Property Values Drop Even More

In case you missed it, S&P/Case-Shiller just released more data showing that housing values in the Tampa Bay area continue to fall. To dive. To tumble. To, well, you get the idea.

For the year ended in March 2008, prices fell 19.6 percent. This was the seventh worst price decline among the twenty cities used by Case-Shiller in their study. The national average was a 14.4 percent decline, and that was the steepest drop in the study's 20-year history of tracking such movements.

It could have been worse. Las Vegas showed a 25.9 percent decline. Miami, 24.6 percent. Phoenix, 23 percent. Los Angeles, 21.7 percent. San Diego, 20.5 percent. San Francisco, 20.2 percent.

Have you noticed how these big price declines are in cities that had huge run-ups in prices a few years ago thanks to speculators? Interesting. What goes up must come down.

The reason I like Case-Shiller is because it tracks repeat sales of individual homes. The study started with a base value of 100 for the year 2000. Today, the Tampa Bay area has an index of 182.26, meaning that since the year 2000 property values are up by 82.26 percent. The index also shows that prices are way off from where they were in July 2006 when the area was at its peak. Nationally, the index is at 166.97, meaning prices are up 66.97 percent.

So, if you bought a house in 2000, you're still doing quite well. If you bought at the peak of the market in 2005 or 2006, things aren't so rosy for you today. As the old joke goes, it's all about t-t-t-t-timing.

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

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Math Doesn't Add Up

There's an encouraging story in the St. Petersburg Times today, written by good ol' James Thorner, that essentially says that 60-percent of people who currently live in Pinellas County can afford to buy a median priced home.

The paper reports that our median family income is now $56,500 and that the median home price is $167,000. If you take the standard home expense of not exceeding 3.2 times income, 60 percent of folks here can afford the median home.

Not so fast! Not so fast.

Granted, the median family income has gone up to $56,500 based on data I found on the internet this morning. But where did that $167,000 median priced home come from?

I grant you that home prices have been falling for the past couple of years, but in Pinellas County the median has not reached $167,000 just yet.

According to the Pinellas Association of Realtors, the median price for a single family home in Pinellas County in April was $178,000. In March it was $180,00. It was $179,000 in February and $176,500 in January, 2008. In fact, the last time we had a median price approaching $167,000 was in February, 2003 when the median price was $168,000 -- and that was over five years ago!

Unless I'm missing something, it somehow doesn't seem right for the authors of this study to use up-to-the-minute (and presumably higher) income data with five-year-old (and presumably lower) pricing data, and then jump to the conclusion that housing is somehow very affordable in Pinellas County for 60 percent of today's residents and prospective buyers.

Does that seem right to you? Doesn't seem right to me.

Let's take a look at the source for this information. Sure, it was reported in the Times, but where did they get it?

Ahhhhh ... the source for this data is a survey conducted by the National Association of Homebuilders (NAHB) and Wells Fargo. Last time I checked, the NAHB was a trade organization whose role was to help promote home ownership and represent the interests of home builders. Let's see, do you think they might have a vested interest in making things look rosy? And Wells Fargo is one of the largest mortgage bankers in the country. Do you think their interest in writing new mortgages might lead them to co-sponsor extra-rosy survey conclusions?

Sometimes I think you have to be a little suspicious of the source for data. Seems like I learned that when I was a student journalist at the University of Florida back in the 1960's.

Here's the other thing that isn't being discussed in the story. The simple fact is that the total cost of owning a home is not being used. Total home costs consist of principal, interest, taxes and insurance (PITI). Looks to me like NAHB and Wells Fargo only considered the costs associated with the principal and the interest for the mortgage. I'll bet they did not consider Florida's still outrageous property taxes and equally outrageous insurance costs when calculating that 60-percent of us could afford the median priced home.

I think they should have. After all, taxes and insurance are part of every monthly house payment. Prospective home buyers sure do include those costs in their calculations of affordability. Find me a real estate agent who has not been asked about taxes and insurance costs related to a home purchase in the last few years. Find one. I dare ya. I double-dare ya!

Look, here's the reality of the situation. If you take that $56,500 average household income and project 3.2-times income, the average household can afford a house costing $180,800. But then you start reducing that price due to taxes and insurance. When you do that, housing affordibility starts to drop pretty far, pretty fast and a lot of people have to start buying property below the median price.

I wonder how many of those at NAHB and Wells Fargo who sponsored this report have shopped for a house priced below the median in St. Petersburg. It can be pretty discouraging when you see how little your money buys around here. To me, we won't really have a fully recovered real estate market until the family earning the average income can afford a decent home in a nice, safe neighborhood. And if you're shopping below the median price today, finding that can be pretty darn discouraging.

