The End of the World As We Know It or Is It?

Social media has been aflame with speculation about the implications of the proposed settlement just announced by NAR for the lawsuit about commissions. The suit, filed in 2019, alleged that agents and brokers conspired to keep commissions artificially high. In the proposed settlement, NAR would pay over $400 million in damages and make changes to the way buyers' brokers are paid and how that payment is advertised. Key takeaway right now is that this is a proposed settlement and not an actual settlement. If accepted, changes would likely go into effect in July.

The way things are now, a seller hires a listing broker and agrees to pay an amount to that broker, usually a percentage of selling price, and the broker agrees to share part of it, usually half but not always, with a cooperating broker who brings a buyer. That co-broke amount is posted in the MLS and buyer's agents know what they can expect to be paid if their buyer client closes on the property. The total amount of commission paid to both brokers is paid out of the selling price and the buyer does not have to come up with additional cash to pay their broker. It is effectively folded into the mortgage, if any.

Under the proposed settlement, MLS listings will no longer advertise a co-broke, if any, being offered to a buyer's broker. An MLS will, however, still have the option to include compensation if it is presented as a seller concession. Sellers have always had the choice to offer as little as they like to a buyer's broker but most listings in our market have typically offered some percentage to buyers' brokers to incentivize showings of their property. Buyer agents will now have to find other ways to be compensated, either by their clients directly (see below), or through seller concessions or negotiations outside the MLS.

The proposed settlement includes the requirement of signed buyer's broker agreements. With no co-broke being offered in the MLS, these agreements will need to include a stipulation for payment to the buyer's broker if they hope to be paid. Here is how it's handled on one of the buyer brokerage agreements currently in use in Florida. Note that retainers have not commonly been used for most residential transactions in our market although we might see that change as well.

With the possibility of handling a sale and being paid nothing, this will be the only way a buyer's agent can be certain of being paid should there turn out to be zero co-broke. Like a lot of consumer protection actions, this looks like it could harm consumers with the unintended consequence of excising the buyer's broker's commission from the mortgage and adding it to the cash needed to close by buyers. In addition, I think it's reasonable to expect all sorts of creative new fees. Unscrupulous agents and brokers are already charging clients junk transaction fees on top of commission received so maybe other less larcenous agents will be tempted to relax their ethical standards and start charging transaction fees, too. I think total transaction costs are more likely to increase than decrease in the aftermath of whatever settlement is ultimately agreed upon. That's just the way it is.

This can go one of two ways; brokers and agents find a reasonable work-around to ensure they get paid and buyers can finance commissions as part of a mortgage, or residential real estate is about to go through a paradigm shift that will decimate the ranks of agents, not necessarily a bad thing in itself. As of right now, nothing has changed and, if the settlement is accepted, the changes detailed above will probably go into effect in mid-July. Until then, everything you hear is speculation. Meanwhile the condo market is dealing with its own issues. For the time being, all we can do is wait and watch.

"Any regulatory framework emerging from closed door meetings will benefit those in closed door meetings." _Denver Riggleman

It's On

Real estate sales are picking up as we move into peak snowbird season in Cocoa Beach and Cape Canaveral. In the last four weeks 77 condo and townhouse units have gone under contract in the two cities. Median asking price was $415,000 and median time on market was 50 days. Fifteen of those contracted in that period have already closed with eight of them closing within two weeks of contract. 

Current inventory of condos and townhomes is 261 units with a median time on market of 70 days and a median asking price of $430,000. Of interest to potential buyers, a quarter of the condos for sale have monthly fees over $800. We are seeing more and more fee increases as condo associations complete their milestone inspections and begin funding their new structural reserves. This trend of rising fees will continue through the end of the year as everyone comes into compliance by the Dec. 31 deadline.

During the same four week period, eleven single family homes found a buyer. Median asking price was $740,000 with a median time on market of 72 days. There are currently 41 SF homes actively for sale with a median 60 days on market and a median asking price of $970,000. A sad reality of our current market is the fact that there are no homes for sale asking less than $550,000. Potential new residents with a budget of less than a half million dollars are forced to look at condo or townhome units if they want to purchase a home. That condo alternative is not as attractive as it was in the recent past. 

