Florida Palm Coast Flagler August 2008 Real Estate Newsletter
Credit woes of large developers Ginn and WCI Communities overshadowed any slight shifts in the local real estate market.
Palm Coast, Florida – August 11, 2008 – The Palm Coast, Florida real estate market was fairly quiet in July with no dramatic shifts in any of the three markets I watch most closely; single-family residential, Palm Coast lots, and condominiums. Foreclosures, which led the Flagler County single-family residential market to price levels acceptable to buyers, are becoming more prevalent in higher priced properties. But the biggest news recently has been the financial woes of the Ginn Company and WCI Communities. Ginn missed both principal and interest payments on two credit lines (see story) while WCI sought protection from creditors via a Chapter 11 bankruptcy filing (see story). Levitt and Sons, who owns a development parcel adjacent to LandMar’s Grand Landings community is likely headed toward Chapter 7 liquidation.
Single-family residential
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Flagler County’s single-family residential market shows the greatest stability. The median selling price has held to a very tight band between $168,000 and $170,000 for six months. In the same six months, the number of transactions categorized as short sales of lender owned sales held steady between 30% and 43% of all sales.
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Lender-owned sales are characterized by low prices and few "days on market" (DOM). In July, the median price for the 28 lender-owned properties was $149,000 with DOM = 64.
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Short sales are characterized by low prices and long DOM. In July, the median price for 14 short sales was $149,000. Average days on market was 172.
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The remaining sales represent the more traditional market. Both prices and days on market are higher. In July, there were 73 of these transactions with a median price of $200,000. Average DOM was 154.
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Residential sales volume is most healthy at the bottom spectrum of the market. The absorption rate for homes under $200 thousand is currently 8.88 while that for homes between $200 thousand and $300 thousand is 18.98. The absorption rate for homes over $300 thousand remains stubbornly high at 47.
There were 1,920 Flagler County single-family residential homes listed in MLS on August 1, 2008, down from about 2,600 during the last quarter of 2007. Of 313 pending sales, over half (178) were short sales. The discouraging number of short sales contracts that don’t actually close may be coming down in the future. I’ve heard from a few agents who have had success turning over the contract administration and bank negotiations to title companies that have learned the ins and outs of short sales. More on this in the future.
It’s interesting to note that the median sales price of $200 thousand (non-lender-owned and non-short sale) corresponds to the median selling price for residential homes in the last four months of 2007 preceding the flood of lender-owned and short sale transactions. This tells me that "core" pricing has not dropped for the last 6 – 10 months. It also shows that any significant change in the percentage of lender-owned sales or short sales could cause a big move in the median selling price without necessarily altering the "core" market.
Luxury property foreclosure activity
Residential pricing did not bottom out until lender-owned property actually came onto the market. We’ve been reading about the flood of foreclosures since early in 2007, but foreclosures take a long time to work their way through the legal system. Several months usually elapse between the lis pendens filing (signifying a foreclosure has begun) and the certificate of title issued to the lender subsequent to the foreclosure sale. Lender-owned residential properties started showing up on MLS in volume in the fourth quarter of 2007, creating the subsequent drop in prices and slight increase in transactions noticed since the beginning of 2008.
Foreclosures are beginning to show up more frequently among upscale and luxury properties, both condominiums and gated community lots. They lagged the single-family residential sector by about a year due to the fact that owners of these properties are more likely to have more financial cushion than owners of less expensive homes. They were able to cover the carrying cost for a longer period of time. Now, however, some are running out of financial wherewithal. Others are just deciding that they don’t want to throw good money after bad. Regardless of the reason, the appearance of lender-owned and short sale properties in this upper sector of the market will trigger an increase in transactions as lenders adjust their price to attract buyers quickly. This was shown to be true when two lots in Ginn’s Conservatory recently sold for $85 thousand and $92.5 thousand respectively. Two other contracts are pending.
Once non-distressed sellers notice lower prices, some will elect to step back from the market to wait for prices to rise again once the distressed properties have been flushed out of the market. Their departure will result in a reduction of inventory at the same time bargain hunters emerge. Increased demand and reduced inventory will both be early signs of a market inflection (in this case, the bottom).
Lis pendens were filed on several upscale properties since June 1, 2008.
|
Location |
Type |
Number |
|
Conservatory |
Lot |
10 |
|
Yacht Harbor Village |
Condo |
6 |
|
Canopy Walk |
Condo |
5 |
|
Tidelands |
Condo |
4 |
|
Grand Haven (Wild Oaks) |
Lot |
3 |
|
Island Estates |
Lot |
2 |
|
Island Estates |
Residence |
2 |
|
European Village |
Res. Condo |
1 |
|
European Village |
Comm. Condo |
1 |
|
Hammock Dunes |
Condo |
1 |
|
Surf Club |
Condo |
2 |
|
Ocean Hammock |
Residence |
1 |
|
Ocean Hammock |
Lot |
1 |
|
Cinnamon Beach |
Condo |
1 |
|
Sanctuary |
Residence |
1 |
|
Grand Haven |
Condo |
1 |
|
Yacht Harbor Village |
Lot |
3 |
|
Hammock Beach |
Condo |
2 |
Another measure that has held fairly steady is the number of properties actually going to lenders via foreclosure. Many foreclosure proceedings do not end up with the lender taking possession by way of a foreclosure sale. Owners refinance, they sell (sometimes via a short sale), they surrender the dead to the lender "in lieu of foreclosure," or they work out another solution with the bank. When lenders receive title via a foreclosure sale, they do so by means of a Certificate of Title (C/T) issued by by Clerk of Courts. The number of C/Ts issued for all properties in Flagler County during the past three years follows:
|
Month |
2006 |
2007 |
2008 |
|
January |
1 |
9 |
30 |
|
February |
0 |
6 |
33 |
|
March |
3 |
18 |
25 |
|
April |
1 |
12 |
38 |
|
May |
3 |
10 |
26 |
|
June |
7 |
20 |
29 |
|
July |
4 |
28 |
18 |
|
August |
7 |
37 |
|
|
September |
3 |
23 |
|
|
October |
13 |
32 |
|
|
November |
8 |
23 |
|
|
December |
7 |
52 |
The dip to 18 in July may be a blip. I’ll watch to see if the number continues to trend lower over the upcoming months. Certainly, a drop in the number of C/Ts would signal a decline in the number of lender-owned properties entering the market. Since January, C/Ts have been issued for 2 Surf Club condos, a Canopy Walk condo, two Hammock Beach condos, three Conservatory lots, and a lot in Grand Haven’s Wild Oaks.
Developer’s financial problems
It’s not so much that the bigger they are, the harder they fall. It’s just that when they are big, their falls are so noticeable. Because both Ginn and WCI have such a large presence in Palm Coast, their reaction to cash flow shortfalls will have a noticeable impact on our market. Both have sharply cut prices on some of the condominium units remaining in their inventory. Look for this trend to continue as options to raise cash become more limited. Keep posted. The Ginn forbearance has expired and negotiations continue. An announcement of the results of the negotiations is imminent. The Ginn properties affected by the debt forbearance are Laurelmor near NC, Tesoro and Quail West in Florida, and Ginn sur Mer in The Bahamas.
Predictions
I look for some continued correction in the lot, condo, and high end residential markets while the under $200 thousand residential market, having reached bottom in January, continues moving sideways. Expect a slowdown in transactions during the traditionally slow summer and early fall. This doesn’t necessarily mean lower prices, just reduced activity.
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