Calling the Bottom

One of my dad's cows and a big fan of the blog listening to my observations on the real estate market and contemplating the timing of her next purchase now that she can no longer get a stated income mortgage.

Question: If the bottom happens and no one is around to notice, did a bottom really happen? Calling the bottom in this real estate cycle has been an embarrassing game for those who have ventured a call so far. The National Association of Realtors perhaps has the most egg on it's face with it's call in November 2006 that the housing market was "on the road to recovery", but, they have plenty of red-faced company. For buyers and sellers of real estate, it would be prudent to take any call of bottom, regardless of the source, with a grain of salt.

As I've mentioned in the past, no one is going to ring a bell when the bottom is reached. To further complicate timing is the fact that it will not occur at the same time for all properties. We have already seen sales that may represent the bottom for specific unit types in some condos. For instance, it appears that my call a year ago of the bottom in 3 bedroom non-riverfront Harbor Isles units at $220,000 was accurate. The lowest price for currently-listed 3 bedroom units there is $265,000 and the lowest selling price since the $220,000 sale was $265,000. Buyers who passed on that unit expecting further price deterioration were wrong. What does this mean for buyers who are afraid of catching a falling knife? Research, research, research. Without market knowledge, one can't hope to recognize a price that is ahead of the declining curve.

As the broad market continues to decline, I am seeing deals like that Harbor Isles sale a year ago, sales at prices that likely will represent the bottom in those particular unit types and buildings. Remember that every seller's situation is different. Some have no pressure to sell and are content to wait out the downturn while others are motivated to sell at whatever price the market will yield. These motivated sellers will reach their capitulation point at different times. If you're buying, be ready to move and have the market knowledge to recognize a deal when it it presents itself, or have access to someone like myself who can identify the candidates as they appear. As I said a year ago, "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."

Exhibit A for this week; 2 year old, 2293 sq.ft., 3 bedroom 3 bath, direct river condo on the mile-wide part of the Banana River in south Cocoa Beach across the street from the ocean. Sold new in December 2005 for $699,000. Offered for $445,000 as a short sale and under contract as of yesterday.

I'll leave you with a recent windswept day south of the condos in Cocoa Beach.



“I don’t want to be too sophisticated here, but 2007 is going to suck, all 12 months of the calendar year.'’ Don Tomnitz, CEO of D.R. Horton Homebuilders, March 2007

Year over year comparisons

Looking at the sales data in graphic form in the chart above made me realize that, as slow as sales are, they are not appreciably slower than the second half of 2006. In fact, in July, August and September, 2007 sales have exceeded those of 2006. October, with 19 closed sales as of the 26th, also looks on track to at least match the 2006 numbers. Is this a meaningful revelation? Depends on one's perspective. For realtors, lenders, inspectors and the other professions that depend on real estate sales for their livelihood, it means that there is enough activity at the current steady level of sales to survive in a slowed market, at least for some. For sellers of condos, it means that the buyers have not fled the market. They are there and buying at a steady pace. Here's a different look at the same data that graphically demonstrates the seasonal nature of our condo market. It makes it obvious that the fall is the best time to be a buyer and late spring to early summer is the best time to be a seller.



I would like to chart the trend in prices but the MLS data is too confusing to get an accurate picture of that metric. My on-the-ground perception is that the trend in prices is still downward although not spread equally. Some smaller complexes with few or no sales have escaped the reality of lower prices, so far. My office closed 2 sales in The Constellation this week at prices not seen in that building since 2003. With Water's Edge and Stonewood units closing in the last two weeks for $274 and $336 per square foot respectively, the Constellation sale at $170 per sq.ft. tops the list for screaming deal of the month.



Earlier this month, after a few days of high east winds, this boat washed up on the beach directly behind the Constellation. Judging from the hand-painted name on the hull, it probably came up the Gulf Stream from the islands. I heard yesterday that it was spotted in the surf 25 blocks north. I hope everyone enjoyed yesterday's great waves as much as I did. The water is still warm and the beach is deserted. Fall is a magic season in Cocoa Beach.

October Price Reductions

Here are a few of the more remarkable price reductions since October 1st in Cocoa Beach and Cape Canaveral.

A 3/2 ground floor Stonewood unit: Listed Jan. 2006 for $499,000 and reduced this month to $349,900.
A 1/1 furnished Dolphin Beach unit: Listed July 2006 for $207,000 and dropped this month to $139,900.
A 2/2 furnished Canaveral Towers unit: Listed August 2006 for $495,000 and reduced this month to $399,000.
A 2/1 furnished Diplomat unit: Listed the first time August 2005 for $285,000 and now at $168,000.
A brand new 3/2.5 Ocean Club unit: Listed for $734,000 in Feb. 2006 and reduced this month to $499,000.

