Sellers get aggressive with pricing

I'm still not convinced of the accuracy of our new MLS but I will report the stats as they are showing in the system.

I have seen a burst of activity in the last four weeks with serious buyers out and making offers. There is a disconnect at the moment with both buyers and sellers seemingly on different pages. Buyers are somewhat over-confident in their power to make low-ball offers and many sellers are still clinging to the idea that each new sale must be higher than the last. That is the reality in many of the scenarios that I directly observe. Of significance at the moment are those motivated sellers who have priced their properties to sell. I showed several condos yesterday and two of them are priced well under the market. One is a 3 bedroom, 3 bath, 1574 sq.ft. ground floor unit at River Lakes in Cocoa Beach that was just reduced to $299,000. That is a lot of direct waterfront condo in a great complex with boat slips for $299K. The other priced-to-sell unit was a direct ocean, 3 bedroom, 2 bath, 1753 sq.ft. unit at Waters Edge in south Cocoa Beach for $459,900. That is $263 per sq.ft., a rate we haven't seen for oceanfront in quite some time.

Whatever you believe about the future of the real estate market in Florida, if you want to own a waterfront condo, now is the time to get out and start looking. Although I believe that the high-end condo market will see even more downward pressure on prices because of too much investor involvement and increased supply, I think that quality units in existing complexes that are primarily resident-owned represent a great opportunity at these prices, at least the ones that are aggressively priced like my 2 examples above. You can choose between a brand new riverfront condo at $402/sq.ft. or a nice older unit on the same shoreline for $189/sq.ft. The difference leaves a lot of money for upgrades.

Here are our stats for today. Remember that our new MLS lists properties somewhat differently than the old one so some of these numbers will appear to have changed dramatically from my last stats reporting in December. For instance, some townhomes now appear under single-family homes. The important number here is the combined number of all listings. It is at an all-time high at 887 total listings in Cocoa Beach and Cape Canaveral.


MLS listed properties, Jan. 12, 2006

condos all prices__785
_over $500,000__196

homes all prices__102
_over $500,000__53



Another significant number is the 57 price reductions in the last 7 days. Don't think that you can get a great deal on most of the listed properties because of our high inventory levels. A large number of sellers are willing to wait as long as it takes to sell their properties or even not sell at all. Others don't have that luxury and may have to sell because of a relocation or simply because they are over-extended. These are the ones you want to buy from. They're there and I'll be glad to help you sniff them out. I can be reached by email at larry@southcocoabeach.com or at my new office, Walker Bagwell Properties in downtown cocoa Beach at 321.868.3151.

Pre-construction realities

I am still not certain of the accuracy of our new MLS, so, I'm not posting my normal sales stats. However, from direct observation, there has been a surprising surge of activity in the last two weeks with buyers out in force, taking advantage of the huge and still-increasing inventory.

We are seeing quite a few pre-construction buyers in soon-to-close buildings dropping prices close to the original pre-construction prices. This is a trend I believe will continue through 2006. By the way, in one new riverfront building, over three quarters of the units are currently for sale. Zero have flipped so far. The days of plunking down 10% on a pre-construction unit and doubling or tripling your money in a year or so are definitely over. We will probably see many of these "investors" clinging to their expectations and refusing to sell at realistic levels. They will soon be paying thousands of dollars a month for their "investment" unit, hoping for resumed appreciation. That said, if you want a beach get-away in a great little beach town, now is a great time to be looking. You can still buy a nice direct river condo two blocks from the beach for under $300,000.

My opinions about investment returns and direction of our market are not shared by the bulk of the real estate community. In fact, the National Association of Realtors continues to use words like "slowed market" and "soft landing" and, while admitting to probable slowing sales, they project no drop in prices. Being cautious and realistic, I think a possible pullback is likely in some areas of our market. As the current crop of new, high-end units hits the market, the high inventory will encourage some investors to moderate their expectations and many will likely reduce their asking prices rather than make payments. Hopefully those who actually close will begin using their new units and will bring their friends and family to our beautiful beaches and enjoy our area for all it has to offer. Not a bad consolation prize. If my home stays at a level valuation for years I am still the winner. I get to fish the river, breathe the fresh ocean air and I still paddle out for a fun surf when conditions are good. Yesterday the surf was a blast and I enjoyed trading waves with one friend and an occasional dolphin for a couple of hours. Until next time, take everything you hear about real estate with a grain of salt and do your homework. It really is about location, location, location.

