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Condominium Market Update: JULY 2007

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NOTE

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

Summary

In September 2005, the inventory of condos for sale in Sarasota and Manatee Counties was 969 and 431, respectively. By the end of January 2006, those figures more than doubled to 2,298 and 986. During the next 12 months inventory increased over 40% in Sarasota County to 3,277 units and doubled again in Manatee County to 2,114 units.

Prices are already down more than 30% from the high-point of the market and inventory has remained stubbornly high. I don’t see how prices can do anything but continue to fall until at least half of the inventory is liquidated.

The good news is that inventory levels have at least leveled off. After 15 consecutive months of increases, we’ve had 4 months with little to no increase in inventory in both counties. Hopefully this choppy period will be immediately followed by several months of meaningful decreases in inventory.

Manatee County - Monthly Activity 2006 vs. 2005

Inventory grew by another 42 units during the month or about 2%. This puts inventory just under the all-time high of 2,222 units that were on the market at the end of April. County wide unit condo sales during June only amounted to 43 – barely half of last year’s results and the smallest number of monthly sales since January.

The price index (please read the last section of this report for an explanation of this index) fell to 80 which means that condo sales prices per square foot are now about 80% of the January 2006 level (or down 20% from January 2006 which I consider to be the high point). When you compare Manatee to Sarasota pricing, sales prices in Manatee don’t appear to have fallen quite as far as Sarasota. The Manatee County price index is at 80 vs. 64 for Sarasota (or Manatee condo prices have dropped 20% from January 2006 vs. 36% in Sarasota).

A couple of things could explain this pricing discrepancy. First, it could be that there was more new construction and speculation in Sarasota. This could put more people under heavy pressure to sell in Sarasota. This probably also caused prices in Sarasota to become more inflated than Manatee, so they have further to fall.

The good news for the Sarasota market is that it will probably hit bottom and start moving up again before Manatee County. The lower relative prices in Sarasota County seem to be liquidating inventory at a faster pace. Over the past 6 months, Manatee County sales to inventory relationship has worked out to anywhere from 2 to 4 years of supply on hand. The same relationship in Sarasota County works out to about 18 to 24 months of supply – about twice the rate of sale as Manatee County.

The average days on market for condos that sold during June was 154 days. This was a huge jump from the previous month’s results (103 days). To me, this means that a number of sellers simply threw in the towel this month and either took large price reductions that attracted buyers or accepted very low offers.

Showings on my listings have been very slow in July after some fairly busy months in May and June. I don’t expect sales in July to be much better than June.

Sarasota County - Monthly Activity 2006 vs. 2005

The inventory of unsold condos dropped slightly in Sarasota County during June but remain just off the highs. As I mentioned in the summary, the fact that inventory stopped growing is good news. As long as inventory remains below April 2007 high, I would say the trend is still in place.

Unit sales were down from last June by 20% but down only slightly compared to the previous couple of months.

The sales price per square foot index continues to decline. Sales prices in the group of communities used to develop my index are now down 36% from the January high. The good news about this, as discussed above, is that the lower prices are liquidating inventory (at about twice the rate of Manatee County). Sarasota County should hit bottom and start moving up faster than Manatee County.

Recap

Prices are not going to do anything but drop as long as inventory levels remain high. The good news here is that while inventory is not dropping, we at least seemed to have reached the high. All during 2007 levels in both counties have chopped around the highs, bouncing slightly higher and slightly lower, but at least not busting upward again.

Prices are going to have to continue to drop, especially in Manatee County. The low sales-to-inventory relationship means that too many people are going to be holding costly real estate for too long. By my calculations, the costs of taxes, maintenance fees, and condo owners insurance on a typical Manatee County condo average about 5% of value. Throw in mortgage interest (or lost interest income in the case of no mortgage) and you are talking about 11% per year cash outflow on an empty condo that is on the market. Who wants to wait in line with 2,100 other people to be one of the lucky 50 that sell each month, all the while paying out 11% per year in cash and watching prices decline?

If you are thinking of buying a condo:
After the paragraphs above, you may think that you should delay your purchase decision until the market bottoms. Many buyers have that attitude right now. If you need to sell another home before you buy a condo, then I would agree you should postpone your decision. If you are looking for investment property and already own property you can’t sell or rent, again I would wait.

However, if you are looking for a vacation home, thinking of downsizing and can easily afford two homes, or are considering your first home purchase, you should start looking now. In these cases, you are obviously buying for the long run. You are buying a property for the utility it offers and the lifestyle you want to enjoy for years to come. It may be your last opportunity for a long time to get the property or lifestyle you’ve dreamed about.

I can almost promise you that prices will drop in the short term. But every decrease in price from here will lead to a reduction in inventory. And it’s not the dogs that people are buying now but the most desirable units. If you’ve had your eye on a particular gulf front unit or one on the 18th green, go make an offer on it. As sickening as it is to watch the price of something decline after you’ve bought it, it can’t compare to watching someone else get “your” dream home at a price well below what you would have gladly paid.

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

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.