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Condominium Market Update: January 2008

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NOTE

The source of all data in this report is Trendgraphix and the Manatee and Sarasota County MLS systems.

Throwing In The Towel

There are signs that, in both counties, condo sellers are calling it quits – either by lowering their asking prices and accepting even lower offers or by taking their condo off the market and waiting for a sunnier day to sell.

In Manatee County, the price index plummeted to 59% from 78% in the previous month. Remember that my price index measures the change in sales price per square foot of a fixed group of commonly valued condos from the height of the market (Jan 2006) through the current month. So a price index of 59% is saying that sales prices in December 2007 are roughly 41% off the highs of January 2006.

You will also see in the following charts that the spread between asking prices and selling prices also plummeted. Up to this point in the year, the spread had ranged between 91% and 95%. This means that the typical seller of a condo asking $100,000 for his home had been accepting offers between 91,000 and 95,000 on average. In December of 2007, the spread dropped to 86%. This means that sellers became much more flexible, for some reason, during December.

In Sarasota County, the price index dropped to 52% from 59% the previous month. While the decline was not as dramatic as in Manatee County, the fact that condo prices have about been cut in half in 2 years is still amazing.

Another interesting thing happened in Sarasota. The inventory of unsold units declined by 278 or about 9% from the previous month. Yet sales (or more specifically units placed under contract) accounted for only 88 of these units. This means that over two thirds of the reduction came because people pulled unsold units from the market. This says that roughly 6% of last month’s sellers took their condo off the market right at the start of what is Sarasota’s peak condo selling season. I don’t know what to read into this other than we just eliminated some of the clutter from the inventory figures – these people were probably not serious about selling their condo in the first place. Counting their condo as inventory was just overstating the supply.

If You Are Thinking Of Buying In This Market

As I have said for the past year or more, the high inventory levels still means that prices will fall some more before they start moving back up. However, each price drop does several things. First, it gets us closer to the bottom and reduces the risk associated with buying. Prices have been nearly cut in half since January 2006. For long term buyers that has eliminated much of the risk. Each price reduction also brings in more buyers than the last, perhaps exponentially so. Inventory could start to get eliminated in a hurry.

Another thing to watch is the tax situation. Next week we will vote on an amendment that could do a lot for the condo market. The homestead portability issues I’m sure would help some, but more important for the condo market is the 10% cap on non-homesteaded property. If it passes, this could help bring back some of the seasonal buyers that have been nearly absent in the past 2 years. Capping tax increases at 10% may not seem like such a huge gesture but when you consider that non-homesteaders have suffered through a couple of years at over 20%, 10% doesn’t sound so bad. Like the price declines, it reduces the financial risk of owning property.

The good thing about buying now is that the assortment is great and sellers are becoming more flexible. As inventory starts to dry up, the best units (most desirable communities, units with the best view, units that, during more stable times, never come on the market) will disappear first. Declining inventory and declining prices don’t coexist very long.

If You Are Trying To Sell In This Market

With the inventory of unsold units dropping, it does look as though we are on our way out of this mess. However, there are still nearly 5,000 condos on the market between both counties and, under the rosiest of inventory reduction rates, we are not going to rid ourselves of all or even most of this inventory in the next year. The price declines may slow but it is still going to take time. And when we do get down to the 1,000 or so condos that bring about a more stable market, prices are not going to just start soaring again.

With the huge cost of ownership ($6,000 to $8,000 per year in taxes, maintenance fees, and condo owners’ insurance on the typical unit), it still makes no sense to hold out for an unrealistic price. Even if you own your condo mortgage free, your money could be earning 3% or more in short term CDs. Between this lost interest and the hard costs of ownership described above, your empty condo is costing you over 10% a year to own, more if you have a mortgage.

If prices drop another 10% next year and you still haven’t sold your condo, you’ve got to get 25% more the following year just to break even. I don’t think that’s going to happen.

Foreclosure Watch

The bank owned inventory grew during the month in Sarasota and Manatee Counties as well as all of the big Midwestern markets that provide most of our condo buyers.

Source: RealtyTrac.com

Manatee County - Monthly Activity

Inventory decreased almost 100 units to just under 1,900 units. Sales and units placed under contract were also stronger than the same month last year.

The price index for Manatee County (please read the last section of this report for an explanation of this index) dropped to just 59% of the high price achieved in January 2006. The spread between the asking price and the price ultimately accepted by the seller also dropped to a multi year low of 86%

Sarasota County - Monthly Activity 2006 vs. 2005

The inventory of unsold condos in Sarasota County decreased by nearly 300 units. Inventory is now 18% off the high point of 2007.

The number of units sold and placed under contract both increased over the same month last year.

The pricing index also dropped to an amazing 52% of the January 2006 levels (please read the last section of this report for an explanation of this index). Sarasota condo prices have been nearly cut in half over the past 2 years.

Sales Price Index

Prior to March 2007, I had been using median sales price per square foot in all of my reporting and analysis. However, the decline in the median price never seemed to be as large as the change that I was seeing in the market (or my commission checks). 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. But they are getting more desirable communities, views, and amenities.

The best way to illustrate this is by example. Assume 2 friends came to Florida in 2005 looking for property. One friend purchases a condo for $200,000. The other friend found nothing he liked, but returned in 2006 and purchased a condo for $190,000. Assume further that each purchase represented the median price for that month and year. These statistics would indicate that prices have declined by 5% during the year. However, if the purchase in 2005 was in a 35 year old, central Bradenton community with a view of the back of a strip center, and the 2006 purchase was a new town home in Lakewood Ranch with a lake view, I would say that prices have dropped much more than 5%.

To get the real change in prices you would ideally look at how the price of the same property has changed over time. However, when you are reporting changes on a monthly basis, this is not a practical or even possible approach – the same property doesn’t sell each month. 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 current month’s sales per square foot price and think that your home should be selling for that price. So, I have taken each of these monthly observations and indexed them to the January 2006 price. I chose January 2006 as the base because I consider it to be the top of the market. The resulting index then tells you current prices as a percentage of the top of the market.

For example, if the current month’s price index is 80, that means that prices in that month were 80% of January 2006 prices. Or, said another way, prices are down 20% from the high.