Alternative Universe

The real estate bubble is becoming America's most talked about impending disaster since Y2K. I suspect that the reality may be just as much of an anti-climax. I can't speak for other markets but I can speak with knowledge about the Cocoa Beach and Cape Canaveral market. Before the irrational exuberance of the recent condo boom, there was a normal market that consisted of primary residences and vacation homes. That market is still there and is much more healthy than the over-heated, investor-driven one that everyone is talking about. While pre-construction investors are sweating out the next drop in prices and losing sleep over impending closings, there are literally thousands of homeowners who are unconcerned with the short-term direction of property values. These are the ones who live here full time or those from out of town who use their beach places for vacations or get-aways. This is the alternative universe that is invisible to the bubble cult.

Are there problem areas in our market? Yes, most definitely. I've been cautioning about speculation in high-end condos for some time now. I suspect that there will be a lot of pain among the pre-construction investors in high-end condos this year. But at the same time, thousands of homeowners will be enjoying Cocoa Beach for it's beaches, surf, fishing, wildlife and all the other things that make this such a special place in the world. Will the speculators' departure affect this underlying market? Probably. All markets operate on supply and demand. A good analogy comes from Michael Kahn of Barron's. He said, "In the stock market, fuel is trading volume. Without volume, a price advance will soon slow down, if not stop and reverse. Momentum may keep trends going for a while, but sooner or later the market is going to require buyers to put real money where their collective mouths are and buy a lot of shares." This principle holds true in our real estate market. Fewer buyers means less or no price appreciation, at least until the current inventory is absorbed. I am already seeing drastic price reductions and expect more. During this changing time, there will be some outstanding deals to be had for those with the nerve to act.

While we wait out this next phase, I'll be enjoying all that Cocoa Beach has to offer. Hopefully, my next post will include a big fish or surf photo. Until then, as the t-shirt proclaims, "Life is good."

All work and no play....NOT

Well, all work and no play makes Larry a grumpy realtor. Managed to slip out offshore yesterday with a friend and chase the springtime cobia. This was our only fish but he was a bruiser. Cobia show up here every spring as they migrate northward. We zigzag around just off the beach looking for fish swimming on the surface or following manta rays. This was one of only 3 fish that we saw yesterday but luckily, he was hungry. The run will continue for a few weeks and then the nearshore action will slow down as the fish become scattered and congregate on offshore wrecks. Just another great benefit of living in Cocoa Beach.

Here is our dinner last night, grilled cobia steak and tiradito. I make the tiradito by slicing fresh, raw cobia or tripletail and arrange the slices on a serving dish. I then sprinkle with coarse sea salt, squeeze a lemon over all and top each slice with a cilantro leaf and a dot of hot sauce. Exquisite.




I'll return to our regularly scheduled real estate talk next time. In the meantime, get outside and enjoy this great spring weather.

South Cocoa Beach gets a low-rise

The graph above shows total monthly closed MLS residential listings since Jan. 2004 on the left side to Feb. 2006 on the right. This includes condos and single-family homes. The numbers from the county show a different trend. Their records reflect all sales not just MLS listed properties and those numbers show no slowdown at all. I believe that can be explained by the number of new condo units that continue to close but were actually contracted as long as 2 years ago. If I were so inclined, I could paint a rosy picture of our market by using all sales rather than MLS-listed properties but that would be cheating, wouldn't it? The activity in our market remains very slow. I'm seeing more and more price reductions and inventory remains at a very high level. Action at Portside Villas resembles a game of chicken. Yesterday one seller reduced a 2 bedroom unit to a remarkable $215,900 while someone else posted a new listing for an identical unit at $269,900. Either someone didn't do their homework or this is a bad case of denial. There is one 1 bedroom unit offered for $179,900. At this level I think these units are a buy. Not a lot of downside risk at that price in a brand new 908 sq.ft. condo a short stroll from the beach. The pressure these sellers are under will ease after they close and there will be less incentive to dump units at these prices.

