Palm Coast Housing Market – Promising Signs

Palm Coast, FL – May 4, 2011 – This summer will mark six years since the Palm Coast real estate market began its sudden downward slide when buyers suddenly vanished (June/July 2005). But nobody realized at that time what was about to happen. Even though buyers disappeared, the upward momentum continued to drive selling prices even higher for several months. Selling prices began to decline only when people began to notice the bloating inventory of unsold homes in early 2006. Even then, prices dropped gradually compared to demand.

The inventory eventually grew to over 2,600 homes. It has been coming down gradually since, dropping to 2,000 three years ago, then to 1,326 by August 2009 where it stagnated, holding within the 1,300 to 1,400 range. Inventory has begun to drop again. It stands now at 1,218. This is a good sign. Only a handful of new-home building permits were issued in April so we can’t look toward new construction to fill the void of depleted inventory.

The real estate market is driven by supply and demand. Current demand is constrained by unavailability of credit. Low interest rates and affordable homes aside, lenders’ underwriting standards are overly strict and appraisals are too influenced by distressed sale prices. Until these two issues are resolved, demand will continue to be artificially low. But a declining inventory will gradually reduce the number of homes available. With less competition in the marketplace, sellers will probably see some strengthening in prices.

At this time, a few more April sales are expected to be posted in MLS. To date, 148 Flagler County homes have sold. This is down slightly from 163 sold last April during the first time home buyer tax credit program. A more realistic comparison would be to 2008 (12 homes sold) and 2009 (109 homes sold) when there were no tax credit incentives.

Selected markets are showing definite signs of improvement. I’ve been watching sales in the Grand Haven community closely because Shirley and I are about to sell our home there. During the first two months of 2011, sales of 13 Grand Haven homes closed. The median price was $265,000, down slightly from a median selling price of $285,000 for the 15 Grand Haven homes sold during the same period in 2010.

But April looks like a turnaround month; 10 home sales have already been posted as closing. The median selling price has risen to $316,250. The median price per square foot also rose to $140.50, up noticeably from $127.14 in the first quarter. $13.36 per square foot translates into over $32,000 difference in the selling price of a 2,400 square foot home. Of 75 listed Grand Haven homes, only 7 are short sales and only one lender-owned. And 75 homes represents only 71/2 months of inventory at current prices. Most analysts believe that anything less than 7 months of supply (but above 4 months) indicates a "normal" market.

The resurgence of the Grand Haven market coincides with the reconstitution of its real estate sales group, now operating under Jim Cullis. Jim used to manage the community for LandMar Group, Grand Haven’s developer. A recent social function for Brokers was well attended.

Jim is optimistic though he suggested I be cautious about using month-to-month comparisons. Jim prefers year-to-year comparisons. He sees strength in the fact that 2010 average prices for Grand Haven homes were up 2 ½ % over 2009 prices. He’s also encouraged that lot sales are brisk of late; a sign that consumers are confident that prices are not going lower.

Another sign of the market beginning to turn comes anecdotally from agents and brokers. They say they are busier than they have been in years. Their optimism is supported by 471 homes under pending or contingent sales contracts. Buyers, lenders, and real estate practitioners are getting better at understanding and managing the short sale process. The result is less delay and fewer failed contracts.

I’ve written about the unfair effect distressed properties have on appraisals. In the overall Flagler market, non-distressed properties are selling for prices nearly 50% above the median prices of distressed properties.

Some of this discrepancy is due to the concentration of distressed properties in the low-end of the market. But even on a price per square foot basis, non-distressed properties sell at a premium.