Price Reductions In ‘Post-Boom’ Florida
A pair of reports from Florida. “The residential housing market in the Pensacola Bay Area has been on a wild ride the past two years. Home prices shot up as much as 40 percent in just months. As of mid-July, buyers could choose from a record-breaking 6,500 homes in the Escambia and Santa Rosa markets.”
“With ‘new price’ stickers becoming as common as ‘for sale’ placards in some neighborhoods, some builders have started offering attractive incentives to the buyers. Veteran Realtor Alexis Bolin says she has seen significant price reductions in the past few months and believes more are on the way.”
“‘We’re definitely seeing builders with price reductions,’ Bolin said. ‘And it’s not just one builder, it’s several.’”
“‘Part of the buildup in inventory is because the investor and (speculative) buyer have pretty much left the single-family market,’ Al Muller, of Metro Market Trend said. Blaise Adams, president of First Gulf Bank, agrees, noting that at the height of the housing boom, builders would require as little as $1,000 in earnest money to take a house off the market. At that price it was easy for a speculator to walk away from a contract.”
“‘The quality of a $1,000 contract is pretty low on the scale of contracts,’ Adams said.”
“Another factor contributing to the high inventory, and drop in prices, is simple overpricing on the part of the seller. Joe Endry, of one of the largest real estate firms in the county, says of the 6,500 homes currently on the market, a large percentage are overpriced. ‘When you get right down to it, probably one-third are not really on the market given the price they are asking,’ Endry said.’”
“‘Our rule of thumb is if the listing is 10 percent over market, it probably is not going to sell, and we would discourage our agents from taking those listings,’ he said.”
“While the housing markets the urban areas of Escambia and Santa Rosa are going through this ‘adjustment,’ the situation on Pensacola Beach and along coastal areas is grim, according to (realtor) John Panzino. ‘On the beach there have been nine single family homes close since January of this year,’ Panzino said.”
“‘That’s terrible. It’s strictly a buyer’s market out there right now. There are 392 units for sale on the beach now, not counting the 92 lots for sale,’ Panzino said.”
The News Press. “Increasing numbers of Southwest Florida builders are going to the low end of the new-home market, betting that their spartan offerings will hit a sweet spot in a post-boom economy. Land is cheap, subcontractors are hungry and there’s a glut of the expensive homes that were being churned out during last year’s go-go real estate market.”
“Now some local developers are willing to accept smaller profit margins to offer homes well less than $200,000, and that’s a new phenomenon, said John McIlwain, at the Urban Land Institute. ‘It’s a natural response to a cooling market,’ McIlwain said. ‘They’re moving back to people who are buying houses to live in rather than to invest.’”
“The median price of an existing home sold with the help of a real estate agent was $286,500 in May, down 11 percent from the all-time high of $322,300 in December 2005, according to the Florida Association of Realtors. Even with the lower prices, a typical house still is out of reach for many.”
“Don Awrey hopes to sell his house in Lehigh Acres, build another one on a lot he owns next door, and perhaps ‘come out with some cash in hand.’ The dilemma, Awrey said, is that he’s not sure what he’ll get for his existing house because a glut of houses in Lehigh has sent prices down for the past few months.”
“‘I understand how a lot of speculators are going to be left holding the bag,’ he said.”
“It’s not just houses and land that are more reasonable, said (developer) Jim Morrissette. There’s no longer a shortage of subcontractors who do the nuts and bolts of building a house, he said. ‘It’s much easier to get your hands on the sub-trades now than it was even four months ago,’ Morrissette said. ‘They’re more readily available’ and willing to work for less.”
“While the housing markets the urban areas of Escambia and Santa Rosa are going through this ‘adjustment,’ the situation on Pensacola Beach and along coastal areas is grim, according to (realtor) John Panzino. ‘On the beach there have been nine single family homes close since January of this year,’ Panzino said.”
“‘That’s terrible. It’s strictly a buyer’s market out there right now. There are 392 units for sale on the beach now, not counting the 92 lots for sale,’ Panzino said.”
