Has The Market Bottomed Out?

This past weekend I met a rather well known real estate agent at an open house in St. Petersburg, Florida. She told me that real estate prices are now as low as they are going to go; in other words, that the market has bottomed out.

"What do you base that on," I asked.

"Oh, just a feeling and I see more buyers in the marketplace now than I did a month ago," she said.

"Really," I said. "How many buyers came to your open house today?"

"Including you?"

"Yes, including me."

"You're the only one."

Folks, despite what some agents are saying and what the University of Florida has reported and what the National Association of Realtors is suggesting, I just don't think the market has reached bottom yet. I think prices are going to get lower. Much lower.

The market won't bottom out until bona fide buyers enter the marketplace and start buying property. At that point, sellers will not have to reduce their properties by huge amounts of money just to get them sold. When that happens, the market will find some price equilibrium and will have bottomed out. Right now, we are not at that point. Here's what I base my opinion on.

1. Lack of buyers. Right now there just are not enough buyers in the market. Now, don't confuse "lookers" and "those who would like to buy" with real buyers. Real buyers are motivated to buy NOW, have a pre-approval letter from a mortgage company, are working with a real estate agent, and have a legitimate reason to buy property. They have done the necessary homework so that when they find a suitable property they can act immediately and make a suitable offer on the property. Plus, they have the financial means to complete the transaction. That's a buyer. They are scarce.

2. Taxes & Insurance. Despite the recent efforts of the Florida legislature, the problems associated with property taxes and insurance have not -- repeat, NOT -- been resolved. The legislature is bouncing around some ideas regarding taxes (some of which are just plain crazy) and has passed a measure that is proving to be disappointing regarding the reduction of insurance premiums. Until we have fair taxation legislation in Florida and affordable property insurance, buyers will not re-enter the marketplace in sufficient numbers to alter the present conditions and force the market to bottom-out.

3. Mortgages. I have the feeling that the failure of the sub-prime mortgage market is going to have a negative effect on the entire mortgage business. Reason? I think that mortgage companies as a whole are going to tighten credit requirements. No longer will prospective buyers be able to get 100 percent financing on a house when they have a marginal credit score. I think you will see more and more buyers delaying the purchase of their home until they have saved enough cash to make a downpayment of at least 5 percent and possibly the return of downpayments of from 10 to 20 percent. On the one hand, this is good because it will encourage Americans to save money. On the other hand, it will slow down the recovery of the real estate market by keeping buyers out of the market longer. Remember, a lack of buyers is what is keeping the market from bottoming out.

4. Prices Are Too High. Many sellers are simply pricing their properties too high. Buyers look at these high prices and become discouraged that their offer will not be accepted, so they don't make any offer. Until buyers start making legitimate offers, the prices will continue to need to be lowered by sellers. Sellers haven't gotten this message yet, so prices have not bottomed out yet. Simple as that.

Other real estate executives have recently said that the real estate market is improving in other parts of the country, and that people from "up north" will sell their houses and take the money and invest in Florida real estate. To me, that's just wishful thinking. If that's the case, why hasn't it happened this winter during the traditional real estate buying season? You can look at the absorption rate for real estate in Pinellas County for December, January and February and see that there just is not enough buying activity during the so-called "peak" season. The reason those people are not buying? Read items 1 through 4 above. Northern visitors know what's going on in Florida real estate just as much as do local folks.

Well, that's my opinion about the market bottoming-out. Maybe you feel differently. Or maybe I've overlooked something. If so, let me know.

In the meantime, if you would like to know more about the real estate market in Tampa Bay please visit my website at www.TheStPeteRealEstateSite.com.

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The New Star That's Out Of Alignment

Those of you who read this blog regularly have heard me refer to housing prices, mortgage rates, taxes and insurance as the stars that must be properly aligned in order for the residential real estate market to complete its correction and for things to return to some new standard of normalcy.

Well, another star has just jumped out of its alignment and it probably will have a negative effect on the long awaited real estate recovery.

The star that has stepped out of line is mortgages, specifically the subprime mortgage sector.

David Lereah, chief economist for the National Association of Realtors said "Lending problems in our nation's subprime marketplace are building, which could inhibit future housing activity and further dampen our forecast." Translated, this means that Lereah is still predicting a market recovery, but it is going to be later and probably more modest than he first thought.

Here's what I think this subprime mess (and "mess" is the word to use) really means.

First, I think it is going to be harder for home buyers to get a mortgage. People with weak credit ratings are going to have a hard time qualifying as mortgage companies start taking a harder look at the creditworthiness of borrowers. Easy access to mortgage money is one of the key things that fueled the housing price increases in recent years, brought out loads of speculators and caused overbuilding in many sectors of the housing industry including the condominium market. Tightening up credit requirements will slow everything else down. Period. Remember, nothing in housing moves without access to money.

