We all know that sales of all properties are off from last year. One reason they’re off is the lack of buyers. From 2001 through the first half of 2005, the buyer pool was inflated by investors. Investors were buying land, homes, and condominiums, but since they make up a larger percentage of condominium buyers, I think I’ll focus on that market.
When the market turns south, investors are the first group to feel the pressure. They purchased with the intent to either resell, or flip, the property or to rent and hold for later resale, counting on the rental income to offset the property’s carrying costs. But so many investors brought new rental property on-line that it upset the rental market. In the community where I live, property values have doubled since 2000 but the market rate for a rental home is roughly the same as 6 years ago. Investors stuck with vacant rentals are selling. Add this to the number of spec properties being flipped and you have a buyers market.
Unlike the equities market, real estate is not liquid. Even in the best times, it takes weeks to complete a transaction. So when you decide to sell, you start a process. One of the early steps in the process is to set the listing price. If you don’t do a good job on that step, you don’t go to the next step. The Flagler real estate market is suffering from a lack of sellers and a huge inventory of unsold property. Most of the unsold property is overpriced at today’s market.
Why do so many sellers overprice their properties? Sellers tend to fall in love with their investments. They hear about how others profit and read about the rising real estate market. They develop what I call "happy ears." Many assumed that the 20-25% annual appreciation would continue. When they bought (or contracted at pre-construction prices) they had already determined that they could sell in two years at a 50% appreciation. The seller sets the list price but only the buyer can set the selling price.
I examined the sales history and current listings for the Surf Club condominiums (buildings 2&3). These units originally closed in 2003 and 2004, during the height of the robust market. During 2004, there were 77 resales, many at very nice profits (average price $433.5K), but in 2005 the number of units sold on the resale market dropped to 33, also with nice profits (average price of $541.3K). However, in 2006, there have only been 4 resales. While these units sold at an average price of $582.6K, they sold at an 86% discount from the original listing price. The lack of serious buyers signals a very soft market. As of September 4th, 4 units sold, 47 units listed for sale. At this rate, it will take years to flush out the inventory. Further price reductions are in order.