Some Magic, Some Tragic

A quick flashback: I was reading old posts and found the one below from eleven years ago and it was such a great story I thought I'd share again for those that may have missed it. An update; Humphrey is happily retired in Australia and while he's done plenty of roads trips in Oz, none have been solo.

In a much-circulated article this week, the Wall Street Journal reported that there are more real estate agents than properties for sale in the US. It's been that way for a long time in Cocoa Beach and Cape Canaveral. If I search for a Cocoa Beach agent on Zillow, I get 250 hits. That is 200 more than the number of agents who have listings in Cocoa Beach and Cape Canaveral and 165 more than the total number of residential listings in the two cities. How can this be sustainable? It's actually worse than it looks. In addition to the 250 there are agents like myself that aren't part of the Zillow scrum so the number of pigs at the trough far exceeds the capacity of our tiny and shrinking feed bucket. Except for a handful of super agents and teams, the majority of the agents who do manage to list or sell a property here will only record one or two transactions in a year. With total residential inventory of 85 properties that is rapidly shrinking, I think we can safely expect many agents to reach a crisis point this year. Many of them already work out of offices off the beach so they can shift their focus to their home markets. Those working out of beach offices will have to either accept lower income or start crossing bridges to Merritt Island and mainland markets. Those markets are experiencing similar inventory drawdowns so competition among agents will get even more intense. I see no reason not to expect hungry agents to begin offering discount services to keep food on the table. Compete or eat is an easy decision.

Prices. They're ranging between high and ridiculous. We've had ten units without garages sell in oceanfront complexes since January 1 for over $300 per square foot. We're at and above 2006 peak prices in many older buildings. Conditions are different now but I would still advise buyers to be cautious. As I was writing this a new listing for a small oceanfront one bedroom unit hit the market at the incredible price of $459,900. Successful buyers will probably have to pay above fair value if they hope to purchase something but there is little need to blindly pay asking price or above without first knowing what fair value is. In the case of the $459,900 unit, the comps suggest fair value as possibly six figures less than asking. Having said that, there may be someone willing to pinch their nose and pay it.

I watched two surfers on foil boards being whipped into waves by jet skis way offshore last Sunday during the big beautiful north swell and get rides that were several blocks long at speeds that a regular board can't achieve on the same waves. When I caught my first small wave on a heavy 10' rental several decades ago I never dreamed that one day I'd see surfers flying along on tiny boards that didn't even touch the water while riding wave after wave for over a quarter mile. I feel old. Happy Easter everyone.

"Some of it’s magic, some of it’s tragic, but I had a good life all the way." __Jimmy Buffett

Sweet Sixteen

When I began writing this blog sixteen years ago in March of 2005, the Space Shuttle was still flying, the national average 30 year fixed rate mortgage was 5.77% and anyone, regardless of income, assets or employment, could qualify for multiple mortgages. New condo construction was happening everywhere and investors were reserving pre-construction units as fast as they were announced. Some developments used a lottery system to allocate units to prospective buyers. Most developers were allowing reservations on newly announced units for 10% of asking price and were imposing no restrictions on flipping prior to closing. It was not uncommon for early investors to make five or six times their initial investment when flipping their pre-construction contracts. It seemed everyone was a real estate investor and many people were holding multiple pre-construction contracts on new projects anywhere they could get their hands on one. Mortgages were readily available and holding contracts obligating one to purchase millions of dollars of new condos seemed perfectly normal nevermind that some of those investors were making less than the mortgage payment on even one of their reserved units. It worked out very well until it didn't.

In the short section of south Cocoa Beach between Patrick Air Force Base and the fork in A1A there were over 200 new condo units either under construction or slated to break ground shortly. Cheapest asking price was a lower floor Magnolia Bay for $549,900 which hadn't yet broken ground. The delay they experienced pushed their completion past the beginning of the crash and almost all investors walked away from their deposits without closing. That became common with projects that didn't close before 2006 and we saw several defaults from developers including several of those projects in south Cocoa Beach. When the buyers disappeared, some developers began renting unsold units to keep a little cash flowing with one converting an entire oceanfront building into vacation rentals. That latter one worked out quite well from what I can tell with the developer still holding and renting the majority of the units in the building fifteen years later.

