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Condominium Market Update: april 2007

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NOTE

The source of all data in this report is Trendgraphix.

Summary

The basic economic principle of supply and demand will tell you everything we need to know about the real estate market. Until the inventory of unsold condominiums starts to drop on a consistent and significant basis, prices are going to continue to fall.

Before I discuss the charts, I want to explain how I have calculated price per square foot. I had been using median sales price per square foot. However the change in this statistic never seemed to line up with what I was seeing in the market (or my commission checks). There never seemed to be much of a change. I believe the reason is that the median price just tells you what people are spending, not what they are getting for their money. I think that people are still spending about the same amount of money as last year and buying about the same sized units. But they are getting more desirable communities, views, and amenities.

To account for this, I have selected a fairly narrow group of similar condo communities in Manatee and Sarasota counties. I have only included 2BR/2BA models and excluded any community on navigable water, or that has river or bay views, or access to boat docks. I have also excluded all age restricted communities. Watching the price changes in this fairly fungible group of properties gives a better idea of how prices are really behaving.

The downside here is that the price per square foot statistic itself is not all that meaningful when you are talking about absolute, county-wide prices. You can’t just multiply the February 2007 sales per square foot price in this report and think that your home should be selling for that price. It is only appropriate for a specific group of condos. The change in price year over year, however, is probably pretty valid across all condos.

Manatee County - Monthly Activity 2006 vs. 2005

If you study the graph below, you will see that June 2006 represents the price pivot point. That’s where this year’s price level finally crossed below the previous year. The price gap has widened in each subsequent month as more and more sellers roll over and each subsequent sale requires a lower price.

For the current month, prices were down about 24% from last year and 32% from the high that was recorded in November 2006. Inventory hit another high, as it has each month since May 2005. Inventory is now up 70% over this same month last year and 12% since the beginning of season.

We are two months into to season and only 70 sales have closed. That’s fewer sales in 9 weeks of season than we closed in 4 weeks in June. Prices just aren’t low enough to motivate buyers into making offers. Open house traffic seems reasonably strong, but everybody is just looking. I think they are just waiting. Price your place low enough and it will sell. But it has to be low enough to be perceived as value – so low that buyers feel pressure to step up before someone else does.

Sarasota County - Monthly Activity 2006 vs. 2005

Sarasota County is in better shape than Manatee County. The big inventory run up in Sarasota happened in the preceding 12 months. For the last 12 month period, inventory has been bouncing between 2,500 and 2,800 units. Last month there was a spike up to over 3,200 units but dropped back down to 2,823 again this month.

Prices did not start to drop from the previous year’s level until September 2006. They have not dropped as far as Manatee County and nor do they have the same widening trend.

Unit sales are also picking up. February sales were the largest since December 2005. “Units placed under contract” was also strong which means that March closings will be good, probably surpassing the previous March.

Inventory was reduced by 444 units or 13.5%. A couple of more months like this would confirm that Sarasota is at least on its way out of the weeds. Prices will probably continue to drop for a while even as inventory levels fall.

If inventory does start to decline and continues the trend for another 2 or 3 months and prices do continue to fall, that would be a sign that your last opportunity to buy is about to pass you by. Declining prices with declining inventory is a situation that won’t last long.

If you are a buyer, remember that the really choice homes are going to sell first. The longer you wait, the more your options get reduced.

Implications for Buyers and Sellers

If you are trying to sell a condo:
Condos are just about commodity status right now. The only thing that is going to get you a showing is price. Now is not the time to be thinking about setting a world record price for you community. Put your asking price 5% below the last one to sell. If a model similar to yours has not sold in the past two of months, then mark your unit 10% below the cheapest one on the market. Why so low? Why not just $500? Because the cheapest one is not priced right either. If you don’t get any showings or agent views in 2 weeks, mark it down again. Study the graph at the beginning of this report. As long as inventory keeps rising, prices are going to drop. The people that try to “ride this out” are going to get hurt. Price your unit so that it will without question be the next one to sell in your community.

If you are considering the purchase of a condo as a vacation or retirement home, now is the time to start looking. Here’s why:
• There have never been more condos on the market than right now. You won’t have to settle for a location or floor plan because the one you want isn’t on the market. This is your chance to buy the unit you couldn’t afford last year or in the community you didn’t think you could ever afford.
• As a buyer, you are in the driver’s seat. Depending on how far the asking price has already been reduced, you could get seller concessions that lower your purchase price to less than the market bottom that will eventually occur.
• Prices could move lower, but if you are buying for the long term, if will make little difference in 10 years that you paid a little more than the absolute lowest theoretical price.
• If you are waiting for the market to bottom, talk to one of the 5,000 sellers in Manatee/Sarasota who thought they could pick the market top. Odds are that you will be no better at buying the bottom than they were at selling the top. The difference is that the sellers will always be able to sell (at some price), but if prices shoot up again you could get priced out of the market permanently.
• The most desirable units are going first. I think this is the most compelling reason to start looking NOW. Old, worn out units with a view of the back of a shopping center will always be available. But when the inventory of condos available really starts to drop, all of the choice ones will be gone. We’ll be back to 2004 where your only choice is to pay top dollar for a place with avocado appliances and green shag carpeting.

Get the place that you want now and start enjoying the rest of the life!