Increasing carrying costs are impacting those who may be considering a condo as an alternative to a SF home. Of the condos asking between $300,000 and $500,000 with at least two bedrooms, over a fifth have monthly fees in excess of $800. Someone purchasing one of these units in the mid $400s with a 20% down payment will be looking at combined condo fees, property taxes and mortgage payment approaching $4000 a month. I suspect a lot of home searches are coming to a screeching halt once the potential buyers add up their likely costs.

Despite the higher carrying costs, sales are happening. I don't know if there is a point at which increasing costs will slow the condo market but if there is, we haven't gotten there yet. Good luck to all those looking. It would be prudent to be aware of the factors affecting condo fees and to do one's homework. If the fees are lower than average, there is a good chance that the new reserves are not being funded yet. They will be by the end of the year and that could turn a currently attractive $500 month fee into a $1000 a month burden. An exception to all this are the exempt condos, those in complexes with no buildings over two stories. Those condos do not have to do milestone inspections nor do they have to fund structural reserves. A nice unit in a well-maintained one or two story building is worth consideration if one can be found. 

"All mushrooms are edible, some of them more than once."

Full Snowbird

Halfway through February and sales activity in Cocoa Beach and Cape Canaveral is typical for this time of year, slow but picking up. After closing 28 condo and townhouse units in January, we've already closed 24 so far in February. Median time on market for all closed units since January 1 was 54 days with a median selling price of $323,000. Slightly more than half of the purchasers paid cash for the property. The median association fee for the sold units was $660 per month. There are currently 254 total units for sale with a median asking price of $435,000 and median time on market of 75 days.

Single family home activity has been sedate with a total of ten homes closed since New Years Day. Median selling price was $925,000 with a median time on market of ten days. There are a total of 34 houses for sale this morning in the two cities plus another three offered pre-construction. Median asking price of all homes is $980,000 with a median time on market of 60 days.

We are just now entering the busiest season of the year for visitors and real estate activity. In March we have a crowded confluence of snowbirds, school baseball teams with families in tow and a sprinkling of lost spring breakers. Some of those visitors will use their time here to look for a property and several will find one and go under contract. Should we expect anything to be different this year? 

Maybe. The substantial increase in condo fees has been reflected in rising rental rates. Snowbird rental prices have been steadily increasing in recent years with extra large increases the last two. There are modest 2/2 oceanfront units commanding $6000 a month rent this season that rented for $3500 just three years ago. The specific units in my example are paying over $20,000 annually just for property taxes and condo fees when those expenses were just $10,800 in 2020. The snowbird who may have thought about buying one of these units this year will be looking at a $600,000 purchase price and monthly expenses of around $2000 a month before any mortgage payment. Does it make sense to own with those numbers rather than pay $18,000 rent for a three month stay? Add to that the risk of further depreciation as selling prices in our example complex have pulled back substantially in the last two years. I don't know the answer but the math is likely to exclude some from our pool of potential buyers. Maybe dropping prices will pull those reluctant buyers back in.

How about the market at large? Sales volume remains in line with historical volume for this time of year so any concerns about higher carrying costs, if any, are subdued. Even so, I don't think the market will continue to shrug off higher taxes, insurance and condo fees without some compensating pull back in selling prices. I will be surprised not to see a decline in most condo selling prices similar to the pull back in my example above. Many smaller complexes have not had any recent sales so owners in those complexes have been unaffected and unaware of the declines in other bigger complexes. The next sale in those buildings might reveal that the decline has metastasized.

Single family homes, resilient in their scarcity, do not appear to be as affected by increasing costs as the condo market. That market is far smaller and responding to a different dynamic. Insurance costs have accelerated at a similar rate to condos but with no apparent effect, yet. Perhaps the always-low inventory will continue to support that segment of our market. We shall see as the season unfolds.

"The fact that some people can't distinguish between etymology and entomology bugs me in ways I can't put into words." _Gemma Amor

Chugging Along

There are currently 28 existing single family homes for sale in Cocoa Beach and Cape Canaveral plus another three offered for preconstruction reservation. Median asking price of the active listings is $986,000 and the lowest priced home available is $577,700. Median selling price of the three homes closed so far this month is $1.06 MM. Last January the highest selling price of the five homes sold was $600,000. 

