Mixed Signals Make Predictions Impossible

Like all real estate agents, I'm often asked what I think is going on with real estate now. I get questions like "when is real estate going to come back to normal?" and "what's wrong with real estate?"

If I actually had the answer to those kinds of questions I'd bottle it and make a fortune.

So, why don't I know the answer? Simple really. I'm just a real estate agent. I get my information about the market from other agents, from the National Association of Realtors, the Florida Associaton of Realtors, the Pinellas Realtor Organization, the St. Petersburg Times and other media sources, and various newsletters and business magazines.

Those sources vary on their opinions as to what's going on in real estate. For example, here is what I found out this morning ...

• Hank Fishkind, the famous economist, says that other economists' views of the real estate industry in Florida are pretty much wrong, and that the state's housing market hit bottom months ago and is now on a rebound except for the condo market in Miami.
• Right under that story about Fishkind was an article stating that new home sales fell in June by the largest amount in five months as the housing industry struggles with its largest downturn in 16 years.
• The St. Pete Times reported on page 1-A that the Dow Jones Industrial Average fell 311.5 points on July 26th based on fears that the housing slump will hurt the overall economy.
• The Times also ran an article, page 1-A, that pointed out that although property values seem to be falling, property taxes will likely continue to be even higher next year because lawmakers are taking advantage of what appear to be loopholes in the tax laws that allow them to raise taxes on real estate despite falling values.

I found all these stories before 7:00 AM on July 27th. Clearly, they are pretty conflicting for someone who's looking for an answer to "what's wrong" with real estate. Is Fishkind right? Or will the worst downturn in 16 years continue to drive down the overall economy while taxes continue to rise?

Next time somebody asks me one of those questions that requires me to foretell the future, I'm going to reply that my sources are a little confused, my crystal ball is dark on the matter, and that the tea leaves are wilted when it comes to real estate.

For more information on real estate in the Tampa Bay area, visit my website at http://www.thestpeterealestatesite.com/.

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You Should Start A Blogsite

I think somebody should start a new blogsite in which you make quick daily lists of all the lousy, crummy things that are served up to us by our elected officials.

There's ample info just in the pages of the daily newspaper. For example, just look at July 11th's St. Petersburg Times and you will find a couple of real crummy things that your government is about to do to you that are probably coming as a big surprise.

1. Insurance Rates Appear To Be Going Up. Remember how excited we all were recently when, after much cheering in Tallahassee and pats on the back from elected officials, it was made known that property insurance rates were going down thanks to our super-duper elected officials? You remember that, don't you? Well in today's paper on page 1 Section D you can read how that is not really very likely. In fact, Florida Farm Bureau Insurance policyholders can most likely look forward to a 30% jump in rates. Other insurance companies will probably follow suit. The reason? Those pesky reinsurance rates that the state of Florida was supposed to take care of. Apparently, they didn't take such good care of them.

2. Property Values Drop But Taxes Keep Going Up. If property values go down like they are now, how come taxes go up? Fair question. The story is on page 1 of Section A in the paper for July 11th as well. Seems like it's the fine print in that Save Our Homes tax law that allows for something called The Recapture Rule. It's going to impact about 100,000 homes in Pinellas County. I'm not sure I really understand it totally, but it allows the state to continue to reap scads of tax money despite a lessening of your property value. Didn't know about that little sidebar in the law? The legislature did, and they're going to use it to make sure you keep paying high taxes.

I wish somebody out there would start a blog like that with quick little factoids about how our elected guys do things like this to us. You'd have a lot of readers.

For more info on what's going on in Tampa Bay real estate, just visit my website at http://www.thestpeterealestatesite.com/.

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June Real Estate Report -- The Worst Words In Business

In business, I think there are probably two words that -- when uttered together in the same sentence -- represent the worst situation you can face.

Those two words are "bad" and "stagnant".

If a situation is "bad", most business people can take steps to correct the situation and sometimes a "bad" situation is really an opportunity in disguise. So, sometimes "bad" isn't so bad.

If a situation is "stagnant", there are any number of things that can generally be done to get the market moving again -- many of those things have to do with market stimulation brought about through advertising and other forms of marketing, promotion, price reductions and buyer incentives.

But when you have a situation in which a market is both bad and stagnant, well, what can you do? A bad stagnant market tends to remain a bad stagnant market until acted upon by a more powerful outside force -- that's Terry's first law of business physics.

Right now, the real estate market in Pinellas County is bad and stagnant and no outside force is on the horizon that can redirect that reality.

The proof is in the June numbers. Here they are ...

As usual, we'll start with a quick analysis of the Absorption Rate (AR) or inventory turn. This is determined, as you probably know, by dividing the number of units sold during the month by the total number of listings in the MLS.

For single family homes the AR for June was 7.5%. That's up a huge, mind-boggling, titanic 9/10ths of 1 percent from last month. Wow, an upward jump of less than 1%. Hmmm ... sounds like a pretty stagnant and pretty bad market to me.

By the way, two years ago in June, 2005, the AR for single family homes was 59.2%. I'm throwing that in just to remind you of how far this market has dropped. Sure, that was a great market, maybe the best ever. But boy, it sure makes this market look really, really bad doesn't it?