There have been a total of 80 price reductions in condos since October 1st. Judging from the size of the reductions, the reality of the changed market is beginning to sink in for at least some sellers. Probably every one of the examples above could have sold for more than the current price had they gotten aggressive earlier in their attempt to sell. During the entire time that these units have been on the market, we have seen condos closing at a rate of about one per day. The market is not dead but it is selective. Not to sound like a broken record, but, if you're selling, price it right and you stand a good chance of selling. I don't know who said this, but, it applies. "Many an opportunity is lost because a man is out looking for four-leaf clovers."

According to Wikipedia, "The function of a market requires, at a minimum, that both parties expect to become better off as a result of the transaction." Good luck out there, it's still a challenging market but deals are being made every day.

Wishful Thinking

Good morning, Cocoa Beach.

Activity remains slow although there have been a few deals of note. The first two of the single-family homes at the Enclave closed this month, both at $945,000, a record for non-waterfront homes in Cocoa Beach. There are 10 others near completion out of a planned 24.

I'm happy to report that I was able to hammer out deals for both my buyers mentioned in the If condos were watermelons post from a couple of weeks ago. One of the reluctant sellers saw the wisdom in selling for less than her expectations while another of the reluctant sellers was not so wise. He foolishly clung to his $325,000 asking price and we bought his neighbor's nicer unit for $285,000. Now, even if he finds a buyer willing to pay $325,000, his unit will have trouble appraising because the most recent identical comp is now $285,000. The first seller will be cashing her check while the other just took a $40,000 hit and is still looking for a buyer. He actually uttered the infamous words, "I'll just wait it out." I suspect he's imagining a shorter wait than I anticipate.

From Wikipedia;" Wishful thinking is the formation of beliefs and making decisions according to what might be pleasing to imagine instead of by appealing to evidence or rationality . Studies have consistently shown that holding all else equal, subjects will predict positive outcomes to be more likely than negative outcomes." I see lots of wishful thinking on both sides of the table in real estate deals.

Our inventory is still slowly decreasing. Here are the numbers as of this morning. There have been 8 recorded sales of residential property so far this month in Cocoa Beach and Cape Canaveral.

MLS For Sale Inventory - October 14, 2007

• Condominiums_______865 all prices
• ___________________126 over $500,000
• Single family homes___167 all prices
• ____________________71 over $500,000

"How hard it is, sometimes, to trust the evidence of one's senses! How reluctantly the mind consents to reality." Norman Douglas

Another one bites the dust

This unwinding of the housing bubble has touched many lives. Besides the flippers who were too late to the party and people who bought more home than they could afford with exotic mortgages, some innocent victims have been dragged down, too. A deadbeat homeowner in my building has decided to walk away from her mortgage and will be leaving the remaining owners with thousands in unpaid assessments. My life will go on even though it riles me to have to pay for someone else's bad choices. It may hurt more for my retired neighbors. More heartbreaking is the impact on the decent people who run the small grocery store close to my home. They didn't speculate on pre-construction condos or try to flip houses and yet their lives have been changed forever.

It all began when construction began on the big empty parcel of land that was to become Magnolia Bay. Business picked up as workers walked over for lunch, snacks, cigarettes and so forth and the promise of all the new families that would be moving in made the future look bright. Shortly thereafter, the trailer park next door that housed the biggest part of our grocer's customers was purchased. With plans to build townhomes on the site, the trailers were progressively moved out or torn down until the property was empty. Things were still looking good even with the loss of the regulars. With 77 new half million dollar plus Magnolia Bay units and 18 new townhomes right next door, the customer base was growing and being upgraded and the construction workers were providing business in the interim. Life was good.

Then, Magnolia Bay sales slowed and the planned 4 buildings got scaled back to 3. Scheduled closings failed to happen and the construction workers finished their work and moved on. Today, the grand buildings at Magnolia Bay are mostly empty and dust blows in the sea breeze on the site of the old trailer park. The only townhomes there today are in the picture on the "coming soon" sign. Business at the grocer who stocked my favorite beer in a corner of the walk-in cooler at my request dried up to a trickle and, this week, he told me that this is his last month there. He can't make it any longer.

There are multiple losers in this story; the developers of Magnolia Bay, the trailer park residents, some of whom had lived there for decades, the owners of the trailer park property, the customers of Express Grocer including me and, most of all, Sam, the grocer and his family, and Gary, his long-time employee, who has been known to extend credit to a down-on-his-luck customer or two. Sam, your family, and Gary, you will be missed by many. You are good people.