Our inventory in March of 2005 was around 450 condo units (including pre-construction) and 50 single family homes in the two cities of Cocoa Beach and Cape Canaveral. That inventory would go on to more than double in the next twelve months as the party started to wind down and new investors raced for the exits. Their departures began the wave of short sales and foreclosures that took more than five years to unwind. The inventory contraction that began as those distressed sales worked through the system didn't stop when the distressed inventory was depleted in 2012 and has continued right through into 2021. This morning I see that we have 65 total existing condo units and 14 houses offered. Fourteen houses for sale in an area with a population of over 35,000 people. We had more than three times this inventory just one year ago. We have been in uncharted waters for some time now and I have no idea how this is going to work out although we are getting into extreme shallows now. Agents who have been used to executive-level incomes will probably need to be making some consumption adjustments. I predict we'll lose quite a few of the agents we've seen working this tiny market. It happened before and is sure to repeat as sales fall with the inventory. It's as natural as poor mango years following a good one.

The Cape Spaceport has been busy with a couple of launches in just the last few days. SpaceX now has over 1200 satellites deployed in their Starlink constellation which is bringing fast internet to remote areas worldwide. The Falcon rocket from yesterday's launch landed on the drone ship offshore completing it's ninth space mission. It's amazing to see the rapid advances in space flight and research and I feel fortunate to live in a place where I get to see some of it firsthand. 

"I would exercise caution with pre-construction condos and be aggressive (low) with offers. We have shifted from a seller's market to a buyer's market in high-end condos in a very short time." __Larry - March 4, 2005

Destination Unknown

In 2020 we had the 2nd highest number of closed sales of condo units in Cocoa Beach and Cape Canaveral since 2005, only four closings less than 2018's record sales of 734 units. That we did that during a pandemic and with about half the inventory of 2018 is a head-scratcher. We averaged about 140 units for sale at any one time in 2020 and are sitting at 84 existing units for sale this morning March 3, 2021. Can we do it again in 2021? If January and February are any indication the answer is yes. We closed 121 units in those two months this year compared to 91 in the same two months last year. We had sold a number of units equal to the entire inventory by February 12, just six weeks. Prices being paid continue to confound and I have promised myself to never again say "Good luck getting that" when I see a new overpriced listing. Having said that, as I look through the available listings I see a high floor direct ocean unit in Cocoa Beach with a garage asking $250,000. Even needing updating, that seems quite fairly priced considering the recently closed sales. Homework, y'all.

How about single family homes? In the first six weeks of 2021 there were 17 closed sales. Inventory of existing single family homes this morning in Cocoa Beach and Cape Canaveral is 13. Thirteen! 

Good luck to everyone looking to buy. It's as competitive as it's ever been and the good listings are going to those who are able to react quickly. I just closed a sale with a young agent who called immediately after a new condo listing hit the market and went to preview for his out-of-town clients and wrote an offer on their instructions site-unseen before the rush of other agents and buyers had been in the unit. They have an oceanfront unit today only because their agent was proactive and they trusted him. Out of town buyers need to find a buyer's agent they can trust and be prepared to offer on her recommendation without having physically toured the property. Inspections can be done after the unit is under contract. Obviously a buyer needs to determine what features they must have and convey that to their agent and have some flexibility should not all the boxes be checked by a particular property. Did I say find an agent you can trust? Paramount.

"Jazz students will study these key changes for decades to come." __@Elimatas1 on the National Anthem as sung at CPAC 2021

Rental Restrictions Follow-up

As a follow-up to conversations I had with a couple of prospective condo buyers this week, I'm going to repost an article below that I wrote in 2009 about rental restrictions in condos and how they affect an owner's use of the property and her potential income. It is just as relevant now as it was when I wrote it twelve years ago. 

How about that moonrise Friday night? As seen in south Cocoa Beach (left). ___________________________

In this post I'm going to address an often-overlooked, yet very important issue that condo buyers need to understand before they begin their search for the perfect condo at the beach. If you're already a client, you know the drill and have heard the sermon, so, you can just skip to the quote.

In addition to amenities, view, association health, building condition, parking and all the other items that a condo purchaser should review, a prudent buyer also needs to understand the implications of rental restrictions and how they will affect his use and cost of ownership. Cocoa Beach and Cape Canaveral condominiums evolved in a different direction than many coastal Florida communities with the vast majority of condos here restricting rentals to a minimum of at least one month and ranging up to 12 months. The number of ocean complexes allowing weekly rentals in Cocoa Beach and Cape Canaveral is only about a dozen. The rental habits of our visitors makes these particular complexes the overwhelming best choice for owners who want the most flexibility for mixing personal use with income or for investors who want the maximum income possibility.