So, I guess one of two things has to happen. Either house prices have to keep coming down, or local employers need to start paying better. Which do you think will happen first?

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

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The End Of The Beginning

In November, 1942, British Prime Minister Winston Churchill made a speech in which he theorized that then recent events marked a turning point in Great Britain's death struggle with Nazi Germany. His words: "Now is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."

Churchill's words seem to summarize how I feel about recent real estate information related to the much discussed "market collapse" that is creating so much financial and mental discomfort for everybody. I don't think we are at the end of the real estate correction. I don't think we are even at the beginning of the end of it. But perhaps, we are seeing the end of the beginning of it and can actually tell that the light at the end of the tunnel is not an oncoming train.

Everything I read from well-informed sources and all the figures I see from the Pinellas Realtor Organization and others, indicate to me that perhaps we in the Tampa Bay area are at the end of the beginning of this real estate cycle. We're still treading water, but the rescue might happen pretty quickly. Here's what I think we will see in the next 18 months or so ...

• I think residential prices will continue to fall for the rest of this year, but I believe the pace of the price declines will begin to slow soon. In the past year we have seen prices drop about 18 percent over the previous year. That kind of price adjustment can't continue much longer, any more than the double digit increases of 2004 and 2005 could have been sustained. I think prices are close to bottoming out, but still have a way to go before stabilizing. So if you've been holding your breath waiting for prices to drop, well, I think now you can start exhaling some of that air.
• As prices stabilize at lower levels, more and more buyers will come back into the marketplace. These buyers will make offers based on the then current market conditions, and sellers will be forced to accept these offers thus setting new and affordable market levels for housing.
• As residential prices become more affordable, the current inventories of unsold properties will be reduced through normal market activity. Pent-up buyer demand, however, will mean that these properties will be sold quite quickly. Once the buying starts in earnest, I think a lot of inventory will be sold in about a one year period starting in late 2008 or early 2009.
• Eventually the market will reach a level of equilibrium and there will be a five to six month inventory of unsold property on the market. It will not be a buyer's market or a seller's market, just a market in equilibrium with normal buying and selling activity similar in many ways to market conditions in the years before the "great run-up".

My crystal ball, which has been dark for so many months, tells me we will have a prolonged period of market equilibrium probably beginning about 2010. The ball tells me there will not be a V-shaped recovery as some analysts have predicted in which the market looses value quickly, hits bottom hard, and then rockets skyward almost immediately. Rather, the old ball predicts a recovery that will be more check mark-shaped in which the bottom of the market is reached fairly steeply (as we now see), then gives us a long period in which conditions remain fairly flat with a slow and gradual upturn in prices.

Of course, the old crystal ball comes with a few disclaimers in bold print. All these predictions assume that mortgage interest rates remain affordable and mortgage funds remain available. I think they will because certain safeguards have been enacted recently and it is to the advantage of mortgage bankers to continue to make mortgage loans -- after all, that's one of their primary sources of income.

The disclaimer also assumes that government somehow finds the ability to reduce its size and costs and to enact a simple, fair and equitable property tax system in Florida for all residents.

The disclaimer further assumes that the State of Florida can find some kind of justifiable and affordable method of offering windstorm insurance to property owners through the private sector rather than endangering the financial health of the entire state by public sector funding of this insurance.

Finally, the disclaimer assumes that recession fever doesn't last too long in the overall American economy. Simply put, people don't buy houses when there is a recession.

There you have it, some good news albeit tempered a bit with some long-standing problems that still remain worrisome. Like I said, it's the end of the beginning.

Given this kind of news, if I was a buyer I'd go house hunting right now while the selection is at its best and sellers are willing to negotiate. This may be the best time to buy in years.

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

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Don't Let Nerves Get The Better Of You

There's no doubt that selling or buying a house is a time of stress. After all, there's a lot at stake -- a lot of money is on the line, dreams for the future, memories of the past. Consequently, sellers undergo a lot of anxiety, and buyers feel tension almost every minute leading up to the closing.

In my years in real estate, I've seen both buyers and sellers come virtually unstrung during real estate transactions. I've also seen many real estate agents who come unglued worrying about unsold listings or buyers who can't find that "perfect" new house.

If you're spending sleepless nights fretting about real estate -- or anything else for that matter -- here's some advice that may prove more valuable than Valium.

Pressure is when you concentrate on the outcome instead of the process.

So, what does this mean?