On a positive note, at least one developer gets the changing trend of our market. While million dollar high-rises go up on both sides with varying degrees of sales success, Tracy Dix has released plans to build 26 Key West style units in south Cocoa Beach with prices ranging from $349,000 to $449,000. Sizes range from 1438 to 1860 sq.ft. and all have a garage. This project will be on the site of the old trailer park tucked between the beach and the Banana River right next to Magnolia Bay. There are no new units even remotely close to these prices in that part of the beach. If you'd like more info about this project give me a shout at 321.917.5786 or email me. Artist rendering of this project below.


Crescent Beach Landings

Agent bonus - Conflict of interest?

I've been thinking about agent bonuses and commissions for quite a while. As our market has slowed, we are seeing sellers offering higher commissions and bonuses, supposedly to get agents to push their properties. I received a postcard this week from a developer offering not only 3% commission but also a $1000 bonus to any agent bringing a performing buyer. This is troubling to me. It suggests to me that the seller offering the bonus thinks that I would steer my buyer to their property because I would make more money. Folks, if your agents are selecting properties to show you based on the amount of money that they will make, they need their butts kicked. This whole idea of paying a bonus to the selling agent seems to me to be a serious conflict of interest and an incentive to engage in unethical behavior. Without asking, a buyer may never know which properties are more lucrative for their agent, or, if they are even being shown all properties. As it stands, bonuses are legal and commonly offered. I'll go on record as saying the practice has a foul odor to me.

Activity has picked up somewhat with 28 total closed sales of MLS listings in Cocoa Beach and Cape Canaveral from Feb. 1 through Feb. 26. At that rate it's going to take quite a while to burn through the 1096 total listings showing on the MLS. Actual total is probably under 1000 because of dupes but in round numbers we are looking at a 3 year supply.

Portside Villas has begun closing the 3rd and 4th buildings and sellers are getting serious with prices hoping to finally cash in on the deposits they put down two years ago. Expect some great deals to be had in the next few months there. Call me at 321.917.5786 or email if you'd like to take a stab at a brand new condo, walking distance to the beach and Port for under $200,000.

Zillow, more or less

The buzz surrounding the launch last week of Zillow.com was thick. This handy online tool aspires to be a user-friendly, automated property valuation machine but falls short, at least in my opinion. At this point Zillow is best approached as entertainment, but it is likely to be embraced by those whose unrealistic price expectations are confirmed by Zillow's faulty estimates. In my experiments with Zillow, I found quite a few errors and some valuations were off by hundreds of thousands of dollars. I suspect that both sellers and buyers with unrealistic expectations of property value who get a confirmation from Zillow may be even less flexible when faced with market realities.

Imagine that your real estate agent suggests a selling price of $500,000 for your condo based on research and adjusted comps. Being an astute, computer-savvy person, and having heard of Zillow, you run an estimate and Zillow returns a market value of $650,000 for your condo. Do you suspect that the agent is trying to get you to under price your property so she can make a quick easy commission? Sure you do. You immediately find another agent who will list your condo for the Zillow estimate of $650,000 and congratulate yourself on your wisdom, at least for the first few months.

Now imagine in another scenario that Zillow returned an estimate of $420,000 for that same property but you trusted your agent's suggested price and listed for $500,000. You can expect that any buyer who runs an estimate on Zillow will be very reluctant to offer close to your asking price even though it is backed up by adjusted comps.

Go to Zillow.com and do your own research, but, if you're buying or selling, don't trust these valuations to be anything other than broad estimates.

No snow in Florida

It's been a busy beginning to the year for me, but, my activity is not representative of our market as a whole. Our MLS backs this up, with closed sales continuing to slow even from the tepid pace in January. As I've been saying, our new MLS is still unreliable for statistics other than actual closed listings, so, I will continue to limit my stats to that number. For the first 14 days of February, 2006 we have had the following closed sales of MLS-listed properties in Cocoa Beach and Cape Canaveral.

Single-family___4
Condominiums__3

The MLS shows 1079 active residential and condo listings but the actual number is probably 20% less than that due to duplicates and incorrect-status listings. Even with extremely slow real estate sales, Cocoa Beach is experiencing a busy snowbird season. Today is Tuesday and, according to the starter at the Cocoa Beach Country Club this morning, the first available tee time is next Monday. Go figure. With a forecast of mid-70s for tomorrow, I'll settle for a round on the mainland at the beautiful Viera East course.