Let’s see now…. 9 units sold since January, so that’s 9 in 6 months, or 18/year. And there are 392 available. That’s a 22-year supply right there.
Pensacola Beach houses for everyone!
That’s a 22-year supply right there.
Correction: That’s a 110 hurricane supply right there.
Lehigh Acres is not selling and the prices have dropped, Cape coral is in the same boat, Sounds like the tide is going out and his boat is stuck on the rocks. But the will buy house for cash signs are still on every corner. That will give him someone to sell too for .25 on the dollar.
This nonsense will not be over until every Dan Awrey is just begging to be “liberated” from his note, and not trying to come out with “cash in hand.” The cash he’ll have in his hand will have to be going to the buyer at the closing table.
“‘I understand how a lot of speculators are going to be left holding the bag,’ he said.”
And if you are curious what that bagholder looks like, go look in the mirror Dan.
‘When you get right down to it, probably one-third are not really on the market given the price they are asking,’ Endry said.’
Funny that only 9 Pensacola Beach SFRs sold since January, if only one-third were overpriced. How many years does a home have to sit on the market unsold before a Realtor (TM) admits that it is overpriced?
GetStucco,
you’re just nailed it !
Does anyone think an escalated Mid-East war such as what were seeing going on between Isreal and Lebanon might have an effect on the economy here in the US? Esp if it gets worse?
Price of oil and consumer confidence will be effected . . . beyond that, speculation.
Yesterday I was thinking about the war factor regarding housing .Anytime that there is insecurity it seems to put a damper on the housing market ,( however,after 911 the boom increased in intensity ).
Right now I think all current factors are creating a backing off reaction in the housing market .IMHO , the thrill is gone .
Yes.
Escalating conflict =>
higher oil prices =>
increased inflationary pressure =>
a Fed which favors inflation targetting as a policy tool must continue along its path of a measured series of Fed Funds rate increase or lose its reputation for a credible commitment to maintain price stability.
http://news.bbc.co.uk/1/hi/business/4439856.stm
Higher Fed Funds rates will be one of many other factors, including the 1/4 point increase in the Bank of Japan’s interbank lending rate this past Friday (http://tinyurl.com/qfeom), and a high likelihood for the European Central Bank to follow suit, which will continue to drive the I/O ARM interest rate higher, resulting in a widening gap between home purchase budget constraints and what sellers think their homes are worth.
The short take on this:
THE HOUSING BUBBLE IS BURNT-BLACK TOAST!
For an outstanding further discussion of the perils of inflation targetting, check out this piece by Stephen Roach, chief economist at Morgan Stanley:
http://msnbc.msn.com/id/13879724/site/newsweek/
That was a good article. I’m sitting here having coffee thinking about all the rising inventories. I wonder how much of this is people just trying to test the market vs those who need to sell? I have seen homes sit on the market for 6 months in arizona and nothing. They are in fantasy land w/ their prices. I wonder what the catalyst will be for some real price reductions to move the inventory. Could it be simply time? Seems like prices are really sticky on the way down.
It doesn’t take a lot of “serious sellers” to set new comparables for the next sales. What the market is, it is.
Time and comps. Get a few comps coming in much lower, than appraisals will come in for the bank, they be willing to lend less, and a major recession and you have some serious price reductions. But like a good soup, you need to simmer it awhile. So yes, time will be the factor. It took 3 years from 1929 to 1932 to hit bottom. We have a ways to go, but the fundamentals are there. Just a matter of smoking out the bad credit.
Better link to one of the articles posted above:
http://tinyurl.com/qfeom
Here is an article at marketwatch.com which agrees with my view that next week will not be kind to the conundrumish US asset markets…
http://tinyurl.com/hupys
With a constant money supply, increasing oil price doesn’t equal increased inflation. Other items will naturally have to come down in price with a fixed money supply. However, with an ever increasing money supply and a supply problem, oh yeah, it will get more expensive. Inflation has been all around us at all times. It just hasn’t hit the items the folks use to calculate inflation. With it hitting oil, it will show up (unless items are changed again). However, the gov’t could certainly change rent to purchase price in the CPI, and yes, you would probably see inflation decreasing.