The condo AR was also stagnant. In June the AR was 4.0%. That's a drop of 2/10ths of a percent from May. Just to keep things in perspective, the high point for condo sales was April, 2005 when the AR was 62.2%. So when people say there's not much of a market for condos anymore, you'll know what they mean. Condos are both bad and stagnant right now.

So, how did Pinellas County do in real numbers in June?

Single family home lisitings increased, but only by 9 units as sellers continued to keep homes off the market hoping for better times. There were 9,111 homes in the MLS in June as compared to 9,102 homes in May. There must be a lot of pent-up frustration among home sellers today. I'm sure that the inventory of homes available for rent has increased greatly in Pinellas County as investors who bought homes at the high-point of the market hoping for quick profits now find themselves unable to sell and are forced to try to find tenants just to get a little cash flow.

Home sales are absolutely stagnant. June sales in the Pinellas MLS were 682 units. In May they were 602, April 615, March 687, February 594 -- all pretty similar numbers which indicates market stagnation. By the way, the median selling price for single family homes in June was $220,000 which is a decrease from the $260,000 median in May, but median prices jump around a lot and don't mean a lot. Most of the single family home sales fell into the $200,000 to $250,000 price range -- that's where 18.33% of sales were made so far this year.

Condo sales and listings continue to slump. In June, there were 8,954 condos listed for sale in Pinellas County. In May there were 9,066 and in April there were 9,280. The number of listings keeps going down but it is not because of increasing sales. In fact, condo sales are stagnant. In June there were 356 condos sold; in May 378; in April 355. Pretty flat sales data. And as you would expect, the median price for condos is heading downward; June $160,000; May $170,000; April $178,000 -- pretty dismal. So far this year, most condos are being sold in the $120,000 to $139,999 range, some 18.54% of total condo sales fall in this price range.

You know, I've been looking for months for some good news to write about and share with everybody. But all I have been hearing are "after" predictions from people who are looking back in history and trying to apply old rules to today's real estate problems. Those old solutions won't work because today's problems are different and the causes are different. So the solutions have to be different.

I've heard "After the elections in November the market will come back. It always does." It didn't.

I've heard "After the first of the year the market will come back. It always does." It didn't.

I've heard "After the tourists get here, the market will come back. It always does." It didn't.

I've heard "After the special session dealing with insurance premiums the market will come back." It didn't.

I've heard "After the special session dealing with property taxes the market will come back." It didn't.

So, all this "after" stuff is just a bunch of bull in my book.

Here's what I think.

If you want to change the real estate fortunes in Florida, first the Florida legislature has to get off it's duff and write a new property tax law for this state that is fair to every property owner including those who own investment property, second homes and businesses. I shudder to say this, but in a state with this kind of growth and the need for massive infastructure improvements, Florida may need a state income tax to provide revenue for continued growth. We are, after all, one of the few states that does not tax income. To continue to put the burden of paying for growth on the backs of property owners is a sure way to kill the real estate business in the state.

Second, the Florida legislature has to get off its duff and do something to control property insurance that is of benefit to the property owners, not to the insurance companies -- and say "no" to all these after-the-fact rate increases that keep popping up.

Third, the federal government needs to step up to the plate and spend some of our tax money to create a national disaster emergency fund so that areas that get blasted by things like hurricanes, forest fires, floods, twisters, earthquakes and the like have a federally-based financial solution to their problems. Tax money, you see, is supposed to be there to help the citizens who paid-in the money.

I hate getting political in this blogsite, but that's where I think a lot of the solution rests. The market is bad stagnant and the repairs may be politically based. Real estate agents and brokers can not solve this real estate problem because it is not of their making. Whether or not politicians can shed the lobbyists and make decisions for the benefit of everybody remains to be seen. If not, there's an easy way to fire them and hire some new politicians to take their place. And if that batch doesn't do it, fire them too! Eventually somebody will get the message and do the job. I just hope I'm alive to see it.

For more information on the real estate market in Tampa Bay, visit my website at http://www.thestpeterealestatesite.com/.

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Plain Talk About Real Estate Commissions

When I sell a property I own, I absoloutely hate paying a real estate commission. Really, I hate to do it. And I'm a real estate agent!

But I know that if I don't do it, I most likely will not sell my property as quickly or at as high a price. Figures from the National Association of Realtors have proven that's the case. Real estate agents sell property faster and for a higher price.

So, I grit my teeth and pay it. And I pay a full commission, no discounting. If an agent has a buyer, I'll give a full incentive to bring that buyer over and sell my property.

Even the St. Petersburg Times -- which for years has urged sellers to hire agents only as a last resort -- even they are now advising home sellers to hire agents and pay the full commission. Don't believe it? They ran an article to that effect on June 9, 2007, page 10, Section F, headlined "Agents: Commissions help move the merchandise". In that article the paper acknowledges that aggressive marketing efforts available only through real estate agents justify the commissions charged.

So, how 'bout some plain talk about real estate commissions from somebody who just hates the thought of paying them?