We have two distinct visitor seasons here, snowbirds in the cold months and vacationers in the summer. Our snowbird visitors typically stay for periods from a month to several months. Our summer guests are predominantly one-week vacationers. For condo owners in a 3-month minimum rental building, chances are high for finding a renter for three months or more in the January through April period, but finding a 3-month renter during the rest of the year can be difficult if not impossible. An owner of a weekly rental can usually count on renters during the entire year although much slower in the Labor Day to Christmas period. For owners of units with a six month or longer minimum, the choice is usually between a long-term tenant, which takes away the personal use option, or not renting at all to leave it open for personal use, which takes away all income.

For those not wanting or needing income, complexes that have longer rental periods may be preferable as they are typically quieter with more permanent residents and less visitors and the facilities like pools and tennis courts are less crowded.

If you're looking for a condo, determine in advance what your needs are for income and/or personal use and narrow your search to those complexes that match rather than finding out after purchasing that your plan of having a great beach getaway that also spins off a little income isn't realistic. If your buyer's agent hasn't asked you about your needs in regard to use and income or hasn't briefed you on the implications, fire her immediately. Why work with Eliza Doolittle when you can have Marie Curie?

You know, it occurs to me that the best way you hurt rich people is by turning them into poor people. ___Billy Ray Valentine

Depletion Impending

 

That didn't take very long. This morning we have a total of 107 existing residential properties listed for sale in the Cocoa Beach and Cape Canaveral MLS. Ninety of those are condo or townhouse units and 17 are single family homes. Median price of available condos is $339,000 and buyers looking for a single family home in our two cities for less than $500,000 have three from which to choose. Fifteen homes have closed since January 1. I have no idea how this rapidly worsening inventory crunch will resolve itself but the immediate effect is rising prices. 

Cocoa Beach residents age 65 or above are able to receive a Covid vaccination at one of the Publix supermarket in Cocoa Beach with an advance appointment. Appointment reservations are usually available at 7 AM Mondays, Wednesdays and Fridays at this website. The website will refresh every 60 seconds until a position is available at which point a screen will appear asking for information. Medicare recipients will need their Medicare number which is on the red, white and blue Medicare card. It may take several tries as Brevard County only has a couple of thousand doses available on each day. Good luck.

"The hottest places in hell are reserved for those who, in times of great moral crisis, maintain their neutrality."  __JFK

Approaching 100 - The Long Decline

Today the MLS inventory of condos and townhouse units for sale in Cocoa Beach and Cape Canaveral will likely hit 100 total units. The decline from 1200 units in May of 2006 to 100 today has been relentless. The flush of sales that began in late 2006 had the supply down to 500 units by 2010 and below 250 by 2015. The decline never slowed. The story for the single family home market has paralleled that of condos and we have a grand total of 20 existing homes for sale today in the two cities, only three of those asking less than a half million dollars.

What does this mean for the 2021 real estate market in Cocoa Beach and Cape Canaveral? At the current rate of sales the single family inventory will be gone in less than 60 days and the condo supply will last 48. We will add supply with new listings but unless the trend reverses, new listings will continue to lag sales. With this type of supply and demand imbalance, lacking some currently-unknown macro issue, prices will continue to climb. Those hoping to purchase can expect multiple offers on desirable, fairly-priced new listings. Know that sellers are taking advantage of the market conditions to swing for the fence with almost all new listings asking well above fair market value, some of them ridiculously so. Buyers should consider the possibility that they may have to overpay for a desirable property. It's an unfortunate situation but one that can't be ignored. There are buyers in our market who have been looking for years but who have been unsuccessful in their search because they can't bring themselves to pay current fair value because it is higher than when they began their search. Those who pinched their nose and overpaid last year have been vindicated as market value caught up with their, at the time, too-high purchase price. 

In the last sixty days about half of all transactions were cash deals and a third of all listings sold in less than two weeks on the market. The fast and flexible buyers are winning. Those hoping to purchase a condo here who plan to use a mortgage need to talk to their lender before starting the search. The down payment requirement may be higher than anticipated. A low down payment condo loan will eliminate many condos from consideration as some won't satisfy lender requirements. As always, be prepared with finances first and know enough about our current market to be able to estimate fair value. Identify the target property type as closely as possible and be prepared to move quickly once a target has been acquired. Decide before the search begins what criteria are non-negotiable; if you must have a garage, if you'll be bringing a pet with you, if rental restrictions matter, the type of view you must have and if a particular location within our two cities is off-limits. Prepared and informed buyers will continue to be successful in this difficult market. Best of luck in your search.

Melbourne aircraft company, Alerion, is to begin production of a supersonic passenger jet at their new Melbourne facility. 

