Let’s not overthink the current real estate market here at the beach. The fact that prices haven’t dropped more and dropped further than they have so far is an absolute magic trick. Why do I say that? Because almost every metric that matters is screaming for a price drop. And yet… prices have only started coming down… and only somewhat.
Let’s look at the metrics.
Cost of Money.
Mortgage rates have jumped dramatically over the last year taking out a ton of buyers who would have been happy to pay a high purchase price when the financing costs were still low. Now that rates are significantly higher we have a situation of high purchase price and high financing costs which is not sustainable. Look for real estate prices to drop.
Cost to Own.
Have you looked at your insurance bills lately? They are killers and not expected to get better anytime soon. How about the roof on your house? Have you noticed how many folks are being forced to get new roofs or risk losing their insurance? I know there are new laws on the books pushing back against this but the cost to own and operate a property has jumped really high and really fast. How are you condo owners holding up, are the special assessments causing you heartburn, like they are me?
Rental Income.
Inflation, the economy and stimulus money running out for most folks is causing issues for owners trying to keep heads in beds at the recent high rental rates. Many owners are having to lower their average daily rates to keep folks coming. Look for this trend to continue.
Alternatives.
Further eroding the high price sellers can demand and capture is the fact that investors are able to secure 5% and sometimes higher returns simply by putting money into CDs, treasury bills or even some bonds almost risk free. The result is many investors are choosing to sit out the current real estate market until cap rates become much more attractive.
The Short Term Take Away?
As we said, the fact that all this has been in play and we haven’t seen more and steeper price drops is a magic trick… and I think the trick is about to be revealed. Look for prices to drop in the short term. How low they go and how long they stay down remains to be seen.
If you are looking for a silver lining in this news I would offer you this: every price correction cycle / reset allows for new folks to get in and buy homes and condos where they were previously shut out. This is good for the long term health of our market. New blood comes in and puts their stamp on things with a new fresh outlook.
Should you Buy, Sell or Hold?
The honest answer is… it depends.
Hold: If you are a long term holder then by all means hold on. Markets cycle and this one appears to be as well. You may even start looking ahead to determine if you are a potential buyer if prices get low enough.
Sell: If you are not planning to own for the next 5 years at least you should take a hard look at selling now while prices are still pretty high. Prices may not be all time highs anymore but they are still pretty high. Why risk prices dropping dramatically if you don’t have to? Send an email to info@smartbeachinvestor.com if you would like information on how to sell and capture a still high price.
Buy: If you are buying because you want a place at the beach and you can afford it – buy. Use your new property to make memories with your family and friends. If you are an investor that doesn’t care about using it or having a place at the beach, you are simply interested in a max return – you may want to wait a bit and see what happens. If you are someone that wants a place and is fine sharing with renters and collecting rental income to offset the costs to own – go for it. You can still buy a place, use it some and rent it enough such that it is no cost or only a low cost for you to own, creating a situation where you end up owning a property at the beach free of charge. Send an email to info@smartbeachinvestor.com if you would like information on how to best invest in a property here at the beach.
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. 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 | Keller Williams Realty AT THE BEACH TEAM We Make Real Estate Easy.