What can I get for my money?

What can I get for my money?

The Market Is Getting Stronger

The first four months of 2007 were good for the Naples real estate market, with statistics showing a surge in the number of pending home sales, according to figures released by The Naples Area Board of Realtors.

The increase indicates that the Naples real estate market is making a comeback after 15-month lows. Buyers who were cautiously watching national trends are seeing an upward swing in the local market that has boosted consumer confidence, and they are moving forward with their purchase. The number of pending sales was strong in each pricing category.

The large number of homes for sale, along with low buying interest, continues to put pressure on pricing. Low buying interest is not a reflection on the desirability of Naples as a second home or vacation destination. The regional airport's recorded number of airline passenger traffic in the first three months of this year is one measure of Naples continued and increasing desirability. Instead, low buying interest results from the pervasiveness of the overpricing phenomenon in the area. When peak prices were reached in the fall of 2005, the overwhelming number of sellers had asking prices significantly above peak pricing. When homes were subsequently selling at 15 percent less than peak, most sellers had asking prices significantly higher. The overprice phenomenon continues today. Home values (based on those that are selling) are at prices similar to those purchased in early 2005. The more unique, selected or distinguished a single family home, condo or neighborhood is, the less likely it has followed the general market price decline. The majority of homes listed for sale, however, remain at asking prices above what is justified by the overall trends.

There are three large groups of buyers on the sidelines waiting to buy. Much of the real estate laying demand for Naples is driven by second home buyers. Second home buyers do not need to buy today, this year or in two years. They want to buy when they are comfortable with pricing, and ready to enjoying their purchase. Many second home buyers are sitting on the sidelines, and they will be ready to buy once they are comfortable that prices have stabilized. Many existing owners are also looking to buy into an upgrade, or something different. They are not waiting for prices, to stabilize, because the fate of their existing home will most likely rise or fall with the fate of their upgrade target. They are waiting for the entry of those new buyers into the market to break the upgrade logjam. Investors are also waiting on the sidelines. An investor's motivation is appreciation, and the best way to assure appreciation is by buying right.

When trends overtly indicate an upturn, the buying demand from these groups has the potential of quickly increasing. This is not to suggest that prices will retum to peak levels anytime within the next few years. Rather it is to note that the bottom buying opportunity might be very short lived when it occurs.

Of the 19,000 homes listed for sale in the Naples area, approximately one-third were purchased in 2005 or later -- making the original purchase price of these homes higher than current market values. These sellers have two choices. They can reduce their asking price significantly, thereby incurring a loss if it sells, or continue to incur the cost of holding the home (property taxes, association fees, mortgage payments, insurance, etc.). Either way, they will most likely incur a loss. It is just a matter of incurring the loss all at once by selling at current market values, or losing a little each month as carrying costs accumulate over time. The vast majority of sellers in this group are taking the route of paying the monthly cost rather than reducing asking prices down to market values. High priced sellers anxiously waiting the return of peak prices might have a very-long wait.

Area Realtors are reporting significant increases in the number of people actively looking at residential property, noting that realistic pricing adjustments have occurred in previously over-heated market areas.

The median price of residential property - noted at $407,721 - is once again climbing following an end-of-the-year slump in the fourth quarter of 2006. The median refers to the middle value in a set of statistical values that are arranged in ascending or descending order, in this case prices at which homes were actually sold. In any given period the median can vary greatly if there is an anomaly, a single sale that is significantly higher or lower than other properties in the area.

Current Market Conditions

The under $1,000,000 segment continues to bear the brunt of the downturn in Naples, as evidenced by more dramatic volume (unit) reductions as compared to both 2005 and 2004. The influence of investors in this segment who purchased late in the game is significant and price deflation continues to occur in selected communities. In the over $1,000,000 segment, volume reductions are less severe as compared to 2005 and are now more or less in line with 2004 levels. This is largely a function of sellers with significant equity in their properties who are under less compulsion to sell, and who recognize that current market weakness will turn to strength at some point. In addition, there are far fewer speculator-owned properties in this segment of the market.

High and growing inventory levels are such that days-on-market continue to exceed early 2005 and 2004 levels. For the 4th quarter, 68% of all sales were on the market for 91 days or more, actually a slight improvement over last quarter. This improvement likely represents a heavy weighting of distressed sellers whose time-on-market necessitated selling at prices well below their initial expectations.

Median sold prices have declined in each of the last three quarters. At $367k today, the median selling price in Naples, Bonita Springs and Estero is $71k below the 2006 first quarter peak. It’s worth noting that today’s median price still exceeds the fourth quarter 2004 median by $67k, but is lower today than in every subsequent quarter. Given the numbers and the clear trend, we have to accept that true price deflation has occurred in certain price ranges and communities.

All of the downturn in median selling prices has occurred in the under $1,000,000 segment. Although it varies by community, the over $1,000,000 segment is flat to up, with properties closer to the shore and Old Naples performing the best. To put this in perspective, fourth quarter median sale prices in the over $1,000,000 segment are up 17% over last year. Below $1,000,000, median prices are down 15%.