"A Covid test nurse asked if I've had a sudden loss of taste.  I told her, "No, I've dressed like this for quite a while." __Ruth Buzzi

The Demand Is Increasing

Roseate spoonbill, snowy egret and wood stork in Cocoa Beach

We begin 2021 with a record low inventory of residential properties for sale in Cocoa Beach and Cape Canaveral. There are a total of 108 MLS-listed condo and townhome units for sale in our two cities. That's exactly the number of units closed in the last 55 days with over half of those sold in less than a month..

Single family home inventory is equally depleted with a total of 23 existing homes for sale on the MLS. We closed that many homes in the last 52 days.

Despite low and declining inventory throughout the year, 2020 saw a remarkable number of sold properties. There were 209 single family homes closed in Cocoa Beach and Cape Canaveral during the year. A quarter of those sold in their first week on the market, most with multiple offers. Over half the sold homes sold in less than a month on the market and only 13 closed for less than $300,000. Top price of the year was $2.3 MM for a direct ocean 3 year old beauty in downtown Cocoa Beach.

The story was much the same with condos with 730 units closed during the year, half of them selling in 35 days or less. Seventy five units sold for more than a half million dollars with the top price of 2020 being $1.6 MM for a 7th floor penthouse unit at Ocean Oasis downtown Cocoa Beach. Only 43 units out of the 730 closed for less than $100,000.

About a third of the existing inventory has been on the market for over 100 days, a sure sign of over-pricing in this fast-paced market. Those of you hoping to purchase in 2021 need, more than ever, to have your ducks in a row and have a good idea what you're looking for. If your competition is more prepared they will have an advantage when the perfect property hits the market. The time to talk to a lender is before you start looking at properties. You will be at a disadvantage to those who are paying with cash so make the other terms of your offer as attractive as possible if you must get a mortgage. An experienced buyer's agent in our market is another huge advantage. Your cousin who is an agent in a nearby town is probably not your best choice for a Cocoa Beach property search. She may be perfectly experienced with contract particulars but lack of local knowledge will put her at a disadvantage against local agents in our competitive market.

While we're talking about agents, people, please stop letting your agents pick your pockets with transaction fees. The title company is entitled to a transaction fee but I have yet to see a situation where an agent deserved a transaction fee on top of his commission. I closed a deal a couple of weeks ago with an agent who did the bare minimum during the transaction and still had the audacity to charge his client a $395 junk "transaction" fee on top of the commission they were already paying him. It's not an accident that the agents who rob their clients with transaction fees are often those who are the slackest. That was my experience again in 2020 as it has been my entire career. DO NOT PAY transaction fees to your agent. They are usually being handsomely compensated with commission and don't deserve a transaction fee or whatever else they may call it. Except in rare circumstances, an agent charging a transaction fee is not acting in the client's best interest.

"We've heard that a million monkeys at a million keyboards could produce the complete works of Shakespeare; now, thanks to the Internet, we know that is not true." _Robert Wilensky

Into the Home Stretch

We began 2020 with a record low inventory in Cocoa Beach and Cape Canaveral. There were 185 existing condo and townhouse units listed for sale in our two cities on January 1, 2020. It seemed we couldn't go any lower at the time yet we've dropped by a third since then. The total this morning is 120. We have closed that many units in the last 52 days. Even with our depleted inventory, closed sales have not declined by any significant amount. This has only been possible by new inventory appearing at almost the rate of sales. At our current rate of decline, we will be below 100 total units for sale by the end of January. 

Single family home inventory is equally scarce. Someone looking to purchase a single-family home in Cocoa Beach or Cape Canaveral has 22 existing homes to consider. We have closed 199 homes since January 1 making current inventory enough to get us to about the middle of January.

The tight supply has continued to push prices higher with multiple offers being the norm for any new listing that is priced remotely close to fair value. Appraisals are a crap shoot. People are willing to pay more for desirable properties than appraisers are able to justify in many cases. Because of this, cash offers are even more attractive than ever. A contract contingent upon a mortgage could leave a seller faced with having to either cancel or renegotiate the contract price late in the process.

Those looking to purchase should keep in mind that there is competition for every property type and much of that competition has the advantage of having already lost out on a previous listing. Those one-strike buyers are being aggressive with their offers with both terms and price. A potential buyer hoping to find a "deal" is living in the past. The time to bottom fish was ten years ago. The 698 condo buyers who purchased already in 2020 paid fair or above market value. That is an unfortunate condition of the 2020 real estate market in our area but one that any prospective buyer needs to come to terms with. Best of luck to those looking. There are attractive properties available, just not as many as we have been used to in years past.

"Just because you lost me as a friend doesn't mean you gained me as an enemy. I'm bigger than that, I still wanna see you eat, just not at my table." —Tupac Shakur