$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.