Fuel is a big thing for the US. The mid-east war is changing the fuel price but look at the 70s when fuel went up, the cost for gas was much larger then what it is now. wages were much lower so a tank of gas took more per hour than it cost now. war might be a saving grace for the US as far as jobs, look at the last housing bubble in florida, this time most of the farms,fishing,and Cattle are gone. This year every storm (so far just low pressure systems) have come right over south Florida. What will the Hurricanes do ? 1928 all over, Back then the only thing that saved the economy was War. Yeah I know I’m so OPTIMISTIC
You can clearly see a trend in the mid-70’s housing in Charlotte, that the floorplans were smaller and people were interested in cutting costs. (There begame the barrios of the 2000’s as English-speaking natives families bought larger homes outside the city limits.)
Once the average American accepts higher energy costs as permentnant -not a temporary blip- they will alter their tastes.
What is happening in the Mideast hasn’t changed the fact the housing bubble is bursting, people are leveraged beyond belief, supplies of oil are diminishing when related to consumption levels (saw that last week was one of the highest levels of consumption in the US ever….so what is the big deal if our stockpiles are bigger than they were eight years ago when consumption was much less). It is very convenient for “experts” to say the market is falling due to the Mideast. To say they are declining because of actual massive debt on our gov’t and consumer’s part would be too truthful and would cause it to sink faster. It will anyway, but just slower. I’m sure some have seen the quotes from politicians during the start of the Great Depression. Nothing different today.
OT,my local papers sunday real estate section had twice as many homes for sale ads today as it did in mid june….are we approaching the fall selling season? this is the santa rosa paper,worst in the west.
It sounds as though homeowners are starting to liberate for-sale inventory.
Yes, they’re being liberated OF their equity.
This is the last “hur-ra” for the newspapers. What fraction of their revenue is real estate ads? It must be 30%+! Once the buble is truely burst, they’ll be begging for adds. With the internet killing circulation… some will hurt. For example, I have an online subscription to the WSJ and a few technical publications, but I haven’t received a paper newspaper in years.
As to “fall selling season,” this will be interesting in Florida. Who is going to be willing to pony up at these prices for a vacation or retirement home?
I’m thinking a bunch of northeast papers will be flooded with Florida home ads… So short term their ad revenue will improve. After this is over… I’m bearish on newspapers too.
Neil
Neil, could you possibly post this article?
Thx, GS
————————————————————————————
Look Beyond Housing For Real-Estate Plays
By Gregory Zuckerman
Word Count: 1,053 | Companies Featured in This Article: Toll Brothers, Lennar, Hovnanian Enterprises, D.R. Horton, Centex, M.D.C. Holdings, AvalonBay Communities, Archstone-Smith Trust, Essex Property Trust, SL Green Realty, Vornado Realty Trust, Host Hotels & Resorts, Washington Group International, Quanta Services
The housing market is weakening, and home builders’ stocks got clobbered late last week as the broader stock market swooned. Analysts urge investors to be cautious about companies dependent on this key area of the economy.
Despite the gloom on home builders’ horizon, some market veterans say they see opportunities elsewhere in real-estate-related stocks, such as companies involved in the hotel, apartment and commercial markets.
Signs are increasing that the residential market’s current slowdown will continue, and perhaps worsen. Last week, the National Association of Home Builders said the U.S. housing market will cool this year and next year, with …
http://tinyurl.com/q7hb8
The LA TImes Saturday edition (SFV) had three(!) large “new homes” sections plus two fat resale sections. Normally there’s one of each.
Check the auto-trader pages in the local Quickie-Mart. They’re double or triple the thickness they are normally.
Another monkey-wrench is the base realignment up to 3500 jobs mostly high paying 100k avg. up to 1 Bill. may be leaving….
http://tinyurl.com/rr294
Listening to a local radio show there : interviewing a RE professional , and spouting the great market inspite of huge inventories quoting the years past appreciation. He was aked now that there are no buyers who will be able to afford the homes now,and especially if the base scales down…He totally skirted the question ,and said remember we had X appreciation ,and RE is always a good investment.