Condo inventory in our two cities is ramping back up and is at 254 units for sale this morning with a median asking price of $425,000 and median time on market of 81 days. Seventeen units have closed so far in January with a median selling price of $313,000 and median days on market of 45 days. Slightly over half of those sold for cash. Another 33 condo sellers have found buyers since January 1 as have seven single family home sellers. 

It's still too early into snowbird season to get any kind of meaningful read on the direction of our market in 2024 but with 40 new contracts in the first 23 days the prospects are promising. We began last year with 135 condo units for sale compared to our current 254 units and single family homes inventory was just slightly less than it is now. I'm usually happy to offer a prediction on market direction but I'm stumped with this market. Higher inventory and longer time on market seems a negative indicator but sales activity is right in line with a normal January so far. Interest rates, though less than a few months ago, are still higher than they were at the beginning of last year. Shockingly high insurance premium increases and ballooning condo fees have yet to be reflected in sales activity. I do expect a reckoning in the condo market as the fee increases become more widespread but it might be after summer before we can get a feel for that impact. Selling prices have pulled back significantly in a few larger condo complexes but there are many smaller complexes that haven't had any sales by which to judge price direction. For now, it's wait and see. 

The first wave of snowbirds have arrived with many more to follow in February and March. Those who got here early have had to deal with a wetter and colder start to a year than is normal. The golfers among them had to find other activities during the many course-closed days at the Cocoa Beach Country Club. Hoping for more sunshine and less wind moving forward. 

Speaking of colder, check out the temperature map above. A difference of 40 degrees between Destin and Cocoa Beach on this January day. Cold fronts routinely cross northwest Florida in the winter but lose their strength as they move further south and many either don't make it to Cocoa Beach or arrive with much less intensity. We certainly get our cold spells but nothing like the frequency or intensity that our Pensacola to Panama City people experience. Snowbirds considering a Florida beach town as a getaway spot from the winter cold would be prudent to choose their Florida destination wisely.

“Sufficiently advanced ignorance is indistinguishable from malice.” 

Winding Down 2023

Shuttle Atlantis cooling down on the runway after it's return from ISS twelve years ago.

It's been a busy year for residential real estate in Cocoa Beach and Cape Canaveral although total closed sales are lagging 2022's numbers. Last year we had a total of 684 closed condo units. As of this morning, two days before Christmas 2023, there have been 541 closed condo and townhome sales in the two cities so far in 2023. Inventory stands at 244 units for sale. Median closed price was $370,000 and 61% of the sales were cash deals and 23% of closed units sold in the first 7 days on the market. Median days on market for the current inventory is 70 days.

Single family home sales were robust in the year with 122 homes closed so far. Median sold price was $744,000 and cash buyers represented 40% of the closed sales with 23% sold in the first 7 days on market. Median days on market for the sold properties was 35 days and is 67 days for the current inventory of 29 homes and two pre-construction offerings. Median asking price of the current inventory is $1,2000,000.

Highest price condo to sell this year was a stunning 45 year old, 8th floor direct ocean penthouse at Beach Winds downtown Cocoa Beach that closed for $2 MM. The completely and tastefully remodeled unit had 4560 square feet, 5 bedrooms, 4.5 baths and two garages. Twelve units closed for a million dollars or more in ten different buildings, all but one of them in Cocoa Beach.

Highest selling price for a single family home was $4.2 MM for a two story, six year old, direct ocean home in downtown Cocoa Beach. This 5 bedroom, 4.5 bath beauty sold just three years ago for $2.3 MM. Thirty four homes closed during the year for a million dollars or more with five of those selling for over $2 million. Of the 34, all but two were in Cocoa Beach.

