort at Cocoa Beach Pier (above the maximum permitted building height of 45 feet) paving the way for the resort and parking garage off Meade Avenue.

"Against profitability, morality is overmatched." _Jay Busbee about LIV golf

Thursday, June 23, 2022

New Rules for Condos = $$$

The Florida legislature finally approved legislation addressing condo building safety during the recent special session. The draft as approved requires buildings of three or more stories and within three miles of the ocean, which is all of Cocoa Beach, to be visually inspected by the time they are 25 years old and every ten years thereafter by an engineer or architect. If structural deterioration is found during the visual inspection, further inspections to determine whether the building is structurally sound are required. That means buildings completed before 1992, must complete their first inspection by Dec. 31, 2024. Enforcement is expected to be at the County level with oversight by DBPR. 

Beginning Jan. 1, 2025, condo associations will be prohibited from waiving the collection of reserve funds for structural maintenance and repairs which is an item that most condos in our area do not already include in their reserve accounts. The measure also calls for a reserve study every ten years. 

We won't have the exact language until the final bill has been completed and signed into law by the end of this year. Big questions include the percentage of reserves that will be required and how the amount for structural reserves will be determined. Concrete repairs can vary wildly depending on extent at time of repair and where on a building they exist so estimating future costs might require the use of a crystal ball. Even without structural reserves the difference in full or partial reserves can be hundreds of dollars a month in condo fees. Whatever the final language it's safe to expect that single requirement to increase condo fees substantially. 

The ten year period between reserve studies and inspections is already being questioned as not frequent enough to accomplish the intentions. It is a step in the right direction but some professionals suggest inspections and reserve studies every three years as more appropriate in order to maintain realistic reserves. Condo owners in buildings without reserves and that have deferred structural maintenance are about to have a serious reality check on the real cost of oceanfront condo living. A 25 unit building that estimates they will need one million dollars for a concrete project in ten years will need to add $333 per month to each unit's condo fees right now in order to have that million in ten years. Estimating repair costs a decade in advance is guesswork at best as is estimating the extent of the needed repairs ten years out. What is estimated at a million today might turn out to be five million in 2032. Owners of units in older oceanfront buildings should be prepared for meaningful increases in their monthly fees. Inspections, repairs and structural reserves will no longer be optional and they won't be cheap.

The rate of new contracts on condo units in Cocoa Beach and Cape Canaveral has slowed significantly in the last couple of weeks. The rate of accepted contracts so far in June is at about half the rate we enjoyed one month earlier. In addition to sharply higher mortgage rates I imagine the stock market decline may be affecting those cash buyers who would have been selling stocks to fund their condo purchase. Whatever the reason, we are experiencing a slowdown in activity. Whether it persists is anyone's guess.

“Most successful people are just a walking anxiety disorder harnessed for productivity.” __Andrew Wilkinson

Thursday, June 16, 2022

Condo Mortgages Just Got Tougher

Residential real estate activity in Cocoa Beach and Cape Canaveral has slowed somewhat as we've entered our summer season. Twenty condo sellers have accepted a contract since June 1 along with seven sellers of single family homes. Inventory is unchanged from May with 79 condos and townhomes and 17 single family homes for sale this morning. Those numbers do not included 11 pre-construction offerings. The lowest-priced single family home offered in Cape Canaveral is $2.2 MM. It is also the only home currently for sale in that city. Of the 16 Cocoa Beach homes for sale, the lowest asking price is $499,000 and the highest, $1.75 MM.

Closed sales of note so far in June include a beautifully remodeled direct ocean 6th floor Constellation 3/2 with ocean and river views and one of the best floor plans in Cocoa Beach. It sold for $935,000 before hitting the market. Twelve of the 27 sold units so far this month sold in the first seven days on the market. Slightly more than half of these sales were cash deals. Twelve of the 27 sold for more than $300 per square foot with the weekly rental units that closed bringing substantial premiums to those in buildings that prohibit short-term rentals which are the vast majority of local condos. Skyrocketing vacation rental rates have pushed the prices of units in the handful of short-term rental buildings to unheard-of levels. Two bedroom oceanfront units with the ability to do vacation rentals have pushed over $600,000.

The condo collapse in Surfside happened one year ago this month and it seemed that there were going to be no impact after the Florida legislature earlier this year chose not to act on the Florida BAR task force recommendations. Absent legislative action, property insurers took steps to protect themselves and are increasing premiums and in some cases cancelling policies on a wide scale. 

