Market Update
When my kids were younger, my daughter and her brother would play one-on-one basketball in our driveway. They were both very competitive and I remember one time the game got so intense with him pushing her and her pushing back that out of nowhere my daughter just stopped, grabbed the ball and yelled out… Pause! Apparently it was too hot for her and she just needed a break. So they paused. I wonder if that is what buyers are doing right now in our real estate market? I wonder if things were just getting too hot that they stopped, picked up the ball and now they’re simply yelling… pause? Are buyers just taking a break until the market cools off a little or, or, or… is this the beginning of something more? Is a market correction coming?
Home Sales
Year over year, the number of homes sold across the Emerald Coast has dropped each of the last three months and will again this month. Why has this occurred? Initially I thought it was because the inventory of homes listed for sale was so low that the number had to drop (there weren’t enough homes to sell) but that wasn’t the case. How do I know? I looked at the inventory of new properties listed for sale and the number of new listings is up year over year for seven of the last eight months. In short, there are plenty of homes to buy.
It has to be price. Year over year Median Sales Prices have been higher than they were last year for each of the first nine months of this year. In fact, the median sales price for a home on the Emerald Coast is up 14.1% year to date over the same time period last year and they’re up a whopping 42.9% over the last five years. That’s a lot.
Conclusion? If I had to give a reason for the slowdown in sales, I would say – buyer fatigue is playing a major role. Prices have simply outpaced Buyer willingness to continue to consume homes… at this time.
Condo Sales
Looking at the year over year sales for condos on the Emerald Coast I can tell you that for the first six months of this year the market was on fire and sales were up significantly over last year’s volume (and last year’s volume was high). However, since June, sales have underperformed compared to the same time periods last year – July, August, September were all down and it looks like October will be as well.
Why?
Price again is the main factor. Last September the Median Sales Price for a condo on the Emerald Coast was $380,000 – this year it’s at $497,000 – that’s a 38.1% year over year increase… which is… a lot. An even more telling number is in September of 2017 the median sales price for a condo was $290,000 – prices have jumped 71.4% for condos in five years.
Conclusion? Again, I think prices have jumped so far that condo buyers are simply worn out. I think they’re hitting the pause button and taking a break and hoping that prices moderate.
Are there anything other clues to give us guidance going forward?
The short answer is, “Yes”. Let’s look at inventory because supply and demand can usually tell us where the market is going – if there are a lot of properties to buy (Listings For Sale) then it hard for sellers to demand and capture “high” sales prices. If there are not many houses or condos to buy (Listing Inventory is low) then it’s hard for buyers to demand and capture “low” buy prices. Makes sense… right?
Well, as I mentioned earlier, New Home Listings are up year over year for seven of the last eight months – relative to the same time last year. Again, there are plenty of homes to buy. This does not bode well for home sellers looking to capture high sales prices. Buyers seem to have some leverage… right now.
The number of New Condo Listings is all over the place – up five of the first nine months and down four of them which makes it hard to get a read on what’s what. BUT… BUT… BUT… this is interesting. The number of New Condo Listings were down in August and September compared to the same time period last year – and will likely be down for October as well. Is this the start of a trend… or just a seasonal blip?
The COVID EFFECT: Look at Condo Sales for April and May of 2020. There was virtually nothing selling during the early days of Covid when they shut the beaches down. Then when they opened beaches again just before Memorial Day, sales exploded, maxing out in April of this year.
What Does It All Mean?
There are a couple of competing thoughts right now:
Bubble: One school of thought is that the market has been red hot for a while now and every market has its ups (bubble) before correcting. AND markets always… correct. This is the “Trees don’t grow to the sky” theory and it’s hard to argue that they aren’t right. Trees do not grow to the sky.
All Good: Another school of thought is that all of the fundamentals are still solid so the market will continue growing and won’t correct any time soon. They lean on the fact that Interest rates (cost of money) remain incredibly low. Inventory (homes and condos for sale) remains incredibly low. Demand (Buyers – and Investor Buyers) remains incredibly… high. And it’s hard to argue against solid fundamentals.
Is it a penny for your thoughts or do you put your two cents in?