Mortgage rates declined again this week and we are currently over a point lower on the 30 year fixed rate than we were in October. Average national rate for a 30 year fixed this week is 7.06%. Whether this pullback in rates is enough to get undecided buyers off the fence is anyone's guess. Selling prices in several condos have retreated from the peaks earlier this year but a lot of current listings are still asking close to those peak prices with indifference from the market so far. We'll get a sense of what the new year might bring by mid-February when the snowbird season will have cranked up in earnest. The effect on buyers of recent and pending substantial increases in condo fees has yet to be revealed. I will be reporting and commenting on this as those effects become apparent next year.

Best wishes to all for the coming year and hopes for a hearty, happy and drama-free holiday season. Don't forget the Surfing Santas Christmas Eve morning behind Coconuts at the end of Minutemen Cswy. Activities begin at 7:30 and the Santas hit the water en masse at 10. Be there or be square. elDubya out for 2023.

"It appears my hypocrisy knows no bounds." _Val Kilmer in Tombstone

A Deep Dive On Condo Fees

 After blathering on for over a year now about coming condo fee increases I see that we've had enough movement among  the Cocoa Beach and Cape Canaveral condo complexes to have a look at some actual numbers and see where we stand in the condo fee inflation story. Note that the majority of these increases do not yet reflect funding for the newly required structural reserve fund. Condos have until the end of 2024 to come into compliance so there will be a lot more fee increases throughout next year as associations get their milestone inspections and reserve studies completed. Many of the recent fee increases we've seen were triggered by radically increased insurance costs alone.

I pulled these numbers from currently for sale MLS-listed units that had changed hands in recent years and with recent fee increases. This is but a small, random sampling among the 241 current condo listings.  There are plenty of others with similar increases that don't happen to have a unit currently for sale in the complex. The data I'm quoting came from agent input so, as always, I'm at the mercy of the accuracy of that input. Some of these complexes like Villages of Seaport have different fees for different sized units so I'm quoting the fee history for a specific unit that is currently listed for sale. There might be some errors but I believe we can trust the overall trend. All these numbers are publicly available.

• Cocoa Beach Club - 2022 fees - $525/month * 2023 fees $860/month
• Royal Mansion - 2019 - $355/month * 2023 fees - $594/month
• Xanadu - 2021 fees - $575/month * 2022 fees - $675 * 2023 fees - $950/month
• Canaveral Towers - 2021 fees - $550/month * 2022 - $650 * 2023 - $1085/month
• Windward East - 2018 fees - $415/month * 2023 - $638/month
• Windrush - 2021 fees - $470/month * 2023- $665/month
• Villages of Seaport - 2019 fees - $360/month * 2023 fees - $760/month
• Emerald Seas - 2016 fees - $470/month * 2022 - $640/month * 2023 - $940/month

Owners in several of the complexes listed above had the additional burden of special assessments during the period when the fees were climbing. Many of these and others not listed will be forced to raise fees again when the results of their structural reserve studies are completed. 

2024 looks to be a year of reckoning for our condo market. So far, prices have not really reacted in a meaningful or measurable way to this year's fee increases but there have been no sales in several of the of the affected complexes since the last fee increase. Is it the typical year-end slow market or is the market waiting on sellers to compensate for the new, higher fees with new, lower asking prices? Perhaps buyers will shrug off higher costs of ownership as an acceptable issue and will continue to pay higher and higher prices for the limited number of condos available in our area. Maybe rents can be raised enough to cover the fee increases for investor-owned units. That seems unlikely to me but it won't be the first time our market has fooled me. By the end of 2024 and possibly as soon as the end of snowbird season we will know. In the interim I think it's reasonable to expect the inventory of condo units for sale to continue to increase as the higher costs of ownership sink in. I expect post-snowbird listings next spring to be plentiful. 

You have 16 days left in which to procure your gifts. Use them wisely. 

"One of the most frightening things about your true nerd, for many people, is not that he's socially inept - because everybody's been there - but rather his complete lack of embarrassment about it." _Neal Stephenson

Slowdown or Breather Before the Next Runup?

 

Tranquil moonrise in South Cocoa Beach.

Real estate sales activity in November was slow as is historically typical for the month. There were eleven closed single family homes in Cocoa Beach and Cape Canaveral in the month and 29 condos and townhomes. Median days on market has increased with closed condos at 35 days on market and 75 days for single family homes. Median price for closed condos was $400,000 and $1,020,000 for single family homes. Cash sales represented just less than half of single family home sales and 72% of sold condos.

