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.