Coming in from left field, the biggest impact so far has been an addendum to the Fannie Mae condo questionnaire. The condo questionnaire must be completed by a condo association for a prospective purchaser who is buying with a mortgage and the answers must conform to Fannie Mae guidelines if the mortgage is to be approved. In the past the main potentially deal-killing issues were ratio of residents to renters, percentage of past due owners, number of units owned by same entity, reserves, insurance and existence of current litigation. The full review questionnaire since March 2022 is much more probing with pages of questions about building condition, date of last structural inspections, findings of that inspection and plans to correct and fund those findings. A respondent who is lucky enough to have a recent satisfactory inspection is likely to be given pause by questions on page two about the association's "awareness" of any safety or structural issue. This is sure to strike some fear in the poor soul who is asked to complete the questionnaire as is the question about "planned" special assessments. That expands the existing requirement to disclose special assessments from those that have actually been issued to any that are "planned". There are also new questions about date of last reserve study and balance of the reserve account. It's safe to expect some Board members and managers to refuse to complete the new full-review questionnaire.

One bright spot in this (so far) is that the limited review condo questionnaire has only limited changes so buyers in buildings that can't satisfactorily answer the full-review questions can put 30% down and hope to be able to pass the shortened review questions. Note that limited reviews will still contain broad questions about "planned" assessments and deferred maintenance. Owners in older buildings with deferred maintenance would be well-served by pressuring their Board to address structural issues sooner than later. Inability to satisfactorily answer the condo questionnaire will limit a seller to cash offers only, potentially impacting selling prices. However all this plays out, I stand by my prediction that expenses for owners in older Florida condos are going to continue to soar. 

Sellers of condos need to know whether or not their association can pass the full (or limited) condo review so they don't waste time accepting a low down payment mortgage offer that is destined to fail. Same goes for owners in the not-few local buildings that can't pass any questionnaire. Those buildings have been relegated to cash deals only for years but I still see the occasional contract go contingent with a mortgage knowing that it will be back on the market soon. This is always an inexperienced or out-of-town agent who isn't familiar with the building. Sellers should ask prospective listing agents what issues buyers seeking a mortgage will be facing in their building so that they can avoid the disappointment of a failed contract. A listing agent who can't answer that should be removed from consideration.

I'd love to hear from readers who've renewed their flood policies since April 1. Have your rates gone up? How much? I expected substantial increases especially for those in flood zones but haven't heard anything in the two months since the changes took effect.

Anyone who'd like to read the new full review condo questionnaire can email me at condoranger@hotmail.com for a copy. I would advise any Board members or owners planning to sell to familiarize themselves with the questionnaires.

"Money is a lot like alcohol.  It doesn’t change a person.  It amplifies who they are." _anonymous

Sunday, May 15, 2022

Do the Math - Ignore the Emotions

This is a sign not to ignore. The sound of a baby alligator bleating is a guarantee that Mama will be on the spot very soon. Please give the nests, baby gators and the shoreline of the ponds a wide berth at the Cocoa Beach Country Club.

Inventory is increasing. There are 81 existing residential properties of all types for sale this morning in Cocoa Beach and Cape Canaveral at prices between $134,900 and $1,999,000 with a median asking price of $499,000. Thirteen of these are single family homes, all of them in Cocoa Beach. There hasn't been a single-family home offered in Cape Canaveral for several weeks.

There are still two luxury units offered in The Surf (under construction) downtown Cocoa Beach for $1.66MM and $1.999MM. Other listings of note are a remodeled 47 year old, 10th floor NE corner 2/2 at 2100 Towers asking a staggering $1,497,000. How about a 3rd floor 3/2 with 1323 square feet and no garage at Cocoa Beach Towers asking $950,000. Weekly rentals allowed here so that takes a small step towards justifying that number.

Twenty two residential listings have closed so far in May, including a yet-to-be-finished single family in a new riverfront development in south Cocoa Beach for $2,095,000. Not sure how they manage to close the sale of houses that have yet to be finished. Maybe someone can enlighten me. Over half of the closed sales sold for full asking price or more, one at $65,000 over asking price and over half sold within the first seven days on the market. And, over half of the closed sales sold for cash.