One last comment. Nothing I have said here applies to single-family homes in Cocoa Beach. That market is entirely separate from the condo market and is affected by mostly different dynamics. I doubt we will ever see more than 10 new homes built in a year again in Cocoa Beach. There is no more land. Most new homebuilding here begins with a teardown. For that reason, we will never have a sudden big increase in new inventory like we've just seen in high-end condos.

A Tale of Two Cities

It was the best of times, it was the worst of times. As this applies to Cocoa Beach and Cape Canaveral, our current market is the best of times for buyers and the worst of times for sellers.

Like a carrot on a stick urging the horse forward, buyers are retreating just as sellers are coming to terms with the changed market. We have seen an incredible 124 price reductions of MLS listed properties in Cocoa Beach and Cape Canaveral in the last 30 days. Most notable was a developer's reduction of two pre-construction townhome units from $595,000 to $450,000, a drop of over 24%. Will we begin to see developers drop prices in unsold units to prices below what early buyers paid? Possibly. However this plays out, these signs do not point towards a continued bull run. My advice is to stay away from all pre-construction unless you plan to live in the unit. If you are purchasing, research recent sales and be aggressive with your offer and back up your offer with stats. Feel free to quote my stats here as they come from our MLS and are meticulously sorted to eliminate anomalies and mis-stated listings. If the seller is unyielding, move on to another property. There is a record inventory right now and it's increasing daily, so, there is plenty to choose from.

My object here is not to dissuade you from purchasing but to urge you to exercise caution and not to expect the quick profits of the last six years. I'm not predicting a drop in prices but I think it is possible, at least in some areas of our market, most likely new high-end condos. As always, Cocoa Beach is the best place in Florida to live and the coming months may present a good opportunity to acquire a special property. Contact me if you'd like to go out there and play this hand.

The opinions here are my own and, as you may have guessed, are not popular within my industry. I'm just calling it like I see it.

My flow of stats may be interupted in the coming weeks as we shift our MLS to a new system. I will resume the postings of stats as soon as I'm sure of the credibilty of the data.

Buyers' Market in Full Force

You'd have to be living in a cave not to have heard about the "cooling" real estate market. Cooling is an understatement when applied to our local market in Cocoa Beach and Cape Canaveral. We had a snail's pace of sales these last 2 weeks with only 15 total contracts and are at a new record inventory of 732 residential properties listed in our MLS. This contrasts with 465 total on April 2nd of this year. If you're a buyer, you are officially in the driver's seat. This does not necessarily mean that the bull run is over. This is always the slowest time of the year, so, next year we may be looking back at this as a great buying opportunity.

Interest rates eased slightly this week with the 30 yr. fixed at a nationwide average of 6.28%.

MLS Stats for Nov. 29, 2005

contracts last 14 days

condos over $500,000____ 3
condos under $500,000__ 10

homes over $500,000____ 0
homes under $500,000___ 2

active listings

condos all prices_______650
condos over $500,000__ 165

homes all prices_______ 82
homes over $500,000__ 42

MLS stats for Nov. 15, 2005

No commentary today, just hard facts. Buyers, your time is now.
Record high inventory, record slow sales.

MLS Stats for Nov. 15, 2005

contracts last 14 days

condos over $500,000____ 2
condos under $500,000__ 12

homes over $500,000____ 1
homes under $500,000___ 1

active listings

condos all prices_______621
condos over $500,000__ 165

homes all prices_______ 79
homes over $500,000__ 41

Another milestone

After passing the milestone of 500 active condo listings in Cocoa Beach and Cape Canaveral in September of this year, we broke through 600 this week, less than 2 months later, at the same time that the rate of sales hit it's yearly low. What this means for buyers is bargaining strength and plenty of choices. For sellers it's a reality check. The days of multiple, over-asking-price offers are over, at least in the short term. I still see plenty of optimistically-priced properties but we are starting to see sellers come to terms with the changed market and set their prices accordingly. If you're looking to purchase in our area, this is your best opportunity in years. I expect an increase in activity in January as our snowbirds arrive (at a less frenzied pace than the last few seasons), so, your chances of hammering out your best deal will be before that time. Email me for a list of my favorite deals of the moment.