Half full / half empty

Before I begin with this update, I'd like to share a photo I took at the Cocoa Beach golf course yesterday. Notice the ball under the back leg. Makes for an interesting golf shot. Now back to your regularly scheduled program.
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The housing market has become as discussed as America's foreign policy and, like that touchy subject, is home for many differing opinions. The following are news stories from the last week about Florida's housing market. Even though some writers are bold enough to express reservations about the continued upward trend, the tone of most Florida newspapers is still optimistic. That is understandable considering the amount of advertising revenue that the real estate industry generates for them. Of importance when reading these stories is the fact that the new condo markets and the single-family home markets are distinctly different. The level of investor involvement in the condo market has contributed to a disconnect from fundamentals. Personally, since the first of the year, I have seen greatly reduced investor interest but strong end-user buying activity. Investors may stop speculating, but those who want a place in Cocoa Beach for the weather, the ocean and river and the un-hurried lifestyle continue to buy.


from the Palm Beach Post "Some froth, no bubble"
Sarasota's Herald Tribune, "Real estate market is steady"
South Florida Business Journal, "Broward home prices continue rise"
Miami Herald "High home prices settle down"
Reuters "Florida median home prices dipped in December"
Commercial Property News "'Soft Landing' for Condo Investments"
Tampa Tribune "Anybody Home?"
Tallahassee Democrat "The forecast: sunny and stable"
WESH2 News "Florida's Real Estate Market Gets Cooler"

Our new MLS is still unreliable for statistics other than actual closed listings, so, I will limit my stats to that number. For the month of January 2006 we had the following closed sales of MLS-listed properties in Cocoa Beach and Cape Canaveral.

Single-family____4
Condominiums__29

If you want a place on the beach or near it, there have been some excellent buys recently. How about this one, a 3 bedroom, 2 bath direct ocean unit at Royale Towers that sold Jan. 10 for an incredible $325,000, or $225 per sq.ft. Still active is a 3 bedroom, 3 bath direct river unit at River Lakes, 2 blocks from the beach with a boat slip available for $299,000. No matter what happens to the investor-dominated new high-end condo market, properties like these represent great value and an opportunity to own in desirable locations in our great little beach town. Email me if you'd like a list of my favorite current listings.

Crunch time for new projects

In lieu of accurate MLS stats, here are housing start stats as reported by Florida Today this week. Click here for the whole article.

Single-family home permits in Brevard County in 2005:
7,273 compared to 6,180 in 2004

Median sale price of an existing home in Brevard:
$234,400 in December, up 25 percent from a year earlier.

Although this was a record for single-family home starts in Brevard County, a slowdown was obvious by December when the monthly number dropped to 551, less than the 2003 and 2004 December totals.

In other real estate news beachside, several new condo projects are approaching completion and other new projects are just breaking ground. Equipment has been moved onto the site of the old Cocoa Cabanas in South Cocoa Beach and the small condo project to be built there is offering pre-construction units starting just under $1 million. Across the street on the river, the first building of the 77 unit, Magnolia Bay project has topped out at the fourth floor with the construction crews making fast time. Investors who bought units there at pre-construction prices starting at $549,900 will soon be marketing their units as closing approaches. If any of them have researched nearby activity on the MLS, they must be nervous. In the Crescent Palms, a new 15 unit building just south of this project, 14 of the 15 units are on the market with, so far, no takers.

Crescent Palms


Those investors will soon be closing on their luxury riverfront units and making mortgage payments and paying taxes on their investments. Hopefully, everyone made plans for the possibility of not being able to flip their contracts.

I've been talking about the risks of pre-construction for a year now and the reality of over-supply and optimistic pricing that concerned me last year is in full bloom. If you are holding a pre-construction contract for investment purposes, you need to make some contingency plans. You may be forced to close unless you are willing to drop your price to a point at which the unit will sell. Many of the current group of investors are unwilling to accept that the profit they expected is not going to happen. Many of them will be closing and carrying debt hoping to sell at some point in the future when the market has digested the current crop of new units. Selling now for break-even may be more prudent for some of them.

If you're looking for a second home or vacation condo, this same scenario is to your advantage. Stay tuned and contact me if you'd like a list of soon-to-close projects.