Luxury Market Feeling the Pain

Foreclosures move into the luxury market, reduced prices will follow as lender-owned properties come onto the market.

Palm Coast, Florida – November 17, 2008 – As reported in a recent Businessweek article and as predicted by, foreclosure activity is increasing at the high end of the local real estate market. Within the past month, over two dozen owners of "high end" properties received foreclosure notices. The uptick signals that the future will bring an increased number of lender-owned properties into that sector of the market.
The lower end of the real estate market began to feel the pain of the housing bust about two years ago. Property owners in the under $200 thousand housing market are most likely to be living paycheck to paycheck, with few financial reserves. They are also the most likely to have been victims of predatory lending practices and/or to have been unfamiliar with the concept of ARM interest rate resets. Whatever the reason, they were the initial victims of the bust.
Foreclosures take time to work their way through to a conclusion, from several months to over a year in some cases. In the end, if the property is not sold or refinanced, the lender takes possession through a foreclosure sale. The initial wave of lender-owned properties began to come onto the market in late ’07. Unwilling to carry non-performing assets for an extended period, lenders quickly adjust the selling price to a level that brings buyers. Hence, the median selling price for single-family residential homes in Flagler County dropped by about $35,000 in January from the fourth quarter ’07. The correction process had begun.
  • The number of homes listed for sale has since dropped by approximately 25% as discretionary sellers withdrew their properties or failed to renew listing agreements.
  • The number of transactions grew. More homes were sold in the second and third quarters of 2008 than in comparable periods in 2007.
  • The median selling price has held within a very narrow band ($160K-$170K).
  • Lender owned and short sales make up a significant percentage of sales.
The same has not been true for high end or luxury properties. First, luxury property owners have (or had) a financial buffer, most large enough to wait out the correction. Those who’s buffer was not sufficient are now entering the foreclosure/short sale arena. In months to come, there will be an increase in lender/owned and short sales in the high end market segment.
Here are some high end properties that were foreclosed (received their initial notice of foreclosure) in the past 30 days:
  • 1411 Lambert Avenue – Residence
  • Units 1114 and 543 – Canopy Walk Condos
  • Unit D301 – Riverview condo in Grand Haven
  • Three condos in Bella Harbor
  • Units 413 and 211 Residential condos in European Village
  • Units C477 and B166 in Yacht Harbor Village
  • Unit S-606 Hammock Beach Club 1 BR Condo
  • An 8,652 square foot residence on Island Estates Pkwy
  • A building lot at 5 Roma Court in Hammock Dunes
  • Unit 1113, a condo in the Hammock Beach Club
  • Unit 804 in the Palm Coast Resort
  • Units 1714 and 321 in Tidelands
  • Three lots in The Conservatory
Fortunately, the number of high end properties that will be affected by foreclosure will be small. But their appearance on the market will have a negative and perhaps significant impact on selling prices. It is a necessary step in the correction and will cause many to readjust their perception of the value of their properties.
The absorption rate (read explanation) of homes under $200K is down to 10.3. The rate for homes above $500K stands at 149.5. There are 299 homes listed with only 2 selling per month.

Conservatory Lot Update

Nearly 18 months ago, I noted that 77 of the 337 privately owned lots in The Conservatory were listed on the 2006 delinquent tax roll (article). At that time, there had been no resale activity. 79 lots were listed for sale at prices ranging from $299K to $595K. Only a handful of foreclosures had been filed. One lot had gone back to the lender.
What a difference a year and a half make. Today:
  • ’07 taxes are listed as delinquent on 84 lots. 28 are still listed as delinquent on ’06 taxes.
  • Foreclosure filings have affected 84 lots. All foreclosures do not end up with the bank taking possession. Some are refinanced or renegotiated.
  • Lenders have taken possession of 17 lots (included in the foreclosure number above).
  • Four lots have sold (prices from $79K to $92.5K).
  • 35 lots are listed for sale. 6 are listed below $100K. 19 are between $100K and $200K.
  • The lots sold originally for an a total of $141.9 million. The median selling price was $419.9 thousand. They are currently assessed for a total of $41.4 million. The median assessment is $125 thousand. The median price of recent sales is $85 thousand.
The Conservatory is an exception. No other local market is quite so far out of norm. Conservatory lots, in spite of Bobby Ginn’s protestations, were purchased largely by investors who planned to profit on a quick flip. When the music stopped, all the chairs were gone. We can still learn from what is   happening there. Sellers were stubborn in their belief their property had not declined in value. Once accepting that values had gone down, they could not accept the extent of the decline. Meanwhile they persisted (many still do) in the belief that prices would come back to their original level. Owners of properties at all price levels can learn much by understanding what has happened in The Conservatory.
5 replies
  1. George Meegan
    George Meegan says:

    Lot price now = House price now

    The lot prices now, in the high end developements, such as The Conservatory and others, reflect not only the turn down in the market but the reality that these developements will sit with weeds growing for years to come. No one wants to build a new home in a "looser neighborhood" that weeded lots project. It’s like being in a grave yard, the weeds as head stones. The prices and the homes built have to be at demand prices. That requires the building restrictions to be dropped to a square footage reflective of demand. They are valued at Just Value by the assessor and so far the $395,000 dollar lots are assessed at $105,000 and the $2,500,000 asking price house on these lots at $750,000. If these just prices were the actual prices they would sell now. The owners have to see that as the reality, and get on with life. They are holding on, to the hope to get the money back they have put in, and that won’t happen in this decade. If the developer gets out of the way with restrictions on building sizes and designated builders who agree to give 8% back, just to build, then life will return, the weeds gone and the greens of reality will grow.

  2. DWFerguson
    DWFerguson says:

    Valuable Information

    Once again,( almost tired of complimenting you on your work,)your detail on the local market is pinpoint accurate, useful and educational–Thank you–I was offerred one of those "choice" interior, non golf course lots in Conservatory(one of a kind )that was available due to an untimely death and the "widow was willing to part with it for $400K+
    Thank God I didn’t see the value or have close to the means to get past "thank you very much"—As always, I will refer to the content on this site Before considering Any property for sale in Flagler county

  3. Toby
    Toby says:

    Reply to George

    I agree with the essence of your comment, but I do believe the community will be successful. The original vision of $400K lots with $750K homes is no longer realistic. But The Conservatory, with its clubhouse, golf course, and access to the Beach Club should demand a lot price greater than the current market – say $150K to $200K. Add a $400K to $650K home with upgraded appliances etc and you have sustainable community. The big question is whether or not the current buyers are willing to start construction on new homes. If they are actually investors, then the problem is the same as before but at a lower price point.

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