Here's what you should keep in mind.

Any seller who does not offer a full real estate commission is shorting himself an opportunity to sell his property. Here's why ...

Real estate agents get paid ONLY by commission. So if you reduce the commission you are also reducing the agent's income and taking away their incentive to show your property to prospective buyers.

If you're a seller, do you really think it is a good idea to cut somebody's income while asking them to do a full marketing program to sell your property? Remember, the agent has to pay for the marketing materials out of his own pocket in most instances. So if you cut his income, where's the incentive to the agent in a deal like that?

Do you think it's a good idea to reduce the amount of money you'll pay to an agent for brining you a buyer when there is a huge inventory of property similar to yours offering a full commission in the Multiple Listing Service? Where's the incentive to show your property when the agent could show similar properties and get paid a higher commission?

Cutting commissions is like cutting your own throat in the world of real estate today.

The St. Petersburg Times article stresses this reality: "In slow-moving markets glutted with homes for sale, listing agents seek to entice buyer's agents with high co-op commissions. Most commissions are split between the listing agent and the selling agent who brings the buyer to the table." Today you can't entice anybody to bring you a buyer with a discounted commission -- that's the reality of the situation and the reason to offer a full commission.

Sellers should take the advice offered by the St. Petersburg Times and be sure to offer a full commission. It's one of the best ways to entice agents to bring potential buyers to your property -- in fact, it's the best way. Remember, on average the listing agent finds the buyer only about 1 time in 11. So 10 out of 11 times the buyer is coming to you as a result of the efforts of the other agent. Do you think it is a good idea to offer that agent a reduced commission -- especially when owners of homes similar to yours are offering a full commission? Just keep that in mind when you start negotiating the listing fee for your property.

For more information about real estate in Tampa Bay, visit my website at http://www.thestpeterealestatesite.com/.

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The V-Shaped Recovery Model Is Great For Tampa Bay -- But Is It Real?

Way, way, way, way back when I was taking marketing classes in college, I remember the ol' professor talking about inverted bell-shaped recovery curves. Essentially, it meant that what was common in a market change was a slow downward trend followed by a longer period of no growth, then a slow upward recovery trend -- when he drew it on the blackboard it really did kind of look like an upside-down bell. He said the inverted bell shape was a good thing because you wanted markets to move slowly and steadily, not fast and eratic. "Remember," he would say, "when markets move up or down slowly you have time to make decisions. When things happen fast, well, you can end up losing a fortune."

Those were the years we can call "BC" for Before Computers. Computers put real time data into your hands, and the losers are the people who cannot or will not act on it immediately.

For example, take the latest predictions for real estate in the Tampa Bay area as developed by Moody's Economy and reported recently in Forbes Magazine. They call for three kinds of recoveries ...

• V-Shaped, in which the market falls fast and sharply, bottoms out quickly and climbs back fast and strong;
• U-Shaped, in which the market falls more slowly, stays at bottom a bit longer and then slowly recovers; (kinda bell shaped!)
• L-Shaped, in which the market falls fast and, unfortunately, stays there.

The researchers at Moody's are saying the Tampa Bay real estate market will experience a V-shaped real estate recovery. They base this on the strength of the local economy and the fact that subprime lending is relatively low.

The problem, they say, is that Tampa Bay has a high investor share which leads to a high vacancy rate. When the market turns south, investors are the first ones to leave, thus creating a glut in unsold housing inventory. That's why they think the market went sour in 2005. Tampa Bay is a pretty affordable market compared to other major metros, however, so the glut of unsold properties should disappear soon -- thus the V-shaped recovery pattern. In fact, some at Moody's believe Tampa Bay should burn off the unsold inventory during the first quarter of 2008 and that prices should then move upward at a rate of about 10.6% the following year.

I suppose this could all be true. The people at Moody's are smart -- a lot smarter than me and they have access to all kinds of data and computer models and research of every kind. Me? Well, I'm just a real estate agent and market observer with old ideas from the years BC. But it seems to me that the problems with real estate in Tampa Bay are as much based on politics, taxation, insurance, income levels, mortgage rates and other things as they are based on market conditions and investor goals. I don't think Moody's is taking that into account. So, I have to say that I still believe that until the property tax, insurance and personal income problems are addressed in Florida, the real estate market in Tampa Bay and everyplace else in this state will remain depressed as compared to where it was in the early years of this decade.

I think we are looking at a recovery that may begin in 2008, but not until the citizens vote on tax reform measures and those measures are put in place by the legislature. If we have a real estate bounce-back, it will depend greatly on the results of that election. If people vote to reduce property taxes, then I think we are looking at my old college professor's inverted bell-shaped recovery model instead of Moody's V-shaped model. I think the market is going to bounce back, but I think it will take a longer period of time than do the people at Moody's.

If the people vote not to reduce the property taxes in this state, kiss the real estate recovery good-bye, and there's not one thing that Moody's can say that will change that. Instead of being a V-shaped recovery, we'll have an L-shaped real estate market. It all depends on the election.

For more information on real estate in the Tampa Bay area, visit my web site at http://www.thestpeterealestatesite.com/.

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