Orlando A ‘Haven For Home Buyers’
A housing bubble report on Orlando, Florida. “Competition has thickened in Central Florida’s residential real estate market during the last year. Existing and new home inventories have grown exponentially, forcing properties to remain on the market longer and sellers to do more to get their homes sold. The result: The region’s once red- hot housing market has morphed from a seller’s Shangri-la to a haven for home buyers.”
“‘The market has definitely transitioned from a sellers market to a buyers market, and it did it rapidly,’ says Jack McCabe.” “Existing home inventory in January totaled 12,015, a 262 percent increase in the last year, according to Orlando Regional Realtor Association’s January Roth Report. ‘The last time we saw inventory levels this high was in the mid-1990s,’ notes Scott Hillman.”
“New homes have not been immune to these market mood swings either, says Anthony Crocco. Metrostudy noted a marked 18.3 percent increase in the inventory of new single-family homes to 16,067. The largest spike was recorded in the finished vacant new homes category, where the number of available units rose more than 97 percent from 1,709 in 2004 to 3,372 last year.”
“‘Usually, developers want to see only about 20 percent of the homes in their communities finished and vacant,’ says Crocco. ‘Today, some are seeing as much as 80 percent.’” “Industry insiders point to a mass exodus of investors and speculators from the Central Florida market. ‘The investors and speculators who flew through our market fueling the growth in sales and running up home prices have taken their profits and moved on for better investment opportunities elsewhere,’ explains Crocco.”
“For-sale and for-rent signs pepper the front yards of many Central Florida neighborhoods, wreaking havoc in new communities where these homes compete with new construction for the attention of home buyers.”‘
“As a result, home prices appear to be leveling off, if not turning slightly south. Despite growing by 35 percent in 2005, the median sale price of an existing home in Orlando actually dropped by $10,000 between November and December 2005 to $239,900, and the median price grew less than 1 percent from December 2005 to January 2006 to $242,050.”
“‘The market really reached its pinnacle last August,’ says McCabe. ‘I really believe we will see downward pricing corrections in the near future. This is just a correction, a temporary situation, but it will probably be three to five years before the over-supply is absorbed.’”
As a reader pointed out when the FAR numbers were published, Orlando got a boost from a 95% increase in condos. From 222 to 432, yoy. But the median price fell in February from the previous month; From $185,100 down to $164,400.
A reader sent in this report on Citizens. ‘Citizens charges Lindenbaum $2,591 a year for $1 million in windstorm coverage for his 4,413- square-foot house. Insurers that specialize in covering expensive homes said they would charge at least $5,000 a year for the same coverage. ‘It’s discount insurance … and it’s crazy,’ said Bill Newton, executive director of the Florida Consumer Action Network, a Tampa-based grass-roots group that focuses on insurance issues. ‘We don’t think other people in the state should be subsidizing insurance for people in million-dollar homes.’
Another sent in this informal sampling from Naples. ‘Naples homes sales dropped 47 percent in February with slightly declining sales prices. Is the slowdown a positive or negative for Naples, and why?’
There was a shockingly poignant article in today’s WSJ (p. R4, 3/27/06) which provides great insight to the mindset which drove the Naples, FL market to its current precarious state of existence. This is the first article I have read which actually elicited a pang of sympathy for the buyer, as I can imagine intelligent, well-educated people I know who might have fallen victim to the same euphoric spell. I can provide a taste, but my typing skills are not up to reproducing the whole article; hopefully someone can find the electronic version, as this article represents a watershed convergence between what we write here and what the mainstream press is printing these days…
———————————————————————————————-
Back to Reality
As vacation-home markets cool, would-be buyers should take a sober look at the economics of ownership
By June Fletcher
The vacation-home market certainly has changed since I dove into it not that long ago.
……
At the time, real-estate prices were rocketing and supply was scarce, especially in resort towns like Naples, which sits on the Gulf of Mexico in southwest Florida. As was true in other coastal towns, relatively modest places like the one I bought, a three-bedroom condo near the beach, were being snapped up within days or even hours of being put on the market, sight unseen.
It didn’t even matter that hurricanes were blasting through the gulf almost weekly. Buyer mania was so strong that I drove from the airport ot my first walk-through inspection of the home in the furious rain and whipping winds of Hurricane Jeanne; at one point, I raced my rental car past a palm tree leaning over the road at an alarming angle and watched in my rear-view mirror as it crashed to the ground. I felt pressure to close the sale quickly, since would-be buyers started putting backup offers on the home almost from the moment my full-price offer of $225,000 was accepted. I didn’t want the sellers to look for reasons to back out of the deal.
