Looks like the bottom is near. Next year should be level with an upturn at year end.
January 3, 2007 – Years 2003 through 2005 were notable for their double digit run-up in real estate prices in the Palm Coast, Flagler County, Florida market. Everyone wanted to get on the band wagon. Otherwise normal, level headed people became speculators. If you weren’t a “flipper,” you were not part of the cocktail party conversation. Many did very well. Some will suffer – not unlike the effects of the up and down movements of the stock market. By mid 2006, most people had begun to realize that the bloom was off the rose. The market had gone south. The question is “How far and when?”
The stock market is a very efficient market. Instant quotes allow anyone to know, in seconds, a stock’s price. So when the market turns, you can often pinpoint the time – like “Black Friday.” The real estate market, on the other hand, is very inefficient. Customs, laws, and regulations inhibit the free flow of information. We don’t really know what a property sold for until closing, usually 6 to 10 weeks after the deal was struck. Imagine holding a stock only to find in March that the stock started trading down in January. And further, you find out the person who sold the stock in January has been trying to sell since last July.
2006 can be characterized as the year of the buyer except for one thing, there weren’t many buyers. The abundance of inventory for sale and the perceived price instability took the speculator and the discretionary buyer out of the market. Only those who really had to buy remained, along with a few “bottom fishers” trying to scoop up properties at distressed prices from those that had to sell.
The most dramatic year-over-year change was in the transaction volume. In 2005, 363 condominiums were sold through MLS. In 2006, only 108 were sold, a decline of 70%. Palm Coast Lot sales declined 83% from 2335 to only 397. (These are the 40,000 lots originally platted by ITT when Palm Coast was born over 30 years ago. I also eliminated those with salt water frontage.) The number of residential homes sold dropped from 2915 to 1701, a 41.6% decline. Unit sales declines were registered in all categories of property.
Sales prices have been less affected. In some categories and in some communities (developments), median sales prices actually rose. In Grand Haven, transactions dropped 35.7% but the median sales price rose 22%, in part because more larger homes became available. The following charts show median sales price comparisons for each 2006 month compared to the same month in 2005. (Half of the sales were above the median, half below.) Remember, this data lags the actual sales agreement by about 2 months, the time between contract and closing. The sales that closed in December reflect sales contracts agreed upon in October.
At year end, nearly all new construction, except homes under contract or other obligation has stopped. Throughout next year, I expect the inventory to gradually shrink. In 12 to 15 months, the inventory will be substantially flushed out and guess what. No new inventory will be coming on-line. Then prices will begin to climb, builders will again start building spec homes, investors will return, and the cycle will begin again. What a great country.
By: Toby Tobin