Decreasing Inventories

Take a look at this graph- I find it very interesting. This data is for all of Sarasota County dating back to last September.  You can see a clear decrease in properties on the market from a peak of over 13,000 in February to just over 9700 for November. That is an astounding decrease in active inventory (25%!). You can also see a trend in sold and pended homes- a clear increase from 2007.  There might be several explanations for the decrease in inventory- tired sellers, bank foreclosures, etc. But with recent foreclosure numbers showing that in October the number of foreclosures decreased, one begins to wonder how long our endless supply of inventory will last. I am not an economist, and I do not claim to fully grasp the scope of our economic crisis. What I do see is shrinking inventory, and better sales numbers than last year. I don't think I could ask for a better Christmas present. 

Fiery Florida Skies

This is a picture that I took early in the morning before the last cold front swept through West Florida. Those ominous skies gave way to a very strong front sparking tornadoes in many areas. Winter is a fascinating time of the year in Florida...  

Moratorium on Home Buying Created by the Fed?

In the government's latest move, the FED is considering measures to curb mortgage interest rates to 4.5% for new home buyers and new residential loans.  Click here to see the article.

As a real estate practitioner, I see the short term impacts of this as nothing short of devastating. Until the FED makes a final decision on this, buyers will most likely remain on the fence only considering cash purchases for the most attractively priced properties. If I can calm myself down enough to be patient and think about the long view, perhaps there is an upside to all this.  The FED is on the right track, however they are still missing the mark. Where the aid really needs to be directed is to those who are in homes now that they cannot afford and to those who are losing confidence as they make payments on an asset that is worth pennies to the dollar on what they owe.  A more sensible plan would focus on underwriting banks and sponsoring a program so that troubled borrowers can refinance their current homes to lower rates. This would free up hundreds of dollars per month for the average American, stimulating the economy from the housing sector to professional services to retail etc. In the meantime, most American industries continue to suffer until final and decisive action is taken. 

Another Great Winter in Sarasota Tradition

Believe it or not, there is a large surfing population in Sarasota. Today was one of those classic Sarasota days with lots of cold surf to go around. Most winter storm systems bring fresh doses of cold, sunny waves to the Gulf Coast, much to rejoicing of surfing enthusiasts across the area.

By the Way, Have You Seen the Mortgage Rates?

If buyers did not have enough incentive, take a look at what the 30yr interest rates have done over the past month. If you can find a bank to lend you money, the time has never been better to buy. This is the perfect storm!

Coldest Start to Winter I Can Remember

This winter is off to a blustery start. I am always amazed at how quickly the Gulf of Mexico can change temperatures from almost 90 to 65 degrees.  I can remember many beach days in December and warm Halloween nights trick or treating in Sarasota. Not so with this year. I would expect all our friends from the North to want to visit and stay a while this year. 

If tanning on the beach in 5o degree weather is not to your liking, there are several things to consider doing in Sarasota in cooler climates. One of my favorite winter and spring traditions in Sarasota is the Season of Sculpture.  If you were wondering about the large statue near Marina Jack's you can learn more here: http://www.sarasotaseasonofsculpture.org.

Enjoy this magical time of year in Sarasota and don't forget to take advantage of all our great seasonal attractions. 

A Study on Housing Slump Recoveries- Housing is Quick to Recover

It is fairly obvious that we are a challenging real estate market that is mired with inventory. Most Americans fear that we are in a recession and inflation is running rampant. These facts are certainly troubling to a real estate professional and leave many searching for answers. I have been studying the housing slumps that have taken place in the last 50 years, and all of them share some strong commonalities. All downturns usually precede a recession, and all recoveries seem to be quick.
There have been 6 major housing slumps in the last 50 years. Perhaps the most severe took place in 1980-1982. While housing starts fell as much as 30% during this time, they increased 30% from prior levels within the first three months of the recovery. This trend repeats itself in the downturns of 1969-1970, 1973-1975, 1980-1982, 1990-1991, and in 2000-2001. In each scenario, housing starts increased dramatically during the first three months of the recovery. There is no disputing that this housing market slump may be the worst in 50 years, but if history repeats itself, when recovery comes, it will come quickly. One reason to expect a vigorous return to activity is the standstill that housing starts have come to nationally and locally. Builders take their cues from the economy and consumers, which by definition causes their business to be cyclical. They expand and overbuild to meet demand and they must contract and ride out the glut of inventory that they have created.
According to the Joint Center for Housing Studies of Harvard University’s report for 2008, “demographic fundamentals still point to increased housing demand over the next decade. But the excess inventory must be worked off before the demand for new homes rebounds. This in turn requires a return to stable to rising home prices, sustained job growth and accessible credit. When that happens… the inventory overhang will start to thin, prices will firm even more, and average annual production… will likely head back toward [normal levels].” Luckily, this study is based on a national level. The Sarasota market continues to show stability as the most robust market statewide. While we have a way to go, here’s to hoping that history repeats itself once again! The bulk of this segment was taken from the JCHS of Harvard University’s report for 2008, which was given to me by a client and friend.

