2006 Real Estate Market in Review

Ah, that time of the year when the networks take a nostalgic look back and the smell of the traditional New Year's meal, black-eyed peas and collard greens, fills my house. Real estate activity has remained slow but steady through the end of the year. 2006 was a pivotal year for the real estate market in Cocoa Beach and Cape Canaveral. The slowdown that I began warning about in March of 2005 in this blog became a reality after the much-hoped-for spring rally of '06 never materialized. Florida Today reported this week that the actual market peak was in Aug. 2005. It just took a while for the reality to become obvious to market participants.

The activity in 2006 was mixed as some investors managed to hit homeruns with their pre-construction contracts at the same time that others were defaulting on contracts that they had hoped to flip. Several condo projects closed this year which contributed to the count of closed MLS units. In particular, Portside Villas, which is now closed out, had substantial numbers of flipped contracts. Michelina on the ocean also closed but did not contribute to the closed numbers of MLS-listed units. Major projects set to close in 2007 include Magnolia Bay, 3800 on the ocean, Villa Verde, Pier Resort and Ocean Club. These likely will not impact closed MLS numbers as there will be very few flipped contracts. The Cocoa Cabanas project on the ocean has yet to break ground and appears stalled while the 4th building at Magnolia Bay across the street has not materialized.

We began the year with a condo inventory hovering around 700 units with 30 year fixed-rate mortgages just above 6%. We are exiting 2006 with mortgage rates pretty much unchanged and condo inventory at 1024, up almost 50%. Single-family home inventory has seen a similar increase, from 102 on Jan. 12, 06 to 152 today.

In the upper end of the condo market we had 52 closed sales of $500,000+ units with current inventory of $500K+ units at 203, practically unchanged from year-ago levels. Of those 203 units for sale, 119 were built in 2005 or later. There were 476 total condo sales in all prices since Jan. 1 and 69 single-family home sales. Current inventory of single-family homes stands at 152. One interesting tidbit; only one MLS-listed condo sold in 2006 for over $1,000,000. That has to be of concern to the sellers of the 18 currently-offered units on the MLS, not to mention the developers sitting on unsold units in that price range.

Let's compare 2006 to 2005.

Closed MLS-listed condos
2005___807
2006___476

Closed MLS-listed single-family homes
2005___115
2006___69

As always, these numbers are not exact. The MLS data is only as accurate as those who input the data and we know who they are (R-word). The overall trend is clear, however. Sales of real estate in Cocoa Beach and Cape Canaveral in 2006 were at a pace about half that of 2005. There is no accurate way to extract average price movement data directly from the MLS, but, if you're willing to trust my anecdotal observations, price drops have been downward across the board, substantial in some individual cases. We saw 3 bedroom Portside units sell for $100,000 less than 2005 prices. A beautiful Harbor Isles 3 bedroom completely remodeled unit sold for less than $220,000 and a direct ocean Waters Edge condo went for $208 per square foot. There are still incredible deals out there but some are already disappearing. At Portside the sub-$200,000, 2 and 3 bedrooms are all gone. Lowest currently-offered 2 bedroom unit is $213,900 and lowest 3 bedroom is $224,900. Those buyers who were brave enough to pull the trigger during the last days of closings picked up 2 bedroom units as low as $178,000 and 3 bedroom units as low as $190,000. Lesson here is that some deals will not be repeated. As builders are warning now, after this shakeout plays out, new construction costs will force prices much higher than current levels.

I'm not calling a bottom here, nor even a leveling out. What I am saying is that for buyers looking to buy at any point in the future, the time to start looking is now. If you wanted a brand new 2 bedroom condo in Cape Canaveral for under $180,000, you have already missed your chance. If you wanted the nicest 3 bedroom unit in Harbor Isles for under $225,000, too late. If you want a brand new over $500,000 condo, wait a little longer. We'll see increasing pressure in that price range. If you'd like a nice existing condo, be looking now and be ready to pounce when that isolated, motivated seller drops his price to the can't-refuse level.

My next post will be from a brand new year. It's been a fun year for my crew and we're looking forward to more fun and games in 2007. I wish you all a happy and prosperous New Year.

Are We There Yet?

