Normal Summer Slump and Increase in Foreclosure Induced Sales Reduces Median Selling Prices

Finding the market bottom is difficult, but I think we are getting close.

October 15, 2007 – Palm Coast, Florida – I know that everyone, including myself, is looking for a glimpse of the light at the end of the tunnel. All reports indicate that there is a lot of money waiting on the sidelines to move in at the bottom of the market. Unfortunately, timing the bottom of the real estate market is nearly impossible. Unlike the stock market, the real estate market suffers from a timing delay. At any point in time, the market is determined by sales contracts mutually agreed upon by both buyer and seller. But the results of the sales are not publicly known until closing, weeks or months later.

It’s impossible to gather all the relevant information. MLS sales numbers are most readily available, but they do not include sales by developers or builders. Nor do they include “for sale by owner,” tax deed and foreclosure sales. Nationally reported figures can be helpful, but all real estate markets are local. We are predominately a residential community with a preponderance of retirees, second homes, and vacation rentals. Comparing our statistics with those that include Detroit, Boston, Chicago, or Boise is not useful.

Here’s what’s happening locally. All segments of the market can be classified as a buyer’s market. Some segments are worse off than others. Generally, single family residential homes continue to show the greatest stamina. Lots and condominiums lag and will probably weaken some more. The following tables, drawn from MLS data, show the average number of properties sold per month in 2007, the number of properties currently listed, and the absorption rate (number of properties available divided by the average number sold in recent months). The lower the absorption rate number, the healthier the market. Any rate above 7 is considered a buyer’s market.

Other things of note:

• There are still over 50 lots in The Conservatory with unpaid 2006 property taxes, on which tax certificates (liens) have been issued. All but a few also have mortgages, mostly with SunTrust and Wachovia (no sub-prime lenders here). Of 50 lots available, one is bank owned. Six others are short sales. In a short sale, the expected selling price is below the mortgage balance. The lender must approve all offers. 
• For the twentieth month in a row, both the median sales price and total sales of single family residential homes in Flagler County is below the same month of the previous year. The number of homes sold has been below the year earlier month for eleven straight months. The median price in September was $205,000, down 18% from September ’06 and 21% from the peak of $259,950, reached in December ’05.
• The median price of Palm Coast Lots (excluding salt water canal lots) has dropped from the December ’05 peak of $77,000 to $38,000, a 51% decline.

On the other hand, a recent Fortune magazine article reports of several real estate investment firms, among them global players such as D.E Shaw, Apollo Real Estate Advisors, the Rockefeller Group, Fortress, and Carl Icahn have their sights on Florida, Colorado, California, Arizona, and New Mexico. Lubert-Adler recently confirmed its commitment to fund Bobby Ginn’s developments. While placing one of their own as president at Ginn’s Company they supported the purchase of the BriarRose development near Atlanta and Bulow Shores in Flagler County. They also took over Credit Suisse’s position as financial backer of The Gardens at Hammock Beach.

At some point we will be able to look back and say that the market bottomed two months earlier, maybe on a Wednesday at 2:30. We will only know it happened well after it happens. Maybe today is the bottom. If so, we won’t know until December. Wise buyers should be ready to “pull the trigger” soon. Remember, you don’t make money selling real estate. You make money buying real estate. And there are plenty of real good values in today’s market.