Other closed sales of note included a small furnished 1st floor Canaveral Towers 2/2 with no garage and no ocean view that sold for $595,000. Weekly rentals boosted that number as they did for a 49 year old, 2nd floor, side ocean view Spanish Main 2/2 that sold for $549,500. It was remodeled and furnished but had no garage. A nicely remodeled & furnished 3rd floor direct ocean 2/2 at Hacienda del Mar in south Cocoa Beach closed for $594,000. It has a wide open ocean view and a garage but the building doesn't allow weekly rentals.

Sales continue to be strong with 32 contracts accepted since May 1 including a penthouse at the unfinished Surf downtown Cocoa Beach that was listed for $3.2MM. 

The national thirty year fixed rate mortgage average is 5.57% as reported today by Bankrate.com. That's two full percentage points higher than the rate we began the year with. This is certainly affecting some buyers but with a high percentage of cash sales and second home sales, the effect on our local market is not as drastic as it may be in non-vacation-destination markets.

Those looking to buy in our market will be well-served to remember that there is intense competition and many prices can't be justified by the last sale of a comparable property. The sales are going to the bold and quick buyers. The time to do one's homework as a buyer is before the search begins, not after a property has been found. While you're studying comps some other buyer is likely already writing a non-contingent offer. Know what you want and what you're willing to pay to get it. Be realistic. There are no deals in a market like this. Either make peace with that or stop torturing yourself with a search that isn't going to yield fruit. Best of luck to those of you on the hunt.

"If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate's 62, 63 percent. So I've got to make some decisions on what I'm going to do." _Phil Mickelson

Sunday, April 24, 2022

Measure Twice, Cut Once


Snowbird season 2022 is behind us and all but a few of our winter guests have returned to their northern homes. Those who have only visited during the Christmas to Easter snowbird season might be shocked at the pace of life post season. Restaurants are no longer jammed, sidewalks are empty and a golfer can show up at the Cocoa Beach Country Club without a tee time and be assured of getting a round in. We'll enjoy a month or so of this before the summer vacation season takes off in earnest on Memorial Day weekend. 

Real estate sales are somehow keeping the pace despite depleted inventory and crazy, high prices. We have a total of 55 existing residential properties for sale this morning in Cocoa Beach and Cape Canaveral. Just twelve of those are single family homes. In the last two weeks, 57 sellers accepted an offer, most of them choosing from multiple offers. That works out to a 16 day supply at the current rate. That would seem unsustainable except for the fact that we've been maintaining this precarious pace for a few years. Ever-higher prices are reflecting the skewed demand/supply dynamic. 

Of the 75 properties that closed since first of April, 31 of them closed for more than asking price, several for considerably more. Weekly rental oceanfront condo units continue to set records. Among those that raised my eyebrow was a 4th floor furnished 2/2 at Canaveral Towers that  closed for $696,000, which was $46,100 over asking. This seems crazy for a 47 year old unit without a garage but the magic comes from the ability to do weekly rentals at Canaveral Towers. The current sky-high weekly rental rates for nice oceanfront units helps the math pencil out even at these astronomical selling prices. Another weekly rental 2/2 next door at Cape Winds closed for $530,000 with a side ocean view and no garage. A north facing Sandcastles 2/2 weekly sold for $575,000, $46,000 over asking while a direct ocean Sandcastles 2/2 brought $645,000.

The weekly rental condos weren't the only ones setting records. A Windjammer direct ocean 2/2 sold for $532,000, $7500 over ask while a 59 year old Diplomat 2/1 with no view or garage sold for $300,000. Single family homes are likewise setting new records with selling prices. There is only one single family home in our two cities asking less than $550,000.

One disturbing trend I have recently noticed is incorrect square footage of condo listings. Two of the sold listings I mentioned above had inflated square footage in the MLS listings and there was a new one this morning that overstated the size by 14%. This is deliberate on the part of the listing agent and I can think of no reason other than to deceive potential buyers. Perhaps the sellers are convincing the listing agents that the tax record is incorrect and the agents go along with it rather than lose the listing. Whatever. Be careful out there and don't trust everything stated in a listing. It's easy to confirm the size with the tax record.

If something looks irrational – and has been so for a long time – odds are you have a wrong definition of rationality.” __Nassim Taleb

Friday, March 25, 2022

Brave New World

 

Anyone hoping for more residential inventory in Cocoa Beach or Cape Canaveral is advised not to hold their breath. Numbers have declined again after a brief spurt of increased supply last month. There are a total of 50 residential properties of all types listed for sale on our MLS this morning. There are another nine proposed properties looking for reservations. In the last thirty days 79 properties have closed. At that same rate, our 50 currently available properties will be gone in 19 days. I believe that may be the lowest our supply has ever been although I don't track that particular metric.