My favorite Express Grocer memory will always be the sign that appeared on the door one day. It read:

Do not ask Gary for credit. He is not allowed to give it anymore. Sam

September Stats for Cocoa Beach

Delta rocket launch on Sept. 27 as seen from the boardwalk.

Property sales slowed considerably as we moved past Labor Day here in Cocoa Beach and Cape Canaveral. Condo sales slowed to less than half the pace of recent months and the over-$500,000 condo market ground to a halt with not a single unit closing in the month. The most notable sale of the month was this beautiful riverfront home in Cocoa Beach that sold for $1.92 million.

A new price reduction worth noting is this 7th floor 3/2 direct ocean Crescent Beach Club unit that was just dropped to $409,000.

Closed 2007 MLS sales in Cocoa Beach and Cape Canaveral

Condos

• Sept.______16___0 over $500,000
• August____34___3 over $500,000
• July______39___3 over $500,000
• June______40___6 over $500,000
• May______35___2 over $500,000
• April______43 __3 over $500,000
• March_____36__2 over $500,000
• February___42__5 over $500,000
• January____28__3 over $500,000

Single Family Homes

• Sept._____4
• August___9
• July_____8
• June_____5
• May_____5
• April_____4
• March____8
• February__6
• January___3

MLS For Sale Inventory - September 30, 2007

• Condominiums_______894 all prices
• ___________________132 over $500,000
• Single family homes___167 all prices
• ____________________72 over $500,000

If condos were watermelons

How many legs does a dog have if you call the tail a leg? Four. Calling a tail a leg doesn’t make it a leg. Abraham Lincoln

I am perplexed at the level of denial that remains in our condo market. You would think that after watching prices decline for almost 2 years that sellers would have gotten the message. I am negotiating on behalf of buyers on two different condos this week. In both cases, the sellers are clinging to the belief that their condo is somehow worth more than other recent sales in their building even when the other units were more desirable. Folks, it doesn’t matter that your neighbor sold low because he was behind on his mortgage. Nor does it matter that you need to clear X dollars or that Mr. Smith got $XXX for his unit last year or that you spent a small fortune on new granite and stainless. Mortgages are more difficult to get than just a month ago and every time a lower sale closes, your unit is worth less. It’s unfortunate, but it is what it is. If you want to sell, don’t let a qualified buyer walk away because you have an irrational need to get more than the last comparable sale.

I grew up in watermelon country and every summer, the watermelon growers would set up roadside stands selling their melons. If farmer Ed priced his at $5 each and Farmer Cletus next door priced his at $4 , Ed had to match his price or watch his melons sit unsold while losing value until they were spoiled. As long as both farmers’ melons tasted equally fine, the lower price dictated the market. In particularly productive years, prices got really low when everyone had a roadside stand with lots of inventory. I can remember 10 for $1.

The current condo market is like one of those productive years. The market is saturated with inventory and prices have retreated. Cling to the belief that you’ve got a $5 watermelon in a $3 year and you’ll continue to hold it while your neighbors who’ve responded to market conditions sell their’s. There is also the risk that, as more melons ripen, the price will drop to $2. At that point, the $3 you turned down looks good. As silly as it sounds, condos are like watermelons. Deny it if you dare.

September Deals of Note

The deals continue to happen. Closed so far in the month of September;

a 1525 sq.ft. condo in an oceanfront building with this side ocean view for $212,000 or $139/sq.ft., exactly half the original asking price in February 2006 of $425,000.


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Also closed was a brand new 2032 sq.ft. condo in the building below with a view of the river across the street in Cape Canaveral for $238,000 or $117/sq.ft.


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Another 2/2 oceanfront condo with 1316 sq.ft. and the view below sold for $262,000. Originally listed for $329,000 in April this year.


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And my nomination for smoking deal of the month; a 2100+ sq.ft., 7th floor Constellation 3/2 unit that has been beautifully remodeled to like-new luxury status. Sold for $495,000. It was originally listed for $759,900 in February 2006. This unit has expansive ocean views and all 3 bedrooms have sliders that open onto balconies with killer views. The master opens onto the ocean balcony and the other bedrooms open onto a balcony with views across the Banana River to Merritt Island. Below is a shot of the kitchen which has the most beautiful granite I've ever seen.


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There are other listings that are pending that I suspect will break new ground to the downside. I will report on any of note as they close. If you're looking to buy, do your research, be careful and don't be afraid to offer low. If you're selling, don't deny the trend and don't make a mental line in the sand. It has proven to be costly. Next post will be on short sales, the new twist on foreclosures.