“The highest form of wealth is the ability to wake up every morning and say, ‘I can do whatever I want today.’ Morgan Housel

 

Let me preface this correspondence with this:  I own real estate here at the beach, a few condos and a house, all as investment properties, so I understand how you feel as an owner, seller and buyer. As Bill Clinton so famously said, I feel your pain.    

Looking at our real estate market right now, as I study the sales trends, read the national reports, and think back on my experiences, trying to get some understanding of where it is and where it may be headed this summer – and beyond for that matter – two thoughts fill my mind.  And I think they perfectly serve as signs of our times.

Long Time Owners

My first thought is I don’t have a worry in the world about any of my properties or their rental income numbers.  If my properties are not paid for, they have relatively small mortgages with low mortgage rates attached to them.  They are all updated and upgraded, sit in terrific locations, and are ideally outfitted to capture maximum rental income – even in tough markets like this one.

I’m not alone, there are many folks – likely you – that are also in this position.  To you I say, “Cool, curious, are you a buyer if prices drop?”  I’m smiling as I type this because I don’t want to be sales-e but… opportunities may be coming our way.

Short Time Owners

The second thought I have is if you are planning on selling in what I call the “short time” (five years or less) you may be feeling some anxiety because there are a lot of headwinds facing our real estate market right now.  Prices of everything have jumped incredibly since Covid showed up in 2020. Buyer demand has fallen dramatically because of mortgage and the cost to acquire, own and operate property at the beach is so high. This combo makes selling a dicey proposition right now. 

What’s going on with the cost to own? 

Insurance: According to the Insurance Information Institute, homeowner’s insurance has increased 102% in the last three years in Florida and costs three times more than the national average.

HOA Fees: I read that in south florida one condo increased their HOA fees by nearly 100%.  While I don’t believe that has happened around here, I do know that HOA fees are jumping and special assessments are popping up everywhere. 

ARMs:  Another thing to watch for is folks who bought their properties with Adjustable Rate Mortgages (ARMs) when rates were low and are now looking at rate resets that are two to three times higher.  These folks may find themselves in a position where they have to sell.

Bottom Line – Cost To Own

The bottom line is the cost to own property at the beach has gone up dramatically and rental incomes have not kept up proportionately causing annual profit margins to drop.  This is a problem for investors that need max rental income and the costs to own to be at, or at least close to, what they were when the property was purchased to make their investments work.  That is not the case with a lot of properties right now.

Real Estate Prices

Long Term and short term holders have been rewarded with significant real estate price increases.  This could serve as a get out of jail free card for some investors who needed the max rental income and low cost to own scenario to make their properties work. What do I mean by that?  If their liquidity isn’t enough to hold the property, they can likely sell and still see a significant return on their initial buy-in price.

The Arc of Real Estate Prices in Destin, on 30A and in Panama City Beach

Take a look at the ark of sales prices over the last 20 years, prices peaked back in 2006 during the era of interest only loans, stated income – no document loans when buyers didn’t have to show any proof of what they earned or how much money they had to repay loans and if they did make payments it was only for the interest in the loan – the principle never got paid down.  The result was a massive run up in prices followed by a hard, fast and deep falloff highlighted by a massive number of short sales and foreclosures. Read the book the Big Short or watch the movie, both tell the story very well.

 

Destin | Miramar Beach | Fort Walton Beach Condo Sales Prices going back to 2004

As you can see prices peaked in 2005 with the median price for a condo for the area containing Destin, Ft. Walton Beach and Miramar Beach/ Sandestin was $520,000. When the real estate market crashed, condo prices plummeted, falling to $220,000 in 2012.  

For those that were able to hang on to their properties, the ride back up has been rewarding.  The median sales price for a condo in Destin, Ft. Walton Beach and Miramar Beach/ Sandestin now is $560,900 – higher than they have ever been.

 

Destin | Miramar Beach | Sandestin House Sales Prices going back to 2004

Like with condos, prices for houses peaked in 2005 with the median price for the area containing Destin, Miramar Beach and Sandestin was $530,000. When the real estate market crashed, house prices plummeted, falling to $319,900  in 2011.  The climb back though has been steady and rewarding. The median sales price for a house in Destin, Ft. Walton Beach and Miramar Beach/ Sandestin now is $981,000 – almost 30%+ higher than the previous highs back in 2005.