Of the 79 sold properties, over half sold for at least full asking price.

  • 27 sold for more than asking price.
  • 45 sold for cash.
  • 11 sold first day on market.
  • 48 sold in seven days or less.

With the high level of competition buyers have become creative and, in some cases, careless with offers. Some of the strategies I've seen are waiving inspections, waiving appraisal or agreeing to make up all or part of the difference in the event of a low appraisal, escalation clauses, fast closings, rent-backs to sellers and in one bizarre instance, discussion of a bribe.

Buyers looking for a single family home in Cocoa Beach have ten existing houses to choose from, none of them asking under a half million. There is only one single family listing in Cape Canaveral, a 69 year old 3/2 on almost two acres of beautiful Banana River frontage asking $1,650,000.

Advice for Prospective Buyers

I would advise all prospective buyers to deal with the reality that you will almost certainly be competing with other buyers and to have a strategy in mind before you make an offer. Do not expect to find a deal. They do not exist. Do not withdraw an offer because you suspect the listing agent is lying about multiple offers. Do not think you'll be able to whittle the price down after inspections. There are buyers standing by who will be more than willing to take your place without a credit for repairs. Speaking of taking your place; if you lose out in a multiple offer scenario, write a backup offer and get it signed by the seller if they're accepting backups. I'm seeing many failed contracts presumably because sellers are refusing concessions post inspection and others because of low appraisals. It's tough to be a buyer now but somehow, 79 determined buyers closed on what they were looking for in the last 30 days.

I noticed while researching these numbers that there are seven condo listings with missing condo names. An agent or consumer who searches for a unit by condo name in one of those seven buildings will not find those listing. Prospective buyers whose agent set up an auto-alert in the MLS for a unit in one of those buildings will not get a notice of those listings. In this market, they will sell anyway but may not bring what they might have if all interested buyers were included. I'd advise sellers to review their listings carefully as soon as they come active looking for errors or omissions. Our non-intuitive MLS listing entry process makes for easy omissions so even experienced agents can miss something but those that care will catch it in their last review before taking the listing live. There is zero excuse for a missing condo name on an active listing. 

The new luxury condo, The Surf, in downtown Cocoa Beach has topped out. There is one last unsold unit being offered for $1,999,000. The long-delayed development of million dollar single family homes on the riverfront site of the old Joyce's Trailer Park in south Cocoa Beach is finally in high gear. I will be interested to see if the developer makes good on his promise of restoring and opening the clubhouse over the river in the old Fisherman's Wharf restaurant building. It was promised to buyers of units in the developer's other condos in south Cocoa Beach in addition to the buyers of the new houses. Some of those condo buyers have been waiting for their clubhouse for over five years.

"The early advocates of universal literacy and a free press...did not foresee...the development of a mass communications industry, concerned in the main neither with the true nor the false, but with the unreal...In a word, they failed to take into account man's almost infinite appetite for distractions." __Aldous Huxley, Brave New World Revisited (1958)

Sunday, March 13, 2022

Legislature Decides Condos Are Safe Enough Despite Surfside Collapse


I wrote about the special task force that was established following the Surfside condo collapse last year. The task force came up with a list of recommendations that would enhance safety of condo buildings and hopefully prevent a similar tragedy from happening again. That list included items like requiring regular structural inspections and removing limitations to Boards' ability to assess owners to perform needed repairs. It also recommended establishing a source for long-term loans for owners unable to afford a high special assessment all at once.

Despite the task force's recommendations, one member demanded that the bill include a requirement for associations to fund reserves. He would not compromise and as a result, the bill failed to pass. As it stands now, Florida condo associations can  fund reserves completely, partially or not at all. Those with partial or no reserves must levy special assessments when funds are needed for repairs. The resistance to a large special assessment is what led to the delay and subsequent collapse of the Surfside building. 

Most associations fund reserves for big ticket items like the roof, pool, parking lot and painting. Until now, concrete repairs have rarely been specifically included as an item in condo reserves. If associations were required to fully fund reserves and include concrete repair in them it is conceivable that some associations would have to raise their monthly fees into the thousands of dollars per unit. It is a tough situation and whether law or not, condo boards are still faced with the challenge of maintaining their buildings and raising the money necessary from owners. There is always resistance to assessments or increased fees and as a result expensive repairs are often pushed off into the future. There are buildings in our area who have serious concrete issues that should have been taken care of long ago. Anyone hoping to buy a condo unit on the ocean should pay close attention to the appearance and integrity of the buildings they're interested in and to also examine the financials to determine the ability of the association to fund repairs. Low monthly fees for an oceanfront building, while attractive, are a red light for prospective buyers. Do your homework. Whatever the monthly fee is today, it is going up. 

