Sunday, November 27, 2022

Breach of Fiduciary Duty. It's Easy.

Half of the current inventory in Cocoa Beach and Cape Canaveral has been on the market for two months or longer. Two thirds of the properties that have received an accepted contract so far in November were on the market less than a month and all but two of the rest had reduced asking price substantially. That suggests to me that new listings are being priced more attractively than the majority that have been sitting on the market since summer and that some of those existing sellers who are dropping their high asking prices are finding buyers.

Deciding on an asking price was fairly simple for the first half of 2022. A seller and their agent could estimate fair market value and add 10 to 20% on top of that and expect multiple offers as soon as the listing hit. That has changed. When the slowdown began in the summer many listings were sitting with optimistic asking prices and didn't notice when contract activity tapered off. Listing agents who were paying attention began tempering sellers' expectations and the ones that adjusted asking prices to the new slowed market were the ones who successfully picked off buyers from the shrinking pool of hopeful purchasers.

With the crazy high rents for next year's snowbird season it's probably reasonable to expect many still unsold condos to pull their listing until after March and rent for the season. The sellers that do this are gambling that their asking prices will be more attractive to buyers late next spring and summer than they are now. What are the chances? Perhaps the stock market will have recovered and cash buyers will be comfortable again with cashing out investments to buy a beach getaway. Perhaps mortgage rates will not be higher than they are now. Perhaps those whose employment was curtailed will have landed in a better position and resume their search for a Florida property. All three of those things have affected the number of prospective buyers of Cocoa Beach properties. Our market is directly tied to these and other macro conditions that we have no control over so, as always, deciding whether to sell or wait is at best an educated guess. 

A suggestion for the handful of sellers who intend to rent to snowbirds while continuing to try to sell their unit: Please let your renters know before they arrive that you will be having agents and their clients coming by to see the unit during their vacation. Best is to arrange a certain day and/or time period for showings so they don't always have to be on call and ready for a visit by strangers. I run into a few pissed-off snowbirds every season who were never told about this in advance and who are rightfully put-out by the inconvenience and who sometimes express their anger by making showings unpleasant. Not optimal for selling.

Deadline Approaching - Condo Board Members Do Not Ignore

The deadline for registration for condos that was mandated in new legislation this summer is approaching. All affected condos (every condo in Cocoa Beach & Cape Canaveral over two stories) must register with the State by December 31 which is just 34 days away. The association then has two years before they must have completed both their milestone inspection and their structural reserve study. The structural reserve study can't be completed without the results of the inspection so associations need to be making arrangements for their inspections soon. The first inspection may trigger a secondary inspection so it would be prudent to build in some wiggle room with scheduling. Structural engineers who will be doing these inspections are going to be very busy the closer we get to the Dec. 31, 2024 deadline. Associations who wait too long to schedule their inspection might find themselves tardy with the reserve study because of it. I would expect it to take several months to schedule and complete the inspections and reserve study. A nice little incentive for condo Board members built into the legislation is that it is a "direct breach of fiduciary duty liability for failure to comply" with this law. Follow this link for the simple registration process. Deadline Dec. 31 this year.

The sheep will spend its entire life fearing the wolf, only to be eaten by the shepherd.” _unknown

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