Mortgage rates, taxes and a slowed market

Here's a new listing from another office this week. Direct river, 2/2, 2nd floor condo with views across the wide part of the Banana River. The ocean is just across the street. Somewhat over-priced at an asking price of $370,000, furnished, but if the seller will get realistic this is an impressive unit in my favorite part of Cocoa Beach. Here's the view from the living room.



Freddie Mac reported this week that mortgage rates are at the highest point in 18 months with an eighth consecutive weekly increase. Will rising rates kill the real estate market? Maybe not. Consider the fact that new mortgage products introduced in recent years have multiplied the pool of qualified buyers by a factor of 2 or 3 according to lenders. With products such as no-doc and stated-income loans, buyers that couldn't otherwise find financing can now qualify for loans. Also consider that as rates move up, stretched buyers have alternatives to conventional 30 year fixed rate mortgages with products such as interest-only, 40 year, and other loans that offer lower payments. I not suggesting that buyers use these products, just that the impact of rising rates may be less this time than in previous periods of rising rates.

Property taxes. I am often asked by buyers what the property taxes are for a property. Unknown to many is the fact that the amount of tax the current owner is paying is not relevant to what a new owner will pay. Any change in ownership will trigger a new assessment based on current value. Many homesteaded properties have assessed values that are far below actual current value. In Florida homesteaded properties receive a $25,0000 reduction in the assessed value and, more importantly, the assessed value annual increase is capped to the lesser of 3% or the CPI. In the last ten years the CPI has been less than 3% eight times. What this means is that the $500,000 home you're considering may be on the tax roles for less than $100,000 with a current tax bill of less than $1000 annually. The purchaser of that property will probably be looking at a substantial increase in his taxes by the second year after purchase. To figure your possible tax liability on a new purchase you can go to the Brevard County Tax Appraiser's website and use the handy auto-calculator there or, for ballpark estimates, use my rule-of-thumb of 1.6% of the purchase price. This is for easy projections only. Your actual tax bill may be more or less but it's close most of the time.

Here are the stats for the last two weeks. As you can see, sales have slowed even more and inventory is climbing rapidly. If you're thinking of purchasing, you have much more negotiating strength now than you'll have after the holidays when our winter visitors arrive.


MLS Stats for Nov. 2, 2005

contracts last 14 days

condos over $500,000____ 3
condos under $500,000___ 6

homes over $500,000____ 2
homes under $500,000___ 1

active listings

condos all prices_______588
condos over $500,000__ 157

homes all prices_______ 65
homes over $500,000__ 41

Hurricane Impact on Prices

Is it possible for a hurricane to impact the value of property that was physically undamaged? In Louisiana and neighboring states after Hurricane Katrina, undamaged property, both commercial and residential, saw immediate increased demand and prices as people and businesses were forced to relocate. Another less obvious effect post-hurricane is the increase in the prices of building materials and labor. Florida builders have reported price increases in plywood and OSB sheeting ranging from 30 to 50% since the first of September. Asphalt shingles have been increasing steadily at around 5% per month with manufacturers struggling to keep up with demand and actually rationing some suppliers. Before the storms we were seeing cement costs rising about 20% every 6 months and similar moves in sheetrock. In addition to these rapidly rising costs, much of the construction labor force has shifted to the Katrina devastated areas. This has contributed to increased labor costs for Florida builders. How does this impact existing property value? It increases the costs to replace and the costs to build new competing properties. This increase has not shown up yet in the prices of MLS listed properties as we are in the middle of the seasonal slow season and we're on the heels of a big run-up in prices. However, the economic reality is that it must trickle down to asking prices at some point. I think this is bullish for existing Florida property values. As always, these are my own opinions based on reported facts and lots of creative thinking. Email me if you'd like to share your own thoughts. larry@southcocoabeach.com