Can you see light at the end of the tunnel of declining prices? Depends on the source. The tunnel at the left is one of my favorite beach crossovers in south Cocoa Beach. About that other tunnel: In a remarkable article this week, Florida Today claimed that Brevard housing appreciated at a rate of 9.67% from the 3rd quarter of 2005 to the 3rd quarter of 2006. If they weren't hurting so much, most folks that purchased in the 4th quarter of last year would probably have snorted coffee out their noses. The author does offer that this data from the Office of Federal Housing Enterprise Oversight is at odds with the most recent report from the Florida Association of Realtors. At any rate, as I have cautioned in the past, treat all statistics with suspicion. I'm sure there are properties that have experienced even higher appreciation during the period for various reasons but I seriously doubt that the average existing property gained any value in the last 12 months. This brings up a good point. If one purchases far enough below market value, appreciation can be had even in a declining market. I continue to see deals happening at below current value.

Of the 28 condo sales in Cocoa Beach and Cape Canaveral reported as closed in the month of November 2006 by our MLS, the range of prices for direct oceanfront condos was from $263 to $335 per square foot. In non-waterfront units the prices ranged from a super low $100 per square foot to $259. I am happy to have put a buyer in a beautiful brand-new unit for a bottom-scraping $129 per square foot while a similar 20 year old unit nearby sold for $202/sq.ft.

CLOSED NOVEMBER 2006

single family homes_____4 (none over $400,000)
condos & townhomes___28 (four over $500,000)

ACTIVE FOR SALE

single family homes_____157
condos & townhomes___1032 (205 over $500,000)

Looking at currently active units, I find a 3 bedroom direct ocean corner unit in south Cocoa Beach listed for $224 per sq.ft. (2000 sq. ft. for $449,000). That's less than any closed direct ocean unit last month. The last same floorplan to sell in this building was 2 floors higher for $308/sq.ft. in May 2005 ($617,000). The lowest price per sq.ft. I can find for a non-waterfront unit in Cocoa Beach today is a 2/1 for $136/sq.ft.

What a wonderful weekend we had in Cocoa Beach. The weather was perfect. There were small, fun waves and the water was in the high 70s. Not many out-of-towners enjoyed it but I spotted quite a few locals headed to the beach for a fun session.

November Numbers

The numbers are in for the first half of November and there has been an uptick in activity and inventory.

MLS stats for Nov. 1 - 15, 2006 - Cocoa Beach & Cape Canaveral

CLOSED
single family homes_____4 (none over $400,000)
condos & townhomes___19 (four over $500,000)

ACTIVE FOR SALE
single family homes_____160
condos & townhomes___1049 (205 over $500,000)


The Beach Culture Surf Art Gallery pictured above has re-opened in the old Da Kine Diegos building in downtown Cocoa Beach. The mural on the front was painted years ago by Cocoa Beach artist, Rick Piper , and has, somehow, survived all the different business that passed through the North 1st Street location. As before, it is too cool for description. A little twist this time; in addition to the always strange and random hours and killer parties, they are doing art workshops ranging from airbrushing to sculpture. Check out their website and maybe sign up for a workshop. Definitely get on their party invite list. You can read about the opening party and see a few photos in this month's Beachside Resident . I'm off to enjoy the Space Coast Art Festival this weekend in downtown Cocoa Beach. Get out there if you read this in time.

AOL Strikes Again

Attention AOL users. Your mail system may be blocking mail that you want to receive. I continue to have my replies to readers' requests blocked by the AOL mail servers. Check your spam filters or your AOL mail settings. If you send me a mail and don't receive a response from me, it is probably your over-protective Big Brother tossing the baby out with the bath water. Feel free to call me at 321.917.5786 if you don't receive a reply to your mail. Sorry for the inconvenience.

Secret Agenda?

Looks like someone else has been investigating the whole buyer's agent compensation issue. The Wall Street Journal published an article this week by writers, James R. Hagerty and Ruth Simon, entitled "Do Real-Estate Agents Have a Secret Agenda?"

It was like deja vu all over again. If you've been reading this blog for a while, you may remember my post on Feb. 26 of this year entitled "Conflict of Interest". In it I raised the same concerns that these writers addressed in their piece, sellers trying to subvert the process by offering sweet temptations. Rather than rehash the whole issue, click the title to read my earlier piece. I'm not saying all bonuses are undeserved, but, I do think that buyers should be made aware of extra compensation intended to attract the buyer's agents. If your agent goes above and beyond the call of duty, she may deserve every penny being offered. If it was an easy deal for her, she may be happy to rebate that bonus to you. Knowledge is power.