 

30A Condo Sales Prices going back to 2004

Median sales prices for 30A condos peaked in 2005 at  $600,000. When the real estate market crashed, 30A condo prices plummeted, falling to $285,900 (less than ½ the 2005 price) in 2011.  The climb back though has been steady and spectacular. The median sales price for a 30A condo now is 30%+ higher than the highs of 2005.

 

30A House Sales Prices going back to 2004

Median sales prices for 30A houses peaked in 2007 at  $952,500. When the real estate market crashed, 30A house prices plummeted, falling to $495,000 in 2011.  The climb back though has been steady and like with 30A condos – spectacular. The Median Sales price for a house on 30A right now is $1,621,250 – up more than 40% from the previous high in 2007.

 

Panama City Beach Condo Sales Prices going back to 2004

 

Median sales prices for Panama City Beach condos peaked in 2005 at  $385,000. When the real estate market crashed, Panama City Beach condo prices plummeted, falling to $175,000 (less than ½ the 2005 price) in 2011.  The climb back though has been steady and very profitable for sure. More than 30%+ the previous high in 2005.

Panama City Beach House Sales Prices going back to 2004

 

Median sales prices for Panama City Beach houses peaked in 2005 at $301,621. When the real estate market crashed, 30A house prices plummeted, falling to $180,750 in 2011.  The climb back though has been steady and like with 30A and Panama City Beach Condos – it has been spectacular. The Median Sales price for a house on Panama City Beach right now is $523,200 – significantly – more than 40% up from the previous high in 2005.

Be careful – Real Estate Markets Change

Prices skyrocketed in the early 2000s because money was cheap and easy to get.  Prices dropped and kept dropping because money became very hard to get – banks almost stopped lending for real estate. This became a massive problem for investors who had to sell during that down cycle, many took massive losses.  Those who were able to hold their properties were rewarded with continually raising prices and are now sitting very nice.

Be careful – part 2

When Covid hit in March of 2020 the government reacted by printing and giving out a lot of money. PPP loans, Stimulus checks, Moratoriums on rent payments… on and on. Mortgage rates were held at record lows, people felt a need to get away from cities, and money was flowing so they came to the beach.  Rents skyrocketed.  Property prices skyrocketed. Inflation skyrocketed.  Wait what? 

Yes, with all the cheap easy money around, people spent and spent and spent.  The result?  Inflation skyrocketed causing the Fed to increase rates 11 times in 16 months. Money got very expensive (hard to get).  In other words, the party is over and now it’s time to pay for the clean up.     

What now?  Right Now? Short Term?

There are a lot of question marks in that title because there are a lot of questions right now.  Short term we will see some wins, some losses.  Because some people (retiring baby boomers)  have a lot of money and will spend – just because – we will see random huge sales prices.  But because costs are high, money is expensive, the economy is… uncertain, most buyers are going to choose to wait out this market.  We’ve seen this with the incredible crash in the number of transactions. Prices are still high but transactions have fallen off the table.  Look for this weirdness to continue through the rest of the year – maybe even into next year. 

Rental Demand

Forbes is reporting that Americans plan to take more trips in 2024 than they did in 2023 with beach vacation being the second highest type of trip.

 

The Future for Real Estate At The Beach

The future for real estate here at the beach is incredibly bright.  Yes, there are a lot of drawbacks right now, however I think that we will see a leveling out of the cost to own as balance is resorted to insurance, HOA reserves get funded, and overall inflation eases.  Matched with this easing of cost will be an increase in annual rental income and this spread will bring back the cap rates investors have come to expect from our vacation rental condos and houses here at the beach. 

What Should You Do?

So, if you own property in Florida AND can afford to hold it until the tough and weird times (risky) give way to prosperous, growing and optimistic (less risky) times… you will be fine. Heck, you will crush it. If you are planning on owning five years or less – sell now and mitigate the risk of steep and prolonged price erosion.  You may not sell at the peak of price but it’s still pretty high.
 

As we always say to investors holding Florida real estate:

If you are a long term holder – 5 years or longer (longer the better) sit back and ride out this strange time.  You may even look at buying if a deal comes up.
 

Bottom Line?

We are wealth builders, so our goal (whether you are buying or selling) is to build or protect your wealth – based on your financial goals and the current market conditions. Email Info@smartbeachinvestor.com or call us at 850-654-3325
today and let’s 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 | Keller Williams Realty AT THE BEACH TEAM We Make Real Estate Easy.

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