Let's use golf as an example. The idea in golf is to get your ball into the hole with the fewest number of strokes. Too many golfers stand on the first tee and start worrying about sinking their last putt before they've ever hit the first ball of the day. The tension of trying to make a low score becomes so overwhelming that they can't even hit the ball down the fairway and end up in the lake or the trees or those ever-present sand traps. Making a low score becomes more than a goal, it becomes an all-consuming obsession that some golfers worry about by night and fret about by day. When they add up their score, it's colossal. Why? Because they have concentrated on the outcome (their score) instead of the process (hitting a good shot).

Golfers who shoot low scores -- like Tiger Woods or Gary Player -- have learned to stay in the moment. They think only about the task that is immediately in front of them, and that task is to hit that one shot as well as they can. They don't worry or even think about the results of the shot, just about making a solid swing with the proper club. The results will then take care of themselves. In other words, they concentrate on the process (hitting a good shot), not on the outcome (their score).

So, how does this apply to the world of real estate?


Simple really. You must concentrate on the process of obtaining the sale or finding the right house. This means paying attention to the tasks that are immediately in front of you -- like marketing, showings, open houses, negotiating and the like. These are the things that make up the process involved in selling or buying a property, and if you do each of them to the best of your ability the outcome will be a sale in due time without a lot of sleepless nights, tension headaches and upset stomachs.

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

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April Brings Some Small Improvement

The April sales report has just been released by the Pinellas Realtor Organization, and the figures show some small improvements. Let's take a look ...

We will begin as always with the Absorption Rate (AR), or inventory turn, for the month.

For single family homes in Pinellas County, the AR for April was 6.3%. That's an improvement over March's AR of 5.4%, and in this market I'll take any kind of good news. A year ago in April of 2007, the AR was at 6.7%. Hmmm ... every time I find a little good news I find a reason to not cheer too loudly.

For condos, the AR for April was 4.1% as compared to the March AR of 3.6%. The AR for April of 2007 was 3.8%, so that's a legitimate improvement over the same period last year.

So much for percentages, which can sometimes be misleading. Let's take a look at hard numbers ...

Single Family Homes

Single family home listings are down. This could be because some sellers have just given up and taken their properties off the market in the hope of better times in the future, or they've put them into some kind of rental situation. Or, maybe they just decided to keep the house. Who knows?

For April, 8,757 single family homes were in the MLS system. By comparison, 8,872 were on the market in March. So, listings are down a little. This is actually the lowest number of single family listings since May of 2006 when there were 8,564 in the MLS system.

The good news is that the number of homes sold in April was an improvement! During April there were 549 homes sold in Pinellas County as compared to 481 in March. In fact, home sales have been improving each month during 2008. Still, home sales lag as compared to April of last year when 615 were sold. So, year over year, single family home sales are down.

The median price of single family homes continues to drop. For April, the median was $178,000; for March it was $180,000. When you compare April's median to the same month last year, the median price has dropped 16.2% in Pinellas County. We had a similar median price in November of 2003 when the median for single family homes stood at $177,000. So, does this mean prices for single family homes have rolled back to 2003 levels? Some might say it is beginning to look that way.

Condominiums

At first glance, condo sales seem to have improved. But we need to take a second look to see what is really happening.

The number of condo listings in April stood at 7,698. In March it was 7,915. So, there are fewer condos on the market now than last month.

Condo sales took a nice jump in April as compared to March. In April, 319 condos were sold in Pinellas County as compared to 282 in March. But don't start saying the condo problem has been solved. It's not.

If you look at sales of condos in April of 2007, you will find that 355 condos were sold during that month. So, year over year, the number of condo sales are down. Forget about the AR which shows an improvement; the hard numbers show that condo sales are down compared to the same period last year.

What about the price of condos? The median price continues to fall and for April '08 was down to $172,000; in March it was $177,900. That's a $5,900 drop in median price in 30 days. That's pretty bad news if you're a condo owner trying to sell for top dollar.

Here's what it all adds up to: Listing inventory today is down 2,000 units compared to April 2007, and residential unit sales (homes + condos) are down by 102 units April '07 to April '08. If you were to look at things from a bit longer perspective, in April 2008 there were a total of 868 properties sold; in April of 2005 there were 2,215 properties sold in 30 days. Quite a difference.

If you're a seller there is some good news here. Fewer listings on the market means a little less competition for buyer attention. That's good for sellers, but bad for buyers. For buyers, fewer properties on the market means your choices are a bit more limited today and your ability to negotiate may be just a bit weaker since sellers know you don't have quite as many buying choices as you did a year ago. It's still a strong buyer's market, but perhaps not quite as muscular as it was a year ago.

For more information on real estate in Pinellas County, visit my website at http://www.thestpeterealestatesite.com/.

