Palm Coast/Flagler Home and Condo Market is the ”Canary in the Coal Mine”

The National Association of Realtors® reports declining Pending Home Sales Index in April. Palm Coast led the boom, then the bust. It might just be leading the recovery too.

Palm Coast, FL – June 1, 2011 – With sales still being reported, May home and condominium sales in Palm Coast and Flagler County already surpass those of May 2010. I’m beginning to smell chum in the water. The ingredients for a turnaround are becoming more apparent. What do I see?
The Bad News
On the credit side, nearly record low interest rates have not translated into available credit. The home finance market, including the appraisal industry, are simply too paranoid to return to normal underwriting standards. I don’t expect that fact to change until the industry, the government, and the courts sort out their respective liabilities for the foreclosure documentation mess.
Even those with good credit ratings still find it difficult to get a home mortgage. Those looking for condominium financing face an even greater challenge. Many lenders simply will not underwrite a mortgage in developments where too many owners are in foreclosure or delinquent on association assessments.
Half of all May home sales were reported as cash sales. Over 80% of May condominium sales were paid with cash. Homebuilders tell me that many of their customers are paying for new homes with cash. Those that borrow are putting down large deposits because appraisals are coming in below construction cost.
The Good News
As long as buyers assume it’s a Buyers’ Market, they feel no sense of urgency. They believe the bargain they pass on this month will be replaced by a comparable bargain later. Prices are slightly lower than last year, but inventories continue to shrink, gradually limiting choices. For the first time in years, the number of single-family Flagler County homes listed for sale through MLS is below 1,200. It once exceeded 2,600.
Once potential buyers begin to believe that bargains are becoming scarce, demand will rise. And so will prices. Most buyers don’t feel it yet, but that day will soon be here. At the current sales rate, Flagler’s home inventory represents about 8 months of supply. This is only slightly above what most industry analysts believe is a "Normal Market;" between 4 and 7 months.
Another indicator of an improving market is "days on market," or simply DOM. It measures how long a property is listed until it is sold. April’s median DOM was 106 compared to 180 last April. May’s is 112. It was 152 a year ago.
Yes, inventory is down, but that means little if there is no demand. Sales contracts are the final piece of the puzzle. Increases in pending and contingent contracts signal that demand is strengthening. In early May, there were 1,229 homes listed. 492 were under contract. By month’s end, inventory had dropped to 1,179 while contracts rose to 524.
National Association of Realtors’ recently released Pending Home Sales Index for April indicates further erosion in the housing market. NAR chief economist Lawrence Yun gives his analysis:
But what Yun describes is not what is happening in Palm Coast.
Canary in the Coal Mine
The Palm Coast real estate market was the poster child of both the housing boom and the following bust. Local prices shot up more quickly, peaked sooner, and dropped more precipitously than in other areas of the county. It did all this ahead of the market. Now it looks like Palm Coast may lead the market recovery too. We are a leading indicator.
Notice in the following chart how the number of homes sold dropped abruptly in June and July 2005. Yet market inertia kept prices rising for several months before they experienced a much more gradual decline. Price trend inertial continues long after the sales data triggers a shift. In other words, an increase in the number of homes sold signals a similar but delayed rise in prices.

Palm Coast and Flagler County home sales

Unit sales (number of homes sold) are noticeably seasonal with the slow period occurring in the winter months. Unit sales bottomed out in early 2008. The trend since has been a gradual but consistent increase in units sold. Since the increase in unit sales is much more gradual than during the boom period, the corresponding but predictable increase in prices will likely be gradual as well.
The confluence of several positive factors; increased sales, increased pending contracts, and declining inventory provide clues that the recovery is underway. Selling prices for low end homes, luxury homes, lots, and condos have all dropped to a level that has found ready buyers. Properties prices "at market" are selling. When prospective buyers begin to believe that today’s bargains will not last long, sales will increase, inventory will drop, and prices will rise.

4 replies
  1. John
    John says:

    Another pointless article

    Your article is completely pointless and useless. For the last couple of years you are periodically writing the same type of article with just different statistics. Meanwhile, nothing is getting better and only changes for the worse. The fact that the number of houses on MLS decreases, does not mean anything, except that some people decided not to sale for such low prices. Prices continue to tank and your statement "when the potencial buyers believe" should really be a question "when the potential buyers begin to believe?" For the last 5 years they did not belive and considering economic indicators, should not believe in any kind of recovery any time soon.

  2. Capt. John
    Capt. John says:

    Banks have to losen up

    The biggest problem I see is that you can get a loan at the bank. If you are trying to buy an investment property don’t event think about getting a loan from banks in Palm Coast of Florid for that matter. They just are not lending money for investment property. So I guess the people losing there homes and looking for rentals will have to find that buyer or buyers that have the cash to buy a home for them to rent. We will never get out of this mess if the banks don’t loan money. I am not talking about 100% or even 80% loans they are just flat not loaning money for investments.Whats this Country and State to do?

  3. George Meegan
    George Meegan says:

    10,000 a day

    That’s how many retire and many come to the Walmart of Florida, Palm Coast. We will sell many more in June, as interest rates are about to jump, and buyers will want in before it’s back to 7%.

    Supply and demand are still at work, even if people are not.

  4. Toby
    Toby says:

    Reply to John

    A decrease in inventory DOES mean something. You criticize me for drawing conclusions yet you do the same. Some of the reduced inventory is probably due to those who decided not to continue listing, but it really doesn’t matter. A reduced inventory, regardless of the reason, gives buyers fewer options. Having fewer options increases the chances of any listed home selling. The reduction in DOM tells me that demand is beginning to build.

    I predict that the market will prove to be very sensitive to supply. There is a shadow inventory to take the place of sold units, but we have gone four years without any appreciable new construction. Even when new construction picks up, it will take months for units to become available.

    Of course if the whole economy tanks, all bets are off.

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