Irrational Apathy

Many have referred to the past FED leader Alan Greenspan's well spoken moniker of "Irrational Exuberance" in their attempts to grasp what has happened to the local real estate market. My travels in the real estate market have taken me to some strange places in recent weeks leading me to conclude that our market has taken a full 180 degree turn from "Irrational Exuberance" to "Irrational Apathy." My many attempts to cajole listless and lethargic buyers off the fence have been met often with silence. Only the true risk takers- or let's call them the "savvy-" have been able to cash in on prices that defy common sense.

Dare to dream with me for just moment. The state of Florida has approximately 34 million acres in it, with just over half of that land being owned by the government. According to the US Census Bureau, in 2006 the Florida state population was 18,089,888 or less than one acre per person. Let's not forget that a lot the acres I am talking about are zoned for agricultural purposes such as raising cattle or growing oranges. Let's also remember that there are a lot of places in Florida that are far less appealing than Sarasota. With the population increasing by 13% from 2001 to 2006, one can see where this argument is heading. The demand for and scarcity of land in Florida is in direct tension with the current market conditions. In many ways pricing in the Sarasota market and the state market at large have surpassed the realm of the rational.

The herd mentality has long played a large role in the investment world and financial markets. In late 2005, if you had not yet flipped a piece of investment property you were feeling quite ignorant and most likely cashed in all your chips to buy something. If you did buy in late 2005 for investment purposes, you are either now feeding a never ending mortgage or you are in foreclosure. I picked up on this when a bartender was telling me about his 5 investment properties. Consider the alternative- everyone is running from the market right now. People are giving property to the banks and bringing millions to the closing table just to get rid of their "investments." Irrationality creeps into the scenario when properties are selling for far less than they could be replaced or reconstructed for.

Sellers and Banks are literally waving the white flag of surrender in an irrational manner just to get out of the market. Many properties are going at 50 cents on the dollar or to the highest bidder. One recent example I witnessed is the sale of an estate on South Siesta Key. The heirs, not wanting to wait for a better time decided that their late father's open bay front estate with sailboat water should be sold immediately for just over $1MM. The property was listed at $1.9MM and then reduced to $1.5MM to procure an immediate sale. Consider Gulf Gate- touted as one of the best locations in Sarasota. A very nice home just sold in Gulf Gate for $145,000 which is closer to land value than the price a single family home should command in that area.

Markets are driven by the people that comprise them. As they gain momentum the herd mentality that Nietzsche so well characterizes often takes over and creates time periods in which human behavior contradicts reason. Those who are independent thinkers will fare well in these dark days for Florida real estate- I recommend watching the market closely. As I see it, there has never been a better time to be different.

Notes From The Trenches- What's Really Going On

The most common question I am asked as a real estate practitioner is “What’s going on in the market?” In uncertain times like these many are wondering what exactly the real estate business looks like from a day to day point of view. Here are some snapshots from the last few weeks:

- I closed two deals in which the buyers came from Canada. The Canadians and Europeans are very active in our market and are driving many of the sales in my branch office of Michael Saunders and Company. Do not underestimate the impact of the foreigners who see this as an opportunity not to be passed up. In a recent conversation with a prominent Canadian I was told that he “could not afford not to” make his most recent purchase.

- I sold a listing in a multiple offer situation. I think that one of the biggest mistakes buyers are making right now is assuming that they are the only person looking at a particular property. The listing was simply a well-priced, well-kept home which was too good to pass up. I have been in multiple offer situations twice since the market changed.

- I am seeing activity related in large part to the passage of the controversial Amendment One which changes the taxation code in a way to positively impact the local real estate market. One of the buyers from the previous anecdote was spurred on to buy by the fact that his homestead exemption is now portable.