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How Much Value Lost Depends On Where You Live And What You Own

As you know, I have been writing that property values throughout Pinellas County and the Tampa Bay area have dropped from 17 to 18-percent during the past year. Now, Zillow has confirmed those figures in their online real estate service and the data was published in the St. Petersburg Times on Tuesday, May 6th.

New homes seem to be the hardest hit by these price declines. Places where new construction was prevalent -- New Tampa, Wesley Chapel, Land O'Lakes, Riverview -- seem to have lost upwards of 17 percent or more during the past year. The more established communities -- St. Petersburg, Oldsmar, Safety Harbor -- seem to be holding their values a bit better, but are still down from 13 to 17 percent over where prices were a year ago.

According to Zillow, the overall median value for the region is now $166,000, a drop of 17.1-percent than the median for the same period in 2007. Remember, median value peaked in mid 2006 at $215,500 for the Tampa Bay Region.

Here's something else the Zillow data shows: The farther the property is from an urban center, the greater it depreciated. Pasco County values dropped an average of 19.3-percent while Hernando County showed losses of 20.5-percent.

These new-home-versus-old-home and location differences don't hold up all the time. Zillow singles out property on Redington Beach as an example. According to Zillow, Redington Beach is a top price drop area because of its oversupply of condos. Redington Beach and virtually all the Gulf Beach communities show price drops of about 20-percent for 2007, despite a location in urbanized Pinellas County. Those older homes in neighborhoods like St. Petersburg's Old Northeast and parts of Port Richey that appreciated so quickly in the last few years are taking it on the chin now too, dropping in the 17 to 20-percent range during the last twelve months.

What this all means is that sellers need to keep these price declines in mind when setting prices on properties for sale and when considering offers from buyers. Smart sellers know that a property is worth only its market value at the time it is being sold, no more and no less. If a property has been on the market for several months without a reduction in asking price, it might be time to bring it in line with current market conditions -- whether you like those conditions or not.

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

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Is Your House A Bad Apple?

If your property has been on the market month after month with no offers, that may be a sign that you need to lower your price. Here's why ...

Imagine that you go to the supermarket and are deciding which of two apples you want to buy. You have an apple in each hand, one is 75-cents and the other is only 50-cents. Both are the same size, same deep, red color, weigh the same, look the same and probably will taste the same. If you're like most shoppers you are probably asking yourself why you should pay more for what appears to be the same thing. Like most people, you'll put down the 75-cent apple and buy the 50-cent apple.

Well, along comes the next apple shopper who does the same thing, picks up the two apples and puts down the 75-cent apple. The next shopper picks up the 75-cent apple and puts it down. Up, down. Up, down. Up, down.

Pretty soon, that 75-cent apple has been picked up and put down, day in and day out by shopper after shopper. In a few days, it starts to look pretty beat up and bruised. It's not nearly as shiny anymore and doesn't look as appetizing. It's lost its appeal.

So, in order to sell the 75-cent apple, what does the produce manager have to do? Why, he has to drop the price. First he lowers the price to 50-cents, but the apple doesn't look as red and fresh as the 50-cent apples, so he has to cut the price again, this time to 35-cents and eventually to 25-cents in order to get that beat-up old apple to sell.

Don't you think the produce manager should have priced the apple at 50-cents to begin with? He would likely have sold it quickly, made his profit, and been on his way to the bank with the money.

The same thing holds true in real estate. People shop for real estate the same way they shop for apples. They use the principal of substitution. This principal states that there is no reason to pay a higher price for two essentially similar items. People will consistently buy the lower priced of two equal products.

Your property is probably pretty similar to other houses in your neighborhood. If it is overpriced, people will buy the other houses in your area and not make offers on your house. After time, your house starts to look worn and tired no matter how hard you try to keep it looking fresh. In addition, buyers know it has been on the market for a long time and so do the real estate agents who work in your area. The natural question for buyers and agents is "what's wrong with that house that nobody wants it?" So, they stop coming to see your place.

After a number of months, you lower the price to where it should have been in the first place -- just like our 75-cent apple finally got priced to 50-cents. But by now your property is an old, tired listing and there's no real excitement from anybody about coming over and seeing it. So, you have to lower your price again and again. Eventually, you end up selling the house for less than its true market value.

This illustrates why overpricing is a bad idea. A house that is overpriced at the beginning of a listing period usually spends a much longer time on the market and eventually is sold for less than it's true market value. If the owner had priced the house properly at the beginning of the listing, the house probably would have been sold quickly and for a figure much closer to its true market value.

If your house has been on the market for month after month, it's time to ask yourself if you're trying to sell a bad apple.

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

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