Friday, November 24, 2006

South Florida Prices Falling Like Rocks

According to the Sun Sentinel, prices of homes in South Florida continued to steamroll downward in the third quarter of 2006.

"The median price for existing single-family homes in Palm Beach County was $380,900, down $19,000, or 5 percent from the third quarter of 2005, the Florida Association of Realtors said Monday. Broward's median of $371,100 dipped 3 percent, or $12,800.Quarter-over-quarter sales declined 49 percent in Palm Beach County, the biggest slide in the state. Sales fell 27 percent in Broward."

"Some real estate analysts say the housing market could remain soft for another year or more. But agents in Palm Beach and Broward counties say they're encouraged by a surge in sales contracts during the past three weeks.Bob Goldstein, chairman of the Realtors Association of the Palm Beaches, said huge increases in property taxes and property insurance premiums still are hurting potential sales. But he's counting on Gov.-elect Charlie Crist and state legislators to address those issues."

As usual, the head Kool-Aid Drinker himself "David Lereah, chief economist for the National Association of Realtors, was similarly optimistic. He said in a statement Monday that buyers nationwide are being enticed by the lower prices."Given a positive economic backdrop of lower interest rates and job creation, we expect sales activity to pick up early next year," he said."

Now, I have to tell you, if you are not living here in South Florida, that sales have stopped- simply stopped. Regardless of the spin that the media and the NAR want you to believe, in the REAL world home prices are being chopped some 20% or more in order to sell. Despite the NAR's shameful forty million dollar ad (scam) campaign, desperatley trying to create a sense of urgency, most buyers have caught on that all they need to do is WAIT and prices will continue to drop.

IF you think that the markets have gone down, wait until next year. We have still not seen the two trillion in ARM resets, the insurance renewals, or the new taxes hit the market. This market is not going to "bottom" until 2008 or 2009. There is almost a four year VISIBLE supply of houses to work through.

As far as Learah, his statements are pure nonsense. I doubt anyone, even the milions of Realtors actually believe him.

In the interim, prices will continue to reflect the extreme overvaluations that exist in the market. I would not be surprised to see a return to 1999-2000 prices, and that means another 30% or so. Look out for the falling rocks.

Wednesday, November 15, 2006

Florida's Bubble Defined

"South Florida,'' he said, ''is working off of a totally new economic model than any of us have ever experienced in the past" according to a realtor who predicted that a land shortage will support higher prices indefinitely."- New York Times, Trading Places: Real Estate Instead of Dot-Coms, 3/25/05

Looking back, this will be remembered as the "poster child" of quotes when describing the irrational exuberance associated with housing bubble of this decade.


Sunday, November 05, 2006

Wasting Away in Margaritaville...

"Wasting away again in Margaritaville,
Searching for my lost shaker of salt,
Some people claim that there's a woman to blame,
But I know it's nobody's fault. "

Ah yes, that great tune from Jimmy Buffet lends a certain irony to the current affairs of Key West real estate.

As reported in today's Key News, home owners were shocked when they went to auction up their slices of "paradise." Even in the city of Hemingway, Mallory Square, Duval Street and incredible sunsets, there's a shortage of greater fools.

"The number of people attending Saturday's housing auction at the Doubletree Grand Key Resort was high, but unfortunately for the 22 property sellers, most of the bids were not. "

"The bidding was OK on some and tough on others, but that's an auction," said Steve Slokumb, chief operating officer of Hudson & Marshall, the auction firm that conducted the event. "

"The owners of 14 homes listed with Resort Realty & Appraisals of Key West and eight listed with Truman & Co. Real Estate Services decided to give the auction a try during a stalled market that in previous years experienced 20 percent to 40 percent increases. Realtors have blamed the past two busy hurricane seasons and the cyclical nature of the business for the slowdown. "

"None of the asking prices were met. The closest bid fell $149,000 short, while bidding on the most expensive property, located at 1411-1415 South St., fell more than $2.5 million shy of the almost $6 million asking price."

Victor Heymann, a broker with Resort Realty & Appraisals Inc., had one of his own properties in the auction. He said he was "somewhat disappointed" that his three-bedroom Azalea Street home appraised at $985,000 only went for $820,000. Others weren't as lucky. Jack Anderson and Kevin Broomell, the owners of a condominium at 1211 Olivia St., said the final bid of $495,000 did not meet their reserve, or lowest acceptable price, and so they would not be selling. "
"The highest bid on his 2,297-square-foot property was $1.3 million, well below his reserve price. The house was recently appraised at $2.15 million. "

"Her clients, Rhonda Florence and Pamela Childs, viewed the auction as unsuccessful considering their 1021 Johnson St. property, which recently had undergone a major renovation and was appraised at almost $2.9 million, received a top bid of only $1.8 million.
"It didn't work for us," Florence said. The pair will continue to try their luck on the open market, as will many others who participated. "

"There are 1,400 residential properties for sale in all of the Lower Keys, and almost 900 of them are in Key West, according to Resort Realty. "

I remember Warren Buffet saying once, " Price is something you pay. Value is what you get." Markets could care less what something "appraised" at. If the homes were "worth" that amount, they would have sold for that amount. Sellers will have to learn that properties have become a commodity, like stocks, bonds, art, precious stones, and even a Mickey Mantle rookie card. They are "worth" what the market will pay, not a penny more.