The Big Chill

It's a chilly market out there, people. Motivated sellers have been progressively chopping prices as they probe for the magic number that will generate an offer but buyers, for the most part, have frozen in their tracks. We have reached a take it or leave it point for many sellers. Contrary to popular opinion, most sellers are not in trouble and many are quite willing to ride out the downturn. If you didn't catch my story on the "alternative universe" earlier this year take a moment to read it. It's about the underlying market chugging along while the speculator market grabs the headlines and gets the reality shows. As the chief economist of the National Association of Realtors, David Lereah, is fond of saying, there is no national housing market. Heck, there's not even a Cocoa Beach and Cape Canaveral housing market. For the record, I'm not impressed with Mr. Lereah's self-serving rhetoric but he is right on at least one point, that there are markets within markets that operate on their own and separate dynamics.

While there may be scores of pre-construction condo sellers who are in very real trouble, the same can't be said for the average seller of existing condos and single-family homes. There is a trickle-down pressure on all properties when one segment becomes sick, BUT, there are many sellers that can continue to enjoy their beach homes while waiting out the market. The ones who must sell are starting to price their properties aggressively and deals are being made. The bottom appears to have been passed at Portside as the last of the super deals have been scooped up and all offerings there at the moment are priced considerably above the recently contracted units. There are currently no 2 or 3 bedroom units offered under $200,000. Like the guest gurus on CNBC are fond of saying, "It's a stock picker's market." There will always be individual issues within a market that move in a direction opposite that of the market. Do your homework or talk to someone like me who does it for you.

MLS stats for October 2006 - Cocoa Beach & Cape Canaveral

CLOSED IN OCTOBER
single family homes____8
condos & townhomes___20

ACTIVE FOR SALE
single family homes____140
condos & townhomes___995

Cocoa Beach and Cape Canaveral are almost equally divided on condos sold or listed but Cocoa Beach has the majority of single-family home activity. Of the 20 closed condos, only 1 was for more than $500,000, and 12 were under $300,000.

In a bizarre move this week, the National Association of Realtors launched a 40 million dollar advertising campaign themed "Now is a Great Time to Buy or Sell a Home". Think about that for just a second. The body of the ad targets buyers only but, apparently, NAR didn't want to alienate sellers in the process, so, the "or sell" was added to the header as an afterthought. Beware statements from organizations and people that stand to benefit from your acceptance of their declarations. As I'm fond of saying, do your homework. Now might be a good time to buy or sell but it's not because someone spent $40,000,000 saying it. Personally, I think it's a better time to buy than sell and only for specific properties that are priced below recent sales.

Deal of the week; a 2 year-old, 3/2 townhome at Canaveral Woods with garage for $243,000. It's still active as of this writing.

Back to Basics

In our condo market, most activity has been bunched at the low end of the price scale. For the first 22 days of October, out of 10 closed condo sales on our MLS, only one was for more than $330,000. It closed at $490,000. There continue to be closings of brand-new high-end condos but they are not showing up in our MLS stats because only those that were flipped show in those numbers and flips have gone the way of the pterodactyl.

For the last 30 days, we have had 22 MLS-listed condos and townhomes close. Current total "for sale" inventory is 1014 units. My paper napkin math tells me that, at this rate, we have a 46 month supply. Digging a little deeper into the numbers we see 203 of those listed units over $500,000. There were 2 closings in that price range in the last 30 days, so, our activity is obviously lopsided. This snapshot absorption rate is somewhat misleading as September through December are historically our slowest sales months although it is not good news for sellers hoping to cash out before the end of the year. Until the bulk of our winter guests begin arriving in early 2007 expect to have major negotiating power as a buyer.


The cheapest oceanfront condo I can find today in our MLS is a 1 bedroom unit at the Saturn in Cocoa Beach with a side ocean view for $169,900. There are several dozen direct ocean units in the $300-$350,000 range including one 2nd-floor, 3 bedroom direct ocean unit in south Cocoa Beach for $349,000. I find 14 units listed for over $1 million with the peak represented by a 4617 sq.ft. unit in Cape Canaveral for $2,750,000.