So how best to interpret these facts? While I can’t cite hard statistics, anecdotal evidence indicates that there is no shortage of buyers interested in Naples properties who are waiting on the sidelines for fear that prices will be lower in three to six months. Buyers will get active when they conclude that prices have little risk of falling further and when they perceive that home purchases represent good value.

Forecast

While the exact date of a bottom is hard to predict, there is a critical outside event that will push prices higher. In January the Governor and legislature dealt with the crisis in home insurance rates – rates are likely to drop 20% as a result. In June, when the legislature returns it will take up the Governor’s call for portability of the Save Our Homes tax break. Portability means that if you sell your house you can take your favorable tax treatment to your next house. If this passes the legislature it will go before the votes in September. Both a June passage by the legislature and the eventual passage by the voters will be strong signals of a market upturn. Portability means liquidity (more money available to buy houses) and liquidity is what this market needs.

The portability issue will be the driver of real estate activity in 2007.

Recommendations

Buyers remain in the driver’s seat. If you find the perfect property at a great price today, waiting to purchase later is risky as the best values will sell first this season. On the other hand, if you find many acceptable homes (as in a community with high inventory levels of virtually identical properties), you run little risk in waiting until later in the season when prices may go lower yet. Investors must remain focused on cash flow while recognizing that the rental market is soft, with many frustrated sellers offering their properties for rent. Buyers and investors should protect themselves by including a contingency clause in any offer such that they have an out if insurance cannot be obtained at an acceptable premium.

Sellers are now in the peak selling season. Your property must be priced in the lowest quartile of comparable homes to have any hopes of attracting buyer interest this season. Gimmicks such as bonuses to selling agents or including cars or vacations in the deal won’t work. Offering to pay a portion of the buyer’s closing costs can stimulate additional interest in your property. Demand that your agent provide full exposure to the market and make sure your home shows like a model. The web is far more effective as a marketing tool than print advertising, so be sure you are getting maximum exposure on as many websites as possible. Investing a few dollars in a staging service can also be productive.

What $x Gets You

The information below is a general guide and as individual properties vary -- there will be exceptions.

Under $200,000

Choice and selection are very limited. Mostly this will be older properties in Bonita, South Naples or in Golden Gate. Quite frankly, if this is your price range and you want a house (not a condo) you should be looking in Fort Myers, Cape Coral, Lehigh Acres, or North Fort Myers. The Naples market is likely to leave you frustrated and disappointed.

From $200,000 to $300,000

This portion of the market has exploded in supply due to the conversion of nearly all rental properties in the area to condominium. Be careful when buying in this price range. If you are buying to use the property yourself make sure you like it a resale will be difficult. If you are buying for investment be very careful and expect to hold for 3-5 years before a good resale opportunity arises.

From $300,000 to $400,000

In this price range do not expect to be able to live near the beach -- except again perhaps in an older home in Bonita. Under $400,000 the market is mostly condos, with some older homes in South Naples, Golden Gate, and Bonita. The condo selection in this price range is wide and caters to almost every taste. If you are looking for bundled golf this price range is still is below the market so offerings are are few and seldom survive more than a few days on the market (i.e. if we find one and you like it -- grab it.)

From $400,000 to $500,000

There are many great condos available in this price range and some single family homes in communities with fewer amenities. The bulk of new construction is aimed at this pricing segment and as these units are finished investors will be releasing them onto the market. One needs to be careful about the percentage of investor units in a given building (too many may hold back appreciation but help you buy what you want). Houses in this price range can be found along the 951 corridor (ie east of I-75), and in mixed condo/villa communities in Bonita and Estero.

From $500,000 to $750,000

This is a sweet spot in the market. There are many coach homes, condos, villas, single family homes etc to choose from. Once you cross the $500,000 point communities begin to distinguish by location and amenities. Now near the beach is a possibility as is a bundled golf community.

Greater than $750,000

The "luxury" market in Naples begins at the $750,000 level. Its a buyer's market in terms of selection (but not necessarily in terms of price). With enough looking you can get what you want.

The data relating to real estate for sale on this Website come in part from the Broker Reciprocity Program (BR Program) of M.L.S. of Naples, Inc. Properties listed with brokerage firms other than Downing Frye Realty Inc. are marked with the BR Program Icon or the BR House Icon and detailed information about them includes the name of the Listing Brokers. The properties displayed may not be all the properties available through the BR Program. BR data on this website is provided by Downing Frye Realty Inc. on behalf of Michael Lissack. The source of this real property information is the copyrighted and proprietary database compilation of the M.L.S. of Naples, Inc. Copyright 2006 M.L.S. of Naples, Inc. All rights reserved. The accuracy of this information is not warranted or guaranteed. This information should be independently verified if any person intends to engage in a transaction in reliance upon it.