Just as appraisal value meant nothing on the way up, it means nothing on the way down. How many of us have purchased a diamond ring, only to have the "appraised value" some 30% more than what we paid? It's to make you feel like your not a shmuck. But try and sell that diamond ring and you will quickly learn of the true market value. Real Estate is no different.

The bloom is off the rose. The patient is out from under the ether. The honeymoon is over. The clock has struck midnight and Cinderella's coach has turned into a pumpkin. Reality is hard to accept for many people. as this is not 2005 anymore. One of the sellers commented that buyers were looking for "desperate sellers." Come back in a year and these sellers will be desperate. Regardless, those 22 homes are still wasting away.

$100,000 Discounts and Wishful Sellers

As reported in the Sun-Sentinel , home builders have stepped up the effort to unload their remaining inventory, as prices continue to fall and demand all but vanishes, leaving sellers in an unfortunate situation of competing with inventory priced 20-30% below their asking prices. It seems that free upgrades and various incentives are not working anynmore, so now the only thing left to do is cut the prices to the real "market value."

"A sense of uncertainty continues to grip sellers across Broward County as the housing slump plods on. Prices and sales of existing homes fell again in September, according to figures released Wednesday by the Florida Association of Realtors.Broward's median price of $370,300 fell $9,100 or 2 percent from $379,400 in September 2005. "

"Prices have dropped on an annual basis for the past three months.There were 741 Broward home sales in September, off 24 percent from the 977 sales last September. Broward's median price for condominiums increased $1,200, or 1 percent, to $205,800 from last September. Sales fell 46 percent, to 647 from 1,203."

"The housing slowdown continues on a national level as well.Existing home sales dropped for the sixth consecutive month in September, according to the National Association of Realtors.The nation's median price was $220,000, off 2.2 percent or $5,000, from $225,000 last September. The median is the level at which half sold for more, half for less."

"Mike Larson, an analyst with Weiss Research in Jupiter, said in a statement that builders are offering $100,000 discounts, one-day sales and other perks, which are helping to lower home values across the region. Sellers of existing homes can't match those incentives, so inventory is piling up."

" Broward had nearly 40,000 homes and condos on the market last month, more than double the number from last September, according to the Miami-based Keyes Co. Realtors. As a result, buyers can be picky, and they're also concerned about the threat of hurricanes and dramatic increases in property insurance premiums and property taxes. "

"Hunter and others experts predict the end of hurricane season Nov. 30 will spur more sales, but Larson doesn't expect buyers to get serious again until sellers cut home prices even more."

"The Laatzes' real estate agent, Andrew Ackerman, said the couple is doing everything to sell their home, which has a new roof and kitchen and other improvements.They're willing to furnish the house for the buyer as much as $5,000 and plan to market to newly married couples because they think the property is a perfect starter home. They paid $200,000 in 2004 and now are asking a reasonable $275,000, Ackerman said.So why hasn't it sold?"

"Palm Beach County's September median price for existing homes was $365,500. That's a drop of $34,500 or 9 percent, from $400,000 last September. Unlike Broward and Palm Beach counties, Miami-Dade had no price decline in September. Its median of $371,700 was almost unchanged from the $371,200 of September 2005.Sales dropped 12 percent in Miami-Dade and 53 percent in Palm Beach County, the largest decline of the 20 metropolitan areas in Florida.Statewide, the median price of $243,900 dipped 1 percent or $2,200 from last September's $246,100. Sales across Florida fell 34 percent."

Not to pick on Mr. Ackerman, but he is the epitome of sellers nationwide. He purchased a home two years ago and belives he is entitled to a $75,000 profit, or 25% in two years. And my question to him is WHY? Did he make $75,000 of improvements? Or is he simply "entitled" to make that amount of profit. There is a certain amount of arrogance to be said for many home owners these days. What is "reasonable" to him seems "unreasonable" to most potential buyers. As many have pointed out, this is not 2005 anymore.

In my opinion, we are still way above the mean in pricing. I would not be surprised to see a return to 2001-2002 prices before a stabilization. There are some 40,000 units for sale in each of Broward and Palm Beach counties, a four year supply. One cannot discount that number.

What makes me chuckle is that most sellers are still at 2005 prices. For fun, pull up a listing on on the MLS and compare that asking price to a Zillow estimate. I have seen some 20% OR MORE differences. And, how are these sellers supposed to compete with builders that can simply cut off $100,000 off the selling price? Talk about being a FB.

This will get worse before it gets better. My guess is 2008 or 2009. My advice ( not to be taken as legal or financial or anything other than pure entertainment) is to not attempt and catch the proverbial "falling knife" of prices.