In this area of Florida, 15.7 percent of all mortgages were subprime in 2006. Now, this is not to say that all of these mortgages are going to fail -- hopefully most will be good. But a certain amount of them will surely have to be foreclosed. Whose fault is it? The borrower's, to be sure. But let's not overlook the guilt of the greedy mortgage companies who were ever so willing to loan money to people who were not creditworthy -- and at higher than normal interest rates I might add.

Second, buyers are going to need cash to buy a home. I think the days of 100 percent financing may be about over and mortgage companies are going to want to see some equity in these homes. I'm thinking the good ol' days may be coming back, and that means home shoppers will likely need to put from 10 to 20 percent down in order to make a home purchase. For people with good credit but who are short on cash, look toward using VA benefits or FHA programs. Sounds like a great excuse to bring back an old time financial strategy -- open a savings account and start saving part of every paycheck to get your downpayment money. (That's how people used to do it -- remember?)

The St. Petersburg Times summed things up beautifully in their little article about the subprime mess. They said that stringent credit requirements will result in fewer home buyers. An increasing number of subprime foreclosures will put even more houses on the market. Fewer buyers and more houses mean it will likely take even longer to sell a house. Frankly, I think it also means sellers will have to further reduce asking prices as the inventory increases and the number of qualified buyers decline.

Despite all this I'm seeing signs that buyers are on the move again, spending time looking at property. That has to be a good sign. I just hope they can all make a downpayment and qualify for a mortgage, don't you?

For more info on Tampa Bay real estate, visit my website at www.TheStPeteRealEstateSite.com.

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How Long Does Household Stuff Last?

When you do a home improvement or buy some new appliances, you want your money's worth right? You want the things you buy to last and look good. You don't want to have to spend the money again in a few years.

So, how long should stuff last?

Naturally, that question has been answered by a "study" sponsored by Bank of America Home Equity and the National Association of Home Builders (NAHB). Apparently they can put a number on the lifespan of a home improvement. They are quick to caution you however, that these numbers are averages and often depend on where you live and how you maintain the items.

Here are some of the highlights ...

Wood decks - 20 years (in Florida????)
Kitchen faucets - 15 years
Linoleum floors - 25 years
Furnace - 15 to 20 years
Kitchen cabinets - 50 years
Interior paint - 15 years
Gas range - 15 years
Dryers - 13 years
Refrigerator - 13 years
Compactor - 6 years
Dishwaser - 9 years
Microwave - 9 years
Natural stone countertops - Lifetime
Cultured marbel countertops - 20 years
Shower door - 20 years
Kitchen sink (acrylic) - 50 years
Whirlpool tub - up to 50 years
Wood flooring - 100+ years
Vinyl floor - 50 years
Carpeting - 8 to 10 years

If you would like to see the entire study, here's the link: www.nahb.org/components.

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Interesting Stats

Here are some interesting statistics for sellers and real estate agents.

Right now in Pinellas County, there is a 21-month backlog of condominiums for sale in the MLS. To clear out the existing inventory of single family homes will take from 16 to 18 months. Remember, 6 to 9 months of inventory constitutes a buyer's market, depending on which economist's definition you want to use. So, it's pretty clear we are in a very strong buyer's market today.

Oh, and remember the "good ol' days" when buyers used to run-up the price by bidding against each other for property. Those days are gone. The average difference today between asking price and selling price for a single family home stands at 28% in Pinellas County. Or, you can say that single family homes are averaging only 72% of their asking price. The difference for a condo stands at around 40%, or is selling for an average of only 60% of it's asking price.

Here's another reason why so many sellers are anxious about selling their property. A cool 43% of the properties in the MLS system in Pinellas County are vacant. Not only does the seller not live there, but the property is not generating any income to offset the costs of ownership.

This information comes from the Pinellas Realtor Organization. If you would like to know more about real estate in Pinellas County, visit my website at www.TheStPeteRealEstateSite.com.

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It's Official: The Housing Market Has Bottomed Out

A new study from the University of Florida states that the housing market has finally bottomed out. So, it's official. It comes from the University of Florida's Bergstrom Center For Real Estate Studies, so it must be so. The University says prices have now bottomed out and that buyers need to act now because prices will start going up soon.

How did the University come to this conclusion? They took an on-going survey of real estate professionals who feel that housing prices are now "maintaining the same level as inflation", so prices are now in some kind of equilibrium.

In other words, this is just the opinion of people participating in a survey.

Other economists and business analysists question this conclusion from the University.