In the paper that day was an article about business owners on hwy98. after Ivan/Dennis whos’ Ins. has gone from 50k to 250K ! ,and what are they supposed to do? …seems the sweater threads are being unraveled at many different ends..
“It’s not just houses and land that are more reasonable, said (developer) Jim Morrissette. There’s no longer a shortage of subcontractors who do the nuts and bolts of building a house, he said. ‘It’s much easier to get your hands on the sub-trades now than it was even four months ago,’ Morrissette said. ‘They’re more readily available’ and willing to work for less.”
Ok, so not only is supply increasing which is causing prices to fall with less demand, but now also the supply and demand equation is doing the same thing for contractors, subcontractors, and supplies. Wow, so now the cost of building a house just got cheaper, and these people will work for anything to get money just so they can eat and maybe pay some bills.
I see this whole things getting bad, real bad…
thing*
http://www.latimes.com/business/la-fi-gashurt16jul16,0,5275140.story?coll=la-home-headlines
Sad story on the front page of the LA Times about a 58 year old truck driver going under. He bought a house where he could afford it — 100 miles from work. Now the price of gas and credit card interest rates are killing him. One of the real victims of over-priced housing/speculators.
This is the part I have been waiting for. If I can buy land cheap, and get subs cheap, I can build for far less than I could buy today.
Cool.
the crazy thing is, especially in FLA, everything will be working against you for the next few years. I’ve read the hurricanes will be more active and possibly more destructive as we move into a ramped up cycle. plus the price of your AC is going up. probably the cost to rebuild. insurance and or HOA fees. then tack on the loss of income and time of having to evacuate.
Hurricanes don’t effect everyone in Florida. I have personally never had to evacuate in Tampa. Yes, the storms have always been there and always will. Just a fact of life there. Not really any more or less counterproductive for work than say a snow day in the north east. Yes insurance is an issue for some, Ac costs aren’t, Hoa costs aren’t either. The mess that flippers made is a major issue though. Will be quite awhile before things level off here.
“…at the height of the housing boom, builders would require as little as $1,000 in earnest money to take a house off the market. At that price it was easy for a speculator to walk away from a contract.”
$1000 for a call option on a single family home? What a deal. My hat is off to anyone who played the real estate bubble by assembling a portfolio of these options. Greedy flipper? I would call it savvy investing.
Yesterday Ben posted about blaming the HBs for the run-up in prices and I disagreed. Well I have re-thought that. To the extent that HBs were giving away options to purchase their homes they are to blame. This is dumb business.
Can the HBs come after these speculators and try to force them to close? There was an article posted here a few weeks ago about the HBs trying to force buyers to close who were trying to walk away.
I just found this in the Fort Myers News Press, I think this will tell the story
http://www.news-press.com/apps/pbcs.dll/article?AID=/20060709/BUSINESS/607090302/1076
“My opinion is prices went up and now they’re down, and they’ll go up again,” said Purdy, who owns a house in the Silver Lake development in Gateway. “I’m seeing prices here (in downtown) go up for commercial property” since the store opened in June 2005″
Yeah, they dropped for a couple of whole months, now they’re down. Dream on.
The homebuilders(Homes by Towne) for one are still selling to investors. Their comment was that people can’t afford to flip the houses in their price range. Yet you leave the model home and 1/2 the neighborhood sits empty, no blinds and is for sale. Yes, I blame the builder. They knew who was buying these homes. They led the way. I will give credit to Ryland homes for not going to crazy on their pricing. When built out communities were selling Ryland’s floorplans for 600K they could still build it for 400k. Still a mark up, but not as greedy a mark up as David Weekley, Mercedes, Rutenberg………..
The nicest part of all this (except free Florida homes for everyone, woohoo!) is eventually we won’t have to with the effing cult of Disney anymore. Even overhearing people at work talk about their annual pilgrimages to Disney is starting to get on my nerves. How mindless can you get. That and Disney cruises for children, Jesus Christ already. I go to Florida several times a year because my parents have a place in Naples, I don’t see the attraction to Disney, but not ony that, just the cult of it all gets really annoying.