The home grrew in value at supersonic speed even while the sale was in escrow. Judging from sales of comparable units, in the five months between my purchase offer and my first mortgage payment, my beach place appreciated by more than $150,000, a gain of more than 66%. It had taken more than five years for my primary home in the Wasington, D.C., suburbs to grow two-thirds in value. At the end of 2005, the median price of a single-family home in Naples reached $367,100, a 36% gain over the year before, almost three times the national appreciation rate. I felt like I’d won the palm-fringed lottery.
But there are clear signs the tide is turning in Naples. Inventory levels now are four times as high as they were a year ago, local real-estate agents say, largely because nervous investors are trying to cash out their gains before rising mortgage interest rates topple the market. “Big price reduction” ads are starting to pop up in the thick weekly real=estate sectoin of the Naples Daily News. Worse at the end of 2995 Napeles was 96.3% overvalued–based on historical norms for home prices, household income, population density and other factors–according to a quarterly analysis of 299 housing markets by Boston-based research company Global Insight Inc. and Cleveland financial holding company National City Corp. That made it the most overvalued housing market in the country.
Hand me my crying towel, please.
Of course, Naples isn’t the only second-home mecca that the report calls overvalued. Others include Santa Barbara, Calif. (76.7%), Bend, Ore. (68.4%) and Miami (60.8%). Indeed, coastal areas popular with vacationers and investors are by far the most likely to have had unsustainable price increases, says National City’s chief economist, Richard de Kaser, who conducted the study. He notes that 18 of the 20 most overvalued markets in the country are in California and Florida; the most undervalued markets are in the center of the country, including Texas, Minnesota and Michigan.
Mr. D notes that as recently as the end of 2003, only seven towns were considered extremely overvalued — 30% or more out of line. Now 71 are, representing 42% of all the housing value in the country. That shouldn’t matter to people who are buying in an overvalued spot for the long term, he says (WHY NOT??? — GS), but it should matter if you plan to sell within a few years. “It’s absolutely not the time to take risks,” he says.
So, vacation-home buyers, take heed: The days when you could flip a beach house or ski place for fun and profit are probably over. That doesn’t mean that you should avoid a second home altogether, but it’s time to take a serious look at the economic factors that propel vacation markets, and to weigh the financial costs of ownership. Here are some things to consider:
Gather round, gather round, and lend an ear for what you dread and what you fear,
That house you bought just last year, well it’s just not far’in too well this year,
Those payments are aris’in, and your HELOC too,
but neigh to worry, tomorrow will be bright and cheery,
Tomorrow arrives, your broker comes too, a deal is struck, the sign goes up,
Weeks go by, but you’re not shak’in, your broker says, “he can feel a deal in the mak’in”,
More time passes, antacid washes down in batches, now you’re shak’in and sound’in funny,
You call your broker, a deal is struck, the price is lowered but just not enough,
More time passes, your sanity lapses, that house you bought just last year has turned into your prison quickly this year,
Greed be damned, just set me free, foreclose it quickly please.
Moral: A home is where a family lives in a viable community. A house is just a house and is worth no more than it can support through rent. Anything else is pure stupidity.
Sorry, just in a funky mood this am…..
Please never ever try to write poetry again. You suck and it’s painful to read.
Dude, your poetry rocks. Keep it comin. How about a rap?
Dig what you wrote
Hey Salinas Ron,
You DESERVE an MTV “CRIB” for that one! Very entertaining!!
However don’t quit your day job .
While I can appreciate the sentiment, your “poetry” sucks the sweat off a dead man’s balls. Next time you’re feeling creative, try to open-mike night at one of those “slam poetry” events frequented by black-clad, necrophiliac-looking English majors who are still working at Starbucks ten years after picking up their BA’s. But please, I beg of you, spare us in here.
Actually in the Orlando Sentinal last week there were 12,996 homes on the market (not including new homes, new condos or condo-conversions). From what i see on the streets things are getting ugly. The whole market is in this state of Denial, from new home builders, town home developements and condo conversions sellers are in denial that the market has turned.