Among those questioning the report are people at Moody's who think real estate prices still have a way to fall this year before reaching the bottom. In January, the median price in the Tampa bay area for a single family home fell 7 percent and the supply of homes for sale continues to increase. In Pinellas and Hillsborough Counties alone there are over 34,000 existing homes on the market and the slow sales environment means many of these properties will continue to stay on the market for some time to come. This is more than twice the normal inventory level and will take over 16 months to sell at current sales levels. Equilibrium in the marketplace is generally considered to be a 6-month supply of homes, according to an economist from Moody's. Given this supply-and-demand situation, I think prices will drop even further in the coming months -- it's just basic economics.

There is not a real estate agent in the area who has not seen some market improvement in the last 30 days or so. Some prices have fallen and sellers seem ready to negotiate lower prices and are reducing prices on houses being marketed. But improvement does not mean the market has bottomed out. The asking prices for single family homes today are still too high in the opinion of many market experts and economists who have studied real estate in the Tampa Bay area.

When do I look for the market to bottom out? To be candid, I can't put a date on it. But I think it will reach bottom when the legislature finds some way to lower Florida property taxes and adjust the various inequities found in the state's property tax code, and when the insurance issues that have plagued this state far too long are corrected.

When those two items are addressed in Tallahassee, then I see buyers coming back into the market to take advantage of the large inventory levels and low mortgage interest rates. This may take place during this legislative session. When buyers come back into the marketplace and start writing loads of contracts, that's when the market will have bottomed out because there will be no reason for sellers to continue to lower prices further. It's as simple as that -- and that ain't now.

Regarding the University's proclamation, I feel that a mere report from the University of Florida proclaiming that the market has bottomed out is much the same as President Bush standing on the deck of an aircraft carrier proclaiming "mission accomplished" in Iraq several years ago. It just ain't so.

For more information on real estate in the Tampa Bay area, visit my website at www.TheStPeteRealEstateSite.com.

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Boy I Wish I'd Kept My First House

I bought my very first house about 1978. It was a nice concrete block 3 bedroom, 2 bath house with a family room and a 2-car garge sitting on a lot that was about 100 feet wide and 125 feet deep. It was in a real nice neighborhood in northeast St. Petersburg, Florida. I later built a very large swimming pool that I designed myself. I lived there for about 16 years or so.

I wish I had that house today. As a long term investment, it would have been simply outstanding. According to the Office of Federal Housing Enterprise Oversight, since 1980 home prices in Florida appreciated by 388.92 percent. Who'd a thunk it?

Just for fun, I went through the MLS system and took a look at recent home sales in that old neighborhood. Sure enough, selling prices there are now in the $250,000 range with some houses going for a bit more. In 1978, I paid $38,000 for that house. That would have been a pretty darn good investment, don't you think? But of course, I sold it years ago.

This kind of appreciation is not unusual in real estate, but Florida has a pretty good track record for taking small investments in property and turning them into large sums of money with nothing more than the passage of time. For example, the Office of Federal Housing Enterprise Oversight reports that the Tampa Bay area ranked 36th in the nation in residential housing appreciation with one year house appreciation of 11.42 percent.

Prices increased 1.64 percent in the last three months of 2006, and were up a healthy 98.64 percent for the previous five years. Not too bad.

You can get more of these statistics at www.ofheo.gov. And if you'd like to know more about property in Tampa Bay, visit my website at www.TheStPeteRealEstateSite.com.

February Sales Improved

Ask most real estate agents and they'll tell you that they think there's more market activity today than there was last quarter. They are right, I'm sure of it. The thing is, we must not confuse market activity with sales activity. The simple fact is that while there appears to be more and more buyers moving about in the marketplace and looking at real estate, there has not been a corresponding increase in the number of sales.

February sales figures prove it.

We will begin, as always, with the Absorption Rate. For those who don't know, the Absorption Rate is actually the inventory turn. It is determined by dividing the number of units sold during the month by the total number of listings in the MLS system.

For February, the Absorption Rate for single family homes was 5.4%. This represents an increase over January's Absorption Rate of 4.2%, but it is really nothing to write home about. By comparison, the Absorption Rate for February 2006 was 12.2% and for February 2005 it was 34.3%. Ah, the good ol' days!

The Absorption Rate for condos was still dismal. It was only 3.5% as compared to 2.8% for January. In February 2006 the Rate was 8.8% and in February 2005 it was 34.5%. Condos just keep taking it on the chin and I don't see an end in sight for them.

If you're a seller, man-o-man-o-man do you have competition. In Pinellas County in February residential listings in the MLS reached a total of 18,242 properties. If you drive through virtually any neighborhood you can read real estate signs as if they were outdoor billboards along the highway back in the 1970's. Sign after sign after sign after ... well, you get the idea.

