September ’07 Newsletter – Price reductions are changing the market landscape

Market numbers show some sellers are finally reacting to the market by reducing prices

September 7, 2007 – Palm Coast, Florida – In the July newsletter, I used absorption rates as a method of measuring the strength of various sectors of the local market. In that issue, I used July listings data and June sales results. Today, I looked at current listings as well as July – August sales results to see if any trends have emerged. I wasn’t surprised to see that many sellers have reduced their prices within the past few months. How does price reduction influence the market? That depends.

In a simple example, only one seller reduces the listing price. It’s obvious that a price reduction will increase the chances of a sale of that property, but only if the new price is reasonable. Reducing the price of a home worth $400K from $600K to $585K accomplishes nothing. What’s not so obvious is that the reduction of a single listing price also slightly reduces the chances of a sale for all other sellers at that lower price level. That’s because the inventory of homes available at the lower price level has increased by one. Assuming the same number of buyers, every seller’s odds change. In the following discussion, you will see the effect of local price decreases.

I examined the same non-gated Palm Coast sections as before; Cypress Knolls, Indian Trails, Lehigh Woods, Matanzas Woods, Palm Harbor, Pine Grove, Pine Lakes, Quail Hollow, and Seminole Woods.

For homes between $100K and $200K:

• The absorption rate rose from 9.3 to 14.1
• The percentage of total sales dropped slightly from 46.4% to 43.7%
• But the percentage of total available listings rose significantly from 25.17% to 30.97%
• Represents 43% of sales and only 30.97% of listings
• Total available listings rose from 364 to 464

For homes between $200K and $300K:

• Absorption rate rose from 19.0 to 23.5
• Percentage of total sales dropped from 44.05% to 39.74%
• Percentage of total available listings roughly the same, dropping from 48.62% to 47%
• Represents 39.74% of sales and 47% of listings
• Total available listings remained unchanged

For homes over $300K:

• Absorption rate dropped from 47.4 to 26.4
• Percentage of total sales rose 43% from 9.52% to 16.56%
• Percentage of total listings decreased from 26.21% to 22.03%
• Represents only 16.56% of sales and 22.03% of listings
• Total available listings dropped from 379 to 330

Apparently a meaningful number of listings moved from one price category to the next lower category. With other market fundamentals remaining the same, these price changes increase the absorption rate of the less expensive segment while decreasing the rate at the upper level.

The selected areas compared closely with the overall Flagler County statistics. However there was an indication that gated communities might be coming out of the slump a little quicker. Grand Haven currently shows an absorption rate of 12.0 for the $200 – 300K category and 17.7 for the over $300K category. Grand Haven’s available inventory has also dropped over the past three months from 172 to 145.

Meanwhile, the higher end condo market is also showing some signs of life, again after seller price adjustments. During August, two Surf Club condos and three Cinnamon Beach condos sold. In September, another Surf Club unit and three Hammock Dunes condos have already sold.

Condominium Sales

August Single Family Residential Sales

August Condo Sales

August Palm Coast Lot Sales

August Palm Coast Residential Building Permits

August Commercial Building Permits (over $500,000)

Palm Coast Lot median sale prices, once as high as $77K, dropped to $40K. The sales volume has yet to show signs of an increase.