''Most of us did not think these kinds of things could happen in our country. The veneer of civilization is very thin." __Margaret Thatcher

Sunday, March 06, 2022

Sky's the Limit


In a post from this same weekend in 2018, I commented that pricing was getting ahead of itself with 44 units asking over $300 per square foot while only three condos had closed so far that year in that range. Jump to March 2022 and, as of this morning, 46 units have closed for more than $300/sq ft, with eighteen of those fetching over $400/sf. Sales of units commanding top dollar are no longer restricted to a specific property type and/or condition but are spread across multiple complexes with $400+/sf sales happening at Ocean Oaks, Stonewood, Xanadu, Canaveral Towers, Las Palmas, 2100 Towers, Park Place, Royal Mansion, Spanish Main, Royale Towers, Ocean Pines, Sandcastles and Riomar among others. Not all of these oceanfront units had garages.

MLS inventory of existing condo units in Cocoa Beach and Cape Canaveral the last few weeks has bounced around between 35 and 45 units while single-family home inventory has stayed between 13 and 19 for sale at any moment. Since Feb. 1 a total of 76 condo units have closed along with 13 single-family homes. Thirty of those closed sales since Feb. 1 were at least $500,000 with five of those over a million dollars. 

Most fairly priced new listings are getting multiple offers quickly and buyers are getting aggressive with their numbers and terms. It's not uncommon to see inspections and appraisals waived and many buyers are offering on properties sight-unseen. With so much competition, sellers are becoming more discerning with the offers they will entertain. They are wisely expressing concern with offers well above asking if they don't waive appraisal. Likewise, sign-unseen offers may be perceived as too risky. Buyers need to discuss all angles with their agent to figure out how to craft an offer than can compete. The less uncertainty an offer carries, the more well-received it will be. Expect the others to be offering cash with no contingencies and be prepared to lose to a crazy high offer. One last thought about multiple offers; a buyer who loses a unit to a higher offer will now be using that selling price as the new comp when they make their next offer. It's become a pay now or pay later dynamic.

Best of luck to buyers who are in the hunt. Be smart and quick with your offers and have an agent who knows the market and understands the competitive environment. Every edge matters and having a slow agent who doesn't understand our market dynamics or how to write a competitive offer will hurt you. Keep the offers as clean as possible, be prepared to pay more than you think it's worth (right now) and don't be slow to make an offer on a good property.

"Ever thine. Ever mine. Ever ours." __Ludwig van Beethoven 

Sunday, February 20, 2022

Snooze and Lose


Property sales in Cocoa Beach and Cape Canaveral continue at a furious pace even as inventory hovers at just less than a month's supply. After declining steadily for sixteen years we seem to have settled into a precarious just-in-time balance between sales and new listings. There have been 115 new condo listings since Jan. 1. Eighty of those new listings have already found a buyer. During the same seven week period 104 condo units have closed, eleven of those in the unexplored range over $400/sq ft. There are currently 47 existing units offered for sale with another four proposed units available for reservation. Of the units currently offered for sale only half have been for sale longer than three weeks. I wonder why the units that have been on market for over 30 days have not sold yet. Could it be price?

There are a total of thirteen existing single family homes for sale in our two cities. Thirteen homes have closed since start of the year only four of which were under $500,000. The lowest priced current listing is $499,900.

As in previous years, over half of this year's condo sales so far have been for cash. Mortgage-seeking buyers are adapting in order to compete by dropping contingencies. I have rarely written offers in the past waiving inspections or appraisal but that has become normal. If the time period will allow for it, a buyer can offer cash and still get a mortgage in time for closing. In that scenario, the buyer better have a local lender who understands condo loans and can perform with a tight time period. If the lender isn't ready by close date, it's either close with cash or lose the deposit. I would not recommend offering cash intending to get a mortgage with an out-of-town lender nor if I didn't have the liquid cash to close with. Prudent listing agents are asking for increased deposits with cash offers to ensure commitment and to penalize failure. Buyers, prepare your offers accordingly and know that contingencies of any kind weaken your offer and open the door to a competing buyer who offers without contingencies. Good luck and be prepared to move quickly and decisively.