- Showings are up dramatically and open house traffic is significant. For all the negativity in the media, I think that the external indicators show that we are in for a brisk sales season.

A Postive Article in the Sarasota Herald Tribune?

Have housing prices hit bottom?
Florida's best known economist says market in region has stabilized
By MICHAEL POLLICK
michael.pollick@heraldtribune.com


Florida's best known economist says the Sarasota-Manatee residential property market bottomed out in September-October and has now stabilized in both price and volume.

Hank Fishkind predicts flat prices for both counties through 2010, as the region chews through excess inventories of new houses and condominiums.His findings jibe with what some Southwest Florida real estate observers have been saying and with what statistics from the Florida Association of Realtors have shown during the final months of 2007.

In November, for example, Sarasota-Bradenton Realtors sold twice as many homes as their Miami counterparts. The median price in November -- the most recent sales reports available -- was $267,700, down 4 percent from a year earlier, but an improvement from $244,300 in September and $263,900 in October.

Fishkind made his own predictions for this region as part of a 33-county economic report prepared on behalf of Attorney's Title Insurance Fund Inc., a leading title insurance underwriter.

His report painted Miami-Dade and Lee County as the state's most problematic areas, because of excessive condo building in South Florida and a proportionately higher level of home building during the boom in Fort Myers.

Orlando has the strongest market in Florida, followed by the Tampa Bay area and Interstate 4 corridor, Fishkind said."But both Manatee County and Sarasota County are still in considerably better shape than many other areas," he said.

Fishkind said that Charlotte County continues to shake off some of the vestiges of 2004's Hurricane Charley, but that the market is in far better shape than its neighbors to the south, where speculation on investment properties was rampant during the housing run-up.

"We are starting to see more normal activity," Fishkind said. "I am much more concerned about Lee County than I am about Punta Gorda."

Fishkind projects moderate rates of growth for population and employment in Manatee and Sarasota counties between now and 2010.

"In regard to housing growth and starts, speculative investing in the real estate market occurred in the area between 2003 and 2006 and resulted in an excessive amount of new homes in both markets," Fishkind said in his report. "

This is expected to temporarily slow down the area's housing markets in the next few years, and result in household growth exceeding housing starts in both counties in the next several years. A recovery in housing starts for both counties, however, is expected to begin in 2008," he wrote.

The Sarasota market appeared to bottom out in the spring at 470 to 480 closings per month. But then a national liquidity crisis sprang to life in August, prompted by defaults on subprime mortgages issued during the feverish markets of 2003-05 and continuing into 2006.

For a month or so, mortgage makers froze. As a result, sales fell to 310 in September and stayed flat at 319 in October.

"It seems to me that is the new bottom," Fishkind said, referring to sales in more recent months. "So I'm not seeing any major price declines, and I think volume has stabilized.

"Fishkind looked at average prices for all closed residential sales in both counties, taking into account for-sale-by-owner deals as well as builder sales.

In Sarasota, the average price for existing homes in Sarasota during 2007 was $330,042, a 12 percent drop from the peak of $374,107 in 2006, Fishkind reported.

In Manatee County, the decline in average prices has been more severe, coming down 24 percent to $280,622 in 2007 from a peak $370,200 in 2006.

The economist's forecast is predicated on the assumption that the national economy, while definitely in slow motion, will narrowly avert a full-blown recession.

"We have had a significant slowing to basically zero growth in the fourth quarter," he said. "The U.S. economy isn't going to start improving until the second half of '08 and into 2009.

"That national assumption is critically important because Florida depends on the Midwest and Northeast United States for a supply of residential real estate buyers, Fishkind acknowledged.

When they suffer, Southwest Florida suffers, too, on a lagging basis, he said.

"Almost everybody who moves to Florida in 2008 made a decision to move in 2007," Fishkind said. Because of that national slowdown, "we will see Florida's economy slowing in 2008 and not improving until 2009.

"Other economists have a more pessimistic view, leading to predictions for a more drawn-out recovery for Florida. But Fishkind maintains that the Sunshine State's historical drivers will lift it above other states in the Southeast.

"Florida tends to generate more jobs and population growth than any other state in the Southeastern United States, so turnaround for some parts of Florida ... will take place ahead of many other states in the Southeast," Fishkind said in a statement."Other parts of Florida, namely Miami-Dade County and Fort Myers, will not recover until later."