I'm seeing more and more buyer's agent bonuses and higher commissions being offered out by sellers. Their intent is to somehow entice agents to favor their properties over others. Makes more sense to me to just lower the price, but, maybe a seller's pride can be left more intact by getting closer to their mental target price and paying higher costs. As a buyer, why not ask your agent for that bonus at the same time you're asking the seller for concessions. You are the one bringing the money after all, so, in effect, you have paid that bonus buried in the selling price even though your agent may not have disclosed to you up front that she was receiving a bonus. Our MLS, for some reason, hides the bonus amount on the customer printouts. Read my previous post on this subject here.

If you can, try making it to the beach soon. The water is still warm, the mullet run is still happening and the beaches are deserted most days this time of year.

Here's a snook from the surf on October 25.

Deal, no deal?

Depends on the deal. Brand-new, over $500,000 condo? The answer is, no deal. Existing, priced-right condo below $500,000? It appears that, for now, the answer is likely to be, we have a deal. As I mentioned in my last post, sales activity has picked up. Our office continues to be busy with sales of existing condos and single-family homes. New construction appears to be pretty much dead in the water, although a few units at drastically-reduced prices have moved recently. How about a brand new, 2500 sq.ft. never-lived-in, 4 bedroom 2.5 bath townhouse with 2 car garage in Cape Canaveral for $382,000? Sold in September. The direct ocean 3 bedroom, 1753 sq.ft. unit in south Cocoa Beach that I mentioned in an earlier post for $399,900 sold for $375,000. Portside prices have started creeping back up as almost all the units have closed. The cheapest recorded resales in September were $185,000 for a 2 bedroom and $214,000 for a 3 bedroom.

There have been some remarkable price reductions since October 1. Most notable has been the reduction of four unsold units at the not-yet-started Cocoa Cabanas condo. Two units have been dropped from $985,000 to $750,000 and 2 others from $985,000 to $775,000. A beautiful 2000 sq.ft. direct ocean corner unit at Wavecrest next door has been reduced from an original price of $630,000 to $489,000 this morning. One motivated investor across the street at Magnolia Bay is offering a new boat to buyers. He probably needs an edge with a total of 25 other investor-owned units in the complex offered on the MLS. These sellers can glimpse the likely future by looking down the street to the recently-completed Crescent Palms where 11 units are still active on the MLS out of a total of 15. A little pain is being felt there.

Magnolia Bay


I was reminded of a nasty little secret about pre-construction purchases yesterday by a local TV news story. Seems that some pre-construction buyers of homes in a new Orlando neighborhood are having trouble getting mortgages because the appraisals for their new homes are coming in below the purchase price. Usually in a Florida real estate deal with a FAR or FAR/BAR contract, a buyer getting a mortgage would make her purchase contingent on acquiring a mortgage. Should the property fail to appraise making the mortgage unobtainable, the buyer can cancel the contract and have her deposit returned. Alternatively, the seller can reduce the purchase price to the appraised value and the deal can proceed. Unfortunately for the Orlando buyers, they used a developer's contract, which is common in pre-construction, and they have no financing contingency. If they cannot close, the developer can keep their deposits. This was never an issue in the rapidly appreciating years of the recent past but it is now. What happens when that new condo that Investor X reserved for $600,000 appraises for $525,000? Does he walk from his $60,000 deposit or does he go ahead and close and take the $75,000 immediate paper loss? Not exactly a win/win offering. It's not even a good deal for the developer who pockets the deposit. He doesn't want to be left with a handful of forfeited deposits and unsold, under-appraised units.

Among the scores of offered properties, some good deals exist. Those of you looking to buy but afraid of further price erosion should approach your search with the intention of finding those properties that are already priced in anticipation of more depreciation. These properties exist. They're just buried among the hundreds of optimistically-priced units that are competing for attention.

Here are our current stats. Most of the closed sales of condos in September were older, existing units. The newer units listed on the MLS are, for the most part, assignment of contract sales by investors and very few of those are moving.

MLS stats from Cocoa Beach and Cape Canaveral

Active condos for sale, all prices________1029
___condos over $500,000_____________214

Single family homes, all prices__________145

Closed condos in Sept 2006_____________36
Closed single-family Sept________________8

Snook are being caught at the Port, the Inlet and the beaches when the surf is calm enough. I had a wonderful fillet last weekend that a friend was kind enough to share. If you get a chance, get out there and try for one of these tasty fish when the ocean permits.