Flagler real estate market softness led by Condos
Everyone has noticed how fast the Flagler County real estate market has turned around. What does the market look like now?
- The inventory of unsold properties has risen sharply in all property categories.
- The number of potential buyers has shrunk.
- The number of properties sold is down significantly in all categories.
- Properties are on the market longer before they sell
- The selling price is at a slightly greater discount from the list price
This looks like a really bad market. Has the "bubble" burst? By many measures the market looks sick compared to the market run up from 2001 to 2005. In a classic bubble, the market tops out followed by a period of price declines and panic selling. The condo market shows some signs of this but the other area property categories do not. They simply show us that we are in an adjustment period. This is illustrated by the numbers in the table below (see the table at the end of the newsletter). I picked a representative group of Flagler County property types for analysis. (Data was reported by the Flagler County Association of Realtors and does not include sales of some new homes.)
- All Homes
- Salt water frontage homes
- All lots
- Lots with Intracoastal Waterway frontage
Toby’s analysis – Only condominiums have dropped in median price this year – not a bubble bursting for the general market. Consisting of mostly second residences, rental investment units and the most heavily promoted, this is the category most vulnerable to investor shifts. The "sold price" in all categories is holding near 90% or greater of the listed price. The number of buyers in the market is certainly down. The investors have stepped to the sideline or joined the seller ranks. The media hysteria has put many other potential buyers on the "wait and see" team. Many are worried about being able to sell their present home and are unwilling to commit to a purchase. The only buyers willing to play are those that really need to move or buy now. This is the group buying today. But notice that they are still showing a willingness to buy at prices generally above those of a year ago.
The unsold inventory is high because a lot of housing starts (during the good years) have been completed and placed into the market. Another critical factor is that much of the unsold inventory is OVERPRICED. In the "all homes" group, properties sold this year at a price averaging 95.8% of the listing price. If the listed homes were properly priced in line with this current market discount, the median home list price would be $258,873. If sold at the 95.8% discount, that price would return the current median sales price of $248,000. The median list price is actually $279,900 or overpriced by 8%. Using the same criteria, the median price of the other categories is:
Salt water canal homes – $581,720 – Not overpriced – Wait for the buyers.
Condominiums – Median listed price $491,450. This is vs. $323,100 (the list price that would yield the net median YTD of $301,000). This is 63% above the market as measured by recent sales.
All lots – Median price of $84,900 – It should be $78,555. Overpriced by 8% – wait for the buyers.
Intracoastal lots – Median listing is $529,900 – Suggested list is $581,721 – Priced to market – Be patient if you can
Clearly, the standout is condominiums. The rest of the market is in a "holding pattern" waiting for the market to catch up. I think it will. Another variable is the rental market. The rental market is, like any other market, a supply and demand market. When I moved to Palm Coast 7 years ago, the market rent for a 2,000 SF home in a gated community was $1,450 – less than the carrying cost of a 2,000 SF home at that time. Today, that same home would sell for 80% – 120% more, increasing the carrying cost accordingly. But today, I just rented one of my 1,943 SF properties for $1,200 per month – or 60% of the cost of carrying the property. In today’s market new arrivals will be more likely to rent than buy since it’s cheaper than buying the same house, and the risk is lower because the appreciation over the next 12 – 24 months will likely not be great.
This is good news. 18 – 24 months from now I predict that:
- The builders who stopped building now will not have product coming on line when the demand curve goes above the supply curve.
- The rental market will be great. The supply of homes "ready to move into" will be short (just like they were 3 years ago). This will make previously owned homes more valuable because they are available.
- All will be good with the world. (until the next cycle begins).
- The media will again be warning about the real estate bubble.
- The relocating Baby Boomers will prevail.
- Bobby Ginn will be elevated to sainthood.
Flagler County Sales and Listings (selected property categories) – 2004 to present:
|Price||Price||Sold/Listed||% of List|
|Sold 2006 YTD||294474||248000||1549||95.80%|
|Sold 2006 YTD||598335||527500||88||94.32%|
|Sold 2006 YTD||425248||301000||105||93.16%|
|Sold 2006 YTD||121990||73000||729||92.93%|
|Sold 2006 YTD||648611||520000||56||89.39%|
By: Toby Tobin
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