One condo conversion had a blitz of ads on the radio for their “sunday one day sale” they offered 1 years mortgage payments paid & free hot air balloon rides for visitors… In the marketing gibberish at the end of the ad they stipulated the promo is only good for the first 50 buyers… This place has been on the market for almost a year and they have over 50 units left??? Sad thing is prices have been flat, all these condo conversions came on the market expecting home prices to be much higher, therefore they can justify charging 250K for a 3bed/2bath condo conversion but things are not that way, you can buy a 3bed/2bath house for less than the conversion…. And how do developers deal with this???? they buy more apartments and release them for sale as condos!!! A couple more conversions just came on the market this month.
Its a circus out there . If the builder is selling the places at a bunch of different prices it will mess up the appraisals. The lenders appraisers will have to take the lower comps .This means people who buy at the non discount price would have to come in with more money .
Lets face it the discount is just a con job .
its happening, its pretty much a standard to go into a new developement and get your closing costs paid plus premium upgrades.
They can get away with that , but, serious price reductions are going to affect appraiser comps . Why do you think the real estate people builders were first resorting to seller kick-backs : They didn’t want to destroy to established comps from the high point . They were hoping that the slow down was short term .
Something very interesting is happening with new construction.
Some of these new developements seem to be quietly dropping prices. They have been advertising discounts & incentives but we went through one town home developement starting at 275K and went by again and they were starting in the 250K range… Up the road there is another town home developement that was not as upscale starting at 275K and up.
Seems like builders are reducing prices and trying to unload quietly before other builders catch on and reduce there prices to compete, trying to avoid an all out price war.
“”“‘The market has definitely transitioned from a sellers market to a buyers market, and it did it rapidly,’ says Jack McCabe.” “Existing home inventory in January totaled 12,015, a 262 percent increase in the last year,”"
Mr. Macabe, hello, a big inventory does not translate to a buyers market. A buyers market would be someone making $50,000 per year finding listing in the neighborhood of $100,000. When do you think that you’ll get there?
Actually they define a buyers market as a home market with over a 6 month supply of homes for sale.
Yes, as in most US markets formerly known as locally frothy…
ITs a NOBODY KNOWS THE RIGHT PRICE MARKET .
Heard some comments today on financial channel that the economy will be ok because the top 20% (wealth) are in good shape and they are the ones who move the economy, but that he worries about the bottom 20% that are effected by gas prices and what will happen in the housing industry (ie. bust)…..
The bottom 20% never bought a house to begin with because they couldn’t afford it THey might be better off than the middle .
Economy in good shape? Hardly.
This is from last weeks International Forecaster by Bob Chapman:
“Excessive issuance of money and credit and wonton spending by government has allowed our economy to keep its head above water for six years. We now believe the consequences of monetary and fiscal irresponsibility are about to begin. The most visible target is the housing bubble. Former Goldman Sachs investment banker John Talbot says in his new book, “Sell Now the end of the Housing Bubble,” that many Americans could be facing is a 50% decline in housing prices. He estimates that American’s top 40 cities will see an average 47.2% decline: Boston 49.4%, Miami 44.8%, New York 44.6% and Chicago 27.3%. We are disappointed he left out Los Angeles, which at the high end we see falling at a 60% rate and on average 50%. Southern California lost an average of 40% in value from 1989-1992, at a time when people had 30-year fixed rate mortgages and put 20% down to purchase property. This time the leverage is enormous with all sorts of exotic loans.
The blind alley the Fed is in is if they do not raise interest rates no one will want to buy our debt paper. If we do raise interest rates it will strangle the housing market. The Fed has no way out. We believe they keep overnight interest rates at 5% or more. That would put the 10-year Treasury note at 6 1/4% and the 30-year fixed rate mortgage at 6 7/8% to 7%, which is not inducive to home purchases. Maybe the public doesn’t know it, but it is not normal for housing prices to increase 75% in five years. This said, we believe eventually today’s housing weakness will develop into a full-scale rout. That’s what happens to all bubbles.”
Oh, sure. Blame the Chinese again for our “wonton spending”!
Revised version:
The result: The region’s once red- hot housing market has morphed from a seller’s Shangri-la to a seller’s Shanghai.
http://www.ireland.com/newspaper/property/2006/0302/692093378RPSHANGHAIMARCH2.html
Maybe a more sane government policy than ours?