Either way, if you didn’t own property here at the beach from 2007 to 2012 you don’t know what a down market looks and feels like, when prices dropped 50% from peak to trough. I was here and if you ask other folks who were here then, things are now starting to feel eerily similar to the run up in 2004, 2005 and 2006. Back then, like now, there was a big run up in values, very low inventory, and bidding wars… everywhere. In short – there was a bubble. Everyone knew it but every month when it didn’t burst people started to believe that “this time it’s different” and maybe there isn’t a bubble. But then… just like this one will somewhere in our future… the bubble burst and inventory grew, prices dropped – slowly at first until the bottom dropped out and prices went into free fall via short sales and foreclosures. Many fortunes were lost and many created – for sure.
Does that mean this bubble will burst? Yes… eventually. Is now the beginning of that process? No, maybe?!?!?? Like we said earlier – there are good arguments to make both ways. One of the things I find so interesting about it all is there are a lot of really smart people who knew back then that markets cycle (they always do) but missed it and got clobbered when the bubble burst. Now here we are again, there are a ton of really smart and experienced folks who know and will tell you that this bubble will burst – for sure. What they cannot tell you though… is when.
When will the market will correct? That my friends… is the question. As a last thought on this I will offer the following: The thing is… I will say it again… the thing is… (and this worries me a little) the market has been mostly up for a long time now and because of that a lot of people have either forgotten or have never experienced a down cycle. So? So be careful who you listen to for advice about what you should do and when you should do it.
What Should You Do?
We’re wealth builders so as it always is – our goal is to help you max out your position as a Seller or Buyer based on your financial goals and the current market conditions. With this in mind we recommend:
Long Term Owner – If you plan on owning for five years or more (longer the better) – do nothing, sit back, and watch the market go up or down. Either way, you will be able to ride out almost any cycle and then sell at the next high point. Note: If you are going to hold, we recommend that you do three things:
First: Max out your rental income. This will give you more money (passive income) and/or pay down your mortgage (create equity) and make it easier for us to help you sell it faster and for more money somewhere down the road when the time is right for you to sell.
Second: Max out your equity. If you have owned your investment property for a while you likely have a lot of equity in it. You can then leverage that equity to buy an additional investment property(s) that cashflow. This cashflow can then be used to pay off your previous investments. As Robert Kiyosaki, author of Rich Dad Poor Dad stresses, “Buy an asset to pay for a liability.”
Third: Max out your tax advantages for owning an investment property.
Short Term Owner – If you are not planning on owning for at least the next five years – sell now while we now prices are high and mitigate any risk of the market correcting, prices dropping and you sacrificing the equity you’ve built up.
Buyer – Will Be a Long Term Owner – Like we mentioned earlier, if you are going to buy and hold the property for at least five years – longer the better – then we recommend that you absolutely buy now while mortgage rates are low, rental demand is strong and getting stronger and prices are still relatively low (compared to future prices). Of course, if you are going to buy and own long term you are going to want to max out your rental income, Max out your equity and max out your tax advantages. Call us about how to max out these points – 850-654-3325.
Buyer – Short Term Flipper – If you are thinking about buying and then turning around and flipping the property… be careful. Prices have definitely jumped and had you bought a year ago and sold now you would have captured a great return… but… like we mentioned earlier, the market is in a bit of a pause right now. It certainly could take off again… but… it could also stay flat or correct. There are people who make flipping work so if that is your game, call us and we will be happy to help you find a deal.
Bottom Line
We were fortunate enough to not only have survived the last bubble we were able to thrive as we helped hundreds of our clients navigate those hard times. Now we are at a point where we’ve successfully assisted sellers and buyers close on almost 1,400 transactions over the years. And more than 230 already this year.
Always Know This:
Again, we are wealth builders, so our goal (whether you are buying or selling) is to get you the best deal possible – based on your financial goals and the current market conditions – call us today and lets talk about how you can max out your position as a buyer, a seller or as an owner to continue building your family’s wealth well into the future.
Committed to your success,
John Moran – CEO
The Smart Beach Investor
AT THE BEACH TEAM
Certified Luxury Home and Condo Marketing Specialists
Keller Williams Realty Emerald Coast
Gulf Breeze | Navarre Beach | Destin | 30A | Panama City Beach