New contracts were slow as well with only 26 new condo contracts during the month and thirteen new SF home contracts. As with the closed sales, the new contracts on homes during the month were concentrated in the higher-priced properties while condo contracts were more plentiful in the lower priced properties.

Inventory this morning stands at 240 condo units and townhomes for sale in the two cities and 32 single family homes. There is only one home for sale asking less than a half million. Median asking price for the condos is $397,000. Over a third of the condos have been on market for over 100 days. Median DOM for the entire condo inventory is at 68 days which is much higher than earlier in the year. All signs point toward a slowing market but, and it's a big but, this is always a slow time of year. Our market generally blasts off after New Years so we'll have to wait and see if the slowdown is seasonal or systemic. We have several well-known headwinds like rising insurance costs, rising condo fees and higher mortgage rates so it's anyone's guess whether we will be back off to the races come January. 

High today for Cocoa Beach, December 4, 2023 is 79° F with light winds. Very few snowbirds have arrived yet and visible human activity around town is minimal. I can feel the beach exerting a strong pull right now and I'm guessing others are feeling it as well. It's advisable to enjoy this last quiet period before Christmas if one isn't fond of crowds.

"It's hard to accept the truth when the lies were exactly what you wanted to hear." __unknown

What's Up With Condo Fees?

It's been quite a year for Florida property owners. The good news; a slow hurricane year. The bad news; insurance. The stories about wildly increasing homeowner's insurance premiums have been circulating since policy renewals began arriving earlier in the year. I started saving comments about rate increases from various internet forums where Florida homeowners were discussing insurance increases. Here are the most recent quotes I've saved. I have many others.

• Ours went from $2500 in 2018 to $6500 this year
• $4,600 this year up from close to $4,000 last year. A few miles from the coast Volusia County
• In Central Florida, it jumped from $1100 last year to $2500 this year
• In Land O Lakes, went from $1800 to $3900 per year 
• Up from $3,000 to $8,673. What do I win?
• Ours went from $1800 in 2020 to $5000 now
• From $4.3K to $8.4K. 30 miles inland. Roof replaced in '23. It was $1.3k back 4 years ago.
• My beach town house that was built in the ‘30s and has never had a claim went from $8000 to $22,000.
• We were $1600 for years… last year, $3600… this year, $6000. Orlando not near water
• $3300 in 2016, $6,000 2023 high and dry St Pete.
• $4500 to $9700
• Mine went up 50%. From $4,000 to over $6,000. 100 miles inland, ten year old metal roof, 1750 sq ft. That was with Castle Key,
• I just received a homeowner's insurance bill for $17,000!!! Last year it was $8000 and the year before $4000!
• We jumped 55% this year, 225% in the past four years. 

The drastic insurance increases hit condominiums hard as well with many local associations getting six figure increases in their master policy premiums. With a balanced condo budget in place, an unexpected six figure expense requires either a special assessment or, if ongoing like annual policy premiums, an increase in fees to cover it. Not every association has gotten their renewal yet and not all those who have, have figured out how they're going to pay for the increase yet. Some have done a combo special assessment and a fee increase to cover both the increased insurance cost and compliance with the newly required structural reserves. We'll continue to see both as associations come into compliance by the end of next year.

Those that haven't been keeping up with condo fees might be a little surprised how high fees have gotten. Of the current inventory of condos for sale, over 16% have monthly fees of $800 or more with several over $1000. Some of them have not done their structural reserve study yet which in almost all cases will require even higher fees. Deadline is December 31, 2024. Prospective condo buyers need to read recent meeting minutes to see if fee increases are being discussed and also need to know whether the milestone inspection and structural reserve study has been done yet. If the condo fees are much lower than similar complexes, it would be prudent to plan for an increase by end of next year. The silver lining is that once the fees settle into their new, higher levels, special assessments should become less common and far more affordable when they do happen. 

“Most successful people are just a walking anxiety disorder harnessed for productivity.” __Andrew Wilkinson