I purchased a condo in Orlando in the early 80s for 50K. The gentleman that I bought it from told me he lost 15K…This will
not be the first time condos have lost value here…By the way
I sold it a couple of years later for 55K.
This article is terrible. It really tells us nothing. If they would have dug down beneath the surface they would now that the flippers are still holding in Orlando (how could they all have “moved on”? who did they all sell to?). They’re just trying to rent or deciding when to dump. This will accelerate the slide when that shoe drops over time.
I like the “Even so, experts agree the long-term outlook for Central Florida’s housing market is strong — especially for homeowners who do not need to turn a quick profit with their properties”.
What they mean is that if you have bought recently and can hold for a long time (10 years?) the property will probably be worth what you paid for it.
Yeah, their ‘problem’ is so far only at the purchase level, in other words that the spec’s ain’t buying anything. The question they need to ask themselves, is what will stop the avalanche of new listings if nobody buys in the future?
Seams like everybody is calling the top in August…
I think it was Sept.15,2005 myself
Significance of that date is???
I just joke some times, but most people make their moves by Sept. 15,2005 than the winter sets in .
I guess “all those droves of Babyboomer Retirees moving in to the area” will have quite an assortment to choose from…
and those FlipFloppers (TM) are not going to net the massive profits they were counting on from being one of the “smart investors” who saw limited supply and too much demand from the wealthy, retiring babyboomers…
I never met anyone coming back from Vegas who lost (they broke even) and so far I have not found a flipper that didn’t sell out at the top, why is this?
It’s human nature to think that “just one more time, and I will hit the motherload!”.
To play the market wisely, you have to study the trends and be disciplined to “get out” at the right time. Much easier said than done- but I am sure that there were investors in the stock market that did very well to “sell high” and then watch on the sidelines as their instincts told them that there was going to be a correction… wait for the correction, then get back in. “Sell high, Buy low”- It’s a CLASSIC!
start monitoring this board and you will see there is no joy in Flipperville http://www.sdcia.com/
“negative cashflow” is the phrase of the year
Maybe it is still the top??
around miami, i am seeing houses for sale everywhere.
I mean literally everywhere.
Its all over Florida some places worse than others. Check out Sarasota & Naples, I was in Long Boat & Seista Key a couple weeks ago, every 3rd home was for sale.
UHhh OHhhh….
I guess not enough wealthy, retiring babyboomers are moving in fast enough. D@mn that Supply + Demand factor!!!
I was out looking at houses here in N. VA where there are (overpriced) new old folks’ developments sprouting up everywhere. I was in a house for sale with a retired couple and their grown daughter. The older lady said “I know there is “such and such” “adult” community over yonder, but I *like* children in the neighborhood.
I wonder how many boomers will feel this way, i.e. prefer to live in a “mixed” community as opposed to living with a bunch of people their own age.
I’m wondering even if the prices went down big time , would the demand be there ? I guess it depends on the area but the insurance thing has got everybody in a uproar also and people are unloading because of that to .
unloading=this summer in FL when a hurricane is bearing down on the state! Talk about unloading!
Wealthy + retiring “baby boomers” are oxymorons.
Most have little or no savings and are counting on their “housing assets” as their retirement nestegg.
The plan: Sell my very expensive Boston/NYC home and move to cheap Florida, living on the residuals.
The problem: Flippers got here first.
Forget the “boomers”. Ain’t gonna happen.
Well said DioGenes!
People talk about boomers moving to Northern Nevada after selling their homes in expensive Calif. Now older people do sell their home in Calif, and move to Northern Nevada. Then it snows, they relaize they have to shovel the snow, while not slipping & the house goes back on the market in the spring.
those boomers are on the way. a huge swarm of motorhomes have been seen heading south as we speak.
Are those the ones the govt purchased to house Katrina refugees?
Ditto that in Palm beach county. Houses for sale everywhere..
And I can vouch for NW FL… Destin area…
Lots of homes for sale every where. BUT…when will prices REALLY tank???
housing bear…… you da housing bear bro! you know a silent spring is gonna trigger a riot.
everybody hold your ground.
WHEN PEOPLE(IDIOTS) STOP BUYING
Sold a house in Orlando last July 32832 had 30 homes for sale at the time now there is 222 for sale. Lots of sellers with unrealistic expectations 30% overvalued.