Out of all those listed properties, only 848 of them were sold in February. That figure is, however, an increase over January's total sales figure of only 644 sales. Still, 848 is pretty sorry. Let's break down the sales and see what sold.

Single Family Homes

Of the 11,003 single family homes in the MLS at the end of February, 594 units sold. Of the sold units, about one-third of them were priced from $200,000 to $400,000. The median sales price stood at $196,000 at the end of February for a single family home in Pinellas County, down from the median price of $207,500 at the end of January, so it might be that prices are getting lower.

By the way, the MLS system is also reporting that 29.12% of the single family homes in the MLS have been on the market in excess of 120 days -- that's a lot of inventory with a long time on market, and that probably means a lot of frustrated sellers who might be willing to negotiate a great deal just to get out from under the payments.

Condos

Of the 7,239 condos in the MLS at the end of February, 254 sold. The median price for condos stood at $185,000 which is down from the $200,000 median in January of this year. I'll be honest about median prices with condos, they bounce around like crazy. Last fall the median was in the $150,000's, then they moved up, now they're moving down. I think the reason is because there are so few sales that if a few high dollar condos get sold the numbers go up and vice versa. I don't think I'd read too much into condo median prices. The thing that is important to note is how weak the condo market is right now. And still the developers build more of them. Go figure.

By the way, the price range that seems to sell the best is condos in the $250,000 to $400,000 range, with another bump in sales in the $120,000 to $139,000 range. Those high dollar luxury units seem to be sitting unsold with condos priced at $900,000 or more representing only about 3.5% of the total February sales, but accounting for over 10% of the condo inventory. So, if you are selling high dollar condos, better be real patient. Overall, condo sales are down 48.6% from where they were a year ago.

My Take On The Matter

So what does all this mean? The first thing that comes to my mind is that this must be about the best time in several years to be a buyer. Think about it ... loads of inventory ... frustrated sellers ... falling median prices ... stable and low mortgage rates ... a great negotiating postion. Man, if I wanted to buy property I can't hardly think of a better time than now -- especially if I was buying for the long term.

For sellers, maybe the picuture isn't quite so bright. It's clearly a buyer's market so you need to act prudently. Reduce the asking price ... consider every offer as serious ... be ready to negotiate ... make sure you're doing a lot of marketing to attract the buyers who are out there ... be patient. If you're smart you can still find a buyer willing to pay a handsome price for your property, you just have to put forward more effort and more time.

Well, that's it for this month's report. By the way, if you'd like more info on real estate in Pinellas County be sure to see my newly updated website at www.TheStPeteRealEstateSite.com.

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Buyers: It's Time To Get Started

It appears to me that the stars are once again coming into alignment.

Why? Well, it looks like some positive things are happening on the property insurance front that will make insuring a new home a bit more affordable.

The property tax star seems to be moving into alignment with the insurance star -- the legislature is talking about bringing down property taxes and they probably will have something for voters within this current session, so by late spring this matter might be squared off.

Mortgage rates are steady and show no real signs of going up, and if they do move up it probably won't be very far.

And the final star, property prices, looks good too as sellers seem very willing to negotiate prices and grant other concessions to buyers.

I don't know about you, but if I was a buyer these are the kind of signs I'd be looking for. So, if I was in the market for a new home or investment property, I think I would start doing the following things ...

1. Go see a reliable mortgage broker. Before you start your "house hunt", you should know how much house you can afford to buy and what kind of monthly payments you can comfortably afford. There's no reason to go looking at million dollar homes if you have a $200-thousand dollar budget.

2. Jump on the internet. There are loads of sites where you can do some preliminary house hunting, see what your money will buy, and just get a feel for what's on the market.

3. Drive the neighborhoods. Once you know how much home you can afford to buy, drive the neighborhoods in which homes in your price range can generally be found. See how you like them. Select the neighborhoods you like and eliminate the neighborhoods you don't. If you're looking for a condo, visit the community and talk to any of the owners who happen to be outside.

4. Find a good real estate agent. Now is the time to go see a real estate agent. Tell the agent exactly what you are looking for, what the house absolutely must have, where you want to live, and show them some of the internet listings that you think look interesting. Make sure your agent has a copy of your pre-qualification letter from the mortgage company; this will help the agent negotiate better on your behalf since the seller will know you are a serious, qualified buyer.

5. Make only serious offers. Sellers may be highly motivated to sell right now, but nobody's going to let you steal their property. Make legitimate offers and make reasonable requests for closing terms. Getting an offer rejected is a waste of time for everybody involved.

I think the time to get started is right now. Real estate agents I talk to all say buyer activity is picking up, which means offers and contracts can't be far behind. If you snooze, you loose.

For more information on real estate in the Tampa Bay area, visit my website at www.TheStPeteRealEstateSite.com.

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