Why Aren't Condo Prices Moving Up
As explained in my recent articles on the Sarasota and Manatee County condominium markets, inventory levels are down to 2005 levels while 2011 sales of condominiums was nearly as large as 2005. During 2005 when sales and inventory were at nearly the same position, prices were moving up quickly.
So what aren’t prices moving up now? For illustrative purposes, I will use the figures from the Sarasota market. Part of the explanation is the time period shown on the inventory chart. During most of 2004, unsold inventory was around 1000 residences. In the 8 months between December 2004 and August 2005 (the first month shown on the chart), inventory had already increased nearly 40%.
A second reason is that, for whatever reason, it seems to take a long time for the market to realize things are changing. I just mentioned that inventory increased by 40% during the first 8 months of 2005. By the end of 2005, inventory would increase another third to nearly 2000 and continue to increase throughout 2006 and the first quarter of 2007. Even though the increases were fast and furious between 2005 and 2007, it took the market over 1 and half years to realize there was a problem. Prices increased steadily throughout 2005 and didn’t peak (based on the Case-Shiller numbers for Tampa and Miami) until mid 2006. By the time of the price peak, inventory levels were over 3000 residences, about triple the normal level in 2004.
It seems to take a tidal wave of evidence to swing the market. Part of what created the boom in prices was a very positive forward outlook for the market and economy in general. The market seemed to think that every retiring baby boomer was going to move to SW Florida – there wouldn’t be enough houses to go around. Now with the general woes of national and international financial markets, high unemployment, war drums beating at every turn, fears about mortgage rates increasing, etc., the background now is as gloomy as the pre-boom was optimistic. Probably rightfully so, it is going to take more than a couple of charts to move prices. It’s going to take an optimistic and energized buyer pool. And for that to happen, they (the buyer pool) has to feel that their investment is reasonably secure and that the train is leaving station again on pricing.