Orlando 35.9% overvalued.
http://money.cnn.com/2006/03/13/real_estate/overvalued_housing_markets/index.htm
And from the LA Times. “A little-known reward for brokers who arrange home loans at high interest rates is drawing scrutiny from law enforcement authorities. Lenders pay the bonuses to independent brokers who sign up borrowers for mortgages at higher interest rates than they qualify for. With these brokers now writing an estimated 60% of home loans in the U.S., regulators are concerned that many people are being steered into higher-rate loans.”
F*CKING SLEAZEBAGS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
The buyers down here are suckers and idiots.
I would not buy any of this new construction that these Mexican illegals built down here. No way. When the time is right I will want a home built prior to 2000 by American skilled labor. Preferably a smaller, efficient block home.
Went to a house warming party for a new scientist and his young wife here at work this weekend. He is 29 and makes low 50’s, his 25 yr old trophy wife is 36D-24-36 weighs 115 and works as…you guessed it…a Realtor(tm).
Anyhow, I pulled up and parked behind their new F350 King Rancher Diesel and me and my girlfriend went inside their new home.
The 4,000 ft2 place has 12 foot ceilings throughout except for the bedrooms. Small pool in the back, yada,yada,yada. Looks like the rest of the houses that they threw-up in this new subdivision here in Polk County. Granite countertops and Sub-Zero fridge as well as gas Viking stove upgrades were included for “free” when they closed on the McMansion.
I got to kicking the tires on this house and basically saw where they had thin-coated the stucco outside and revealed the chipboard underneath. The up-and-coming 20 somethings had only been in the house like two weeks and when I showed it to them they were aghast.
Some of the exterior trim embellishments appeared to be nothing but plastic/ styrofoam ( I am not kidding ) that had the same thin stucco veneer.
I found a wall where there was 22″ between centers on the aluminum framing and could easily have pushed my fist through the drywall. Also found a stain on the ceiling of on of the bedrooms…”It was a minor roof leak, they fixed it and will be back to paint the ceiling next week ”
Also was told by one of the neighbors that the in a house down the street the Mexicans forgot to hook up the drain to the tub in an upstairs bedroom and when the owners pulled the plug to drain after their first Whirlpool bath approx 75 gallons of water came pouring down through the ceiling and down the walls. Destroyed Diplomkas, etc hanging on the walls of the office space below. “Just lovely.”
Lastly, the twenty-somethings told me when I asked ( after a few beers ) that they basically had stretched to get into the house, had put almost nothing down, and were paying on an ARM suicide loan that will reset in 2009. Good luck with that.
I noticed that in this overpriced, $hit-built development that the average age was 25-35 and alot of these kids were making 3500-4000 sq ft homes as their first homes.
They will soon run out of suckers down here. It is only a matter of time.
lol.
Jeez, I would be stoked to have even a 2000 sq. ft. home. Don’t these people realize what it costs to run the a/c in the summer? And just general upkeep?
I’d be happy with even 1500 sq. ft.!! Fortunately, our tiny little home in SoCal is really really cheap to heat and air condition. In fact, most of the year we don’t need either one!
We’d be thrilled with 1500 sq. ft., but are still quite happy in our 963 sq. ft. remodeled (by us) Craftsman.
This is what I’ve been harping on for a long time: junk construction in Florida. Particle board (you call it chipboard) and styrofoam “architectural” embellishments sprayed with stucco. It’s like living in a cardboard box with pretty wrapping, or a movie set with plywood facades. This trash construction is going up everywhere in Florida, and nobody does anything about it. And yet, the builders charge a fortune.
Everyone one looks one sees massive particle board projects. Buyers see all the flash and rush to buy, and never even consider the fact that what they’re buying is an illusion.
Yes, illegal Mexicans are building all of it, and many can’t read English installation instructions. Builders who hire them at slave wages so they can make even bigger profits should be arrested on the spot. The problem you describe with the tub sounds almost routine.
I live in Orlando and went to a wedding here this weekend. You’d be amazed at how quickly a questions like, “what are you up to” or “what do you do” will be interpreted by the 25-35 year old in my age group as in invitation to brag about the easy money they have made in real estate over the past 2 years. And I mean everyone had a story. I love to say something back like “I’d never put my money in RE, downside is way too risky.” The look of utter confusion is amazing. I don’t think they have ever heard someone not participate in their circle jerk session of “I got a RE story to top yours.” I’m sure it is the same everywhere else.