"I know worrying works, because none of the stuff I worried about ever happened." ___Will Rogers

Friday, January 28, 2022

Waiting in Vain


After trending up for a few months the inventory of residential properties for sale in Cocoa Beach and Cape Canaveral is shrinking again. There are only 60 individual residential properties for sale this morning in our two cities, 47 condos and townhomes and 13 single family homes. In addition, there are another seven unbuilt luxury homes offered by reservation in the much-delayed planned community on the river in south Cocoa Beach. 

Activity has been non-stop with 68 condos receiving an accepted contract since the beginning of the year. If the sales rate continues at this pace, the entire existing inventory of condos will have sold by Valentine's Day. Resistance to crazy high prices has all but evaporated and frustrated buyers have been paying prices that can't be justified by earlier sales. In the last two months seven oceanfront condos have sold for more than $400 a square foot, four of them without a garage. These prices put us in unexplored territory. Can prices continue to go up? Sure. Can they reverse course? Same answer. Buyers looking for return on investment can easily calculate whether current prices work with expected rents and occupancy. Those looking for a beach get-away for their family or for a primary residence should be more concerned with the property itself than with where prices are at the moment. I've watched careful buyers wait years because they thought prices were too high and would be correcting. For the last fifteen years or so those buyers either had to reframe their expectations or they never bought. Waiting for a correction that is slow in coming might mean not making memories at the beach during years when it would mean the most. Everyone has to decide for themselves. Paying 10% more than one thinks a unit is worth today will probably be inconsequential years down the road, especially if those years have been spent enjoying the family beach place that Mom and Dad overpaid for. Bob Marley may have been talking about this when he sang, "'summer is here, I'm still waiting there." 

"Let me be clear about this. I don't have a drug problem. I have a police problem." __Keith Richards

Monday, January 03, 2022

Against All Odds


Another year done and one in which we were still dealing with a disrupted economy. Despite the pandemic and related issues in the economy, 2021 was a multiple record setting year for Cocoa Beach and Cape Canaveral real estate. The number of residential properties sold in our two cities was the highest in history. Our average inventory was the lowest of all time and selling prices for many properties (not all) were at the highest levels ever.

Two years ago, January 2020, we began the year with 108 condos and townhomes and 21 single family homes for sale in the two cities. Inventory during 2021 averaged a little over half that in both property types. Despite the drastically low inventory we closed the most units ever, 863 condo and townhome units and 168 single-family homes. There are currently 14 single family homes and 57 condos for sale in the two cities. Anyone looking for a single-family home in Cocoa Beach for less than $625,000 has only one listing to consider. A buyer looking for an oceanfront weekly rental condo unit is completely out of luck with zero units offered on the MLS this January morning.

Vacation rentals were one of the story property types of 2021 when we saw an explosion of vacation rentals in buildings off the beach. That was fueled in part by the City of Cocoa Beach relaxing its opposition and enforcement of vacation rentals in previously prohibited off-the-beach areas. Prices being paid for those properties and for the few condos that allow weekly rentals skyrocketed. 

Vacation rentals weren't the only property type to see record high selling prices. Sellers of oceanfront units happily accepted over $300 per square foot for 43 different units during the year compared to just six the previous year and zero in 2019. That upward movement in prices continues with little resistance. Those hoping to purchase this year need to understand the dynamics at play and construct their offers accordingly. There will be competition for any desirable property and it is likely to include buyers who are willing to knowingly overpay. Buyers paid over asking price for 155 condos in 2021 and the majority of the remainder sold at or within 2% of asking price. Slightly more than half of all sales during the year were cash deals. Cash buyers always have an advantage over a buyer using a mortgage but that advantage has increased clout with these market conditions. With the current optimistic pricing, appraisals become an issue and the uncertainty that comes with that becomes a liability for a mortgage-seeking buyer. It is not uncommon for a seller to accept a lower cash offer over a mortgaged offer for just that reason. Don't lose that dream condo over a few thousand dollars if it's checking all the boxes. Pinch your nose, pay up, and enjoy the beach while market momentum closes the price gap after closing.

Welcome to all our new neighbors who bought in 2021. I hope Cocoa Beach turns out to be exactly the laid-back, friendly little beach town you were looking for.

"Wow. That's my husband. It's freaking Nazaré and I'm pretty sure he has a soft top with him." __Jordan Gravy