How Low Are Prices Now?

Newspapers, magazines, broadcast reports, real estate newsletters all report that real estate prices are moving downward in most areas. They point to the median prices as proof that the value of single family homes is falling.

Recently, I heard a television reporter say that prices in the Tampa Bay area are at 2004 levels. That is, that the price you pay for a house today is at about the same amount as you would pay for the same house in 2004.

So, where are those median prices?

In Hillsborough County, the median price for a single family home in October, 2008 was $165,000. The last time the median price was at that level in Hillsborough County was May, 2004.

In Pasco County, the median price for a single family home in October, 2008 was $140,000. The last time that county saw a median price that low was in February, 2004.

In Pinellas County, the median price for a single family home in October, 2008 was $150,000. I searched records going back through 2003 and could not find a month in which the median price in Pinellas County was down to $150,000, but I would guess that it must have been sometime in 2002.

So, I guess the market really has rolled back to 2004 levels. Even earlier in Pinellas!

What does this all really mean?

If you are a buyer, it means that now's the time to buy. Clearly, prices are at the lowest they have been in years and many sellers are desperate to make a sale.

If you are a seller, you need to get realistic about your prices. If you really want to sell, your price must reflect today's market values. If you are asking a price that is based on what you think you could have received in 2005 or 2006, well, the property may be on the market for a long time because buyers just are not going to pay those kinds of prices today.

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

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When Will The Real Estate Market Recover?

One of the questions sellers often ask is, "When will the real estate market recover?"

My first response to this question is usually something like, "define recovery". For many people, "recovery" means getting back to prices like we had in 2005 or 2006.

My reaction to a 2005 or 2006-type market is that such a recovery may be years into the future. If you bought a house or condo in that time period, it may be a long, long time before you see the value for your investment back to that level. After all, those prices were being artificially inflated by a red-hot investor market that clearly could not be sustained.

Steve Murray of Realtrends.com, a well respected real estate information, research and data service, has a theory on when the recovery will take place.

Murray and his people have done considerable research on this matter. To get to their answer, you must first accept the fact that there is a relationship between the number of households and the number of houses sold in the United States each year.

Essentially, 5-percent of households buy a new home annually. If you apply that 5-percent factor to the number of households in the country, you get about 5.5-million annual sales. This is exactly where real estate was tracking before the Wall Street problems of October. Along with this fact, you have to accept the fact that there is a 2-percent growth in households annually.

So, Murray and his crew put all this data into a computer someplace -- probably at NASA, if you ask me -- and have determined that it will take from now until 2018 before we see prices come back to the 2005 level. That's because the recovery curve is not going to be V-shaped as some guru's predicted. It's not going to be U-shaped as some others have prognosticated. It's going to be more of an L-shaped recovery curve which means very slow, very controlled increases in value over a long period of time. For those of you who read this blog regularly, you might remember that I have been predicting an L-shaped recovery curve for almost two years. Looks like Murray agrees with me, so that's two of us on board.

If you would like to listen to Murray's talk on this matter, you can get it on-line at http://www.realtrends.com/. Go to "Real Trends Live" and then go to "The Recovery". It's a very enlightening little talk that only lasts a few minutes.

For sellers, I guess Murray's info is bad news -- about as bad as it gets. But look, if you bought in 2005 or 2006, you bought at the top of a super-heated market. That market had to cool down, stabilize, and then it will slowly start to warm up again. This is going to take time. Most likely, we have not even reached price bottom in many markets, and the recent bad economic news is not going to improve the outlook for selling real estate.

For sellers who bought before 2005, you have to start forgetting about those huge numbers that you might have gotten for your property in 2005 or 2006 and start looking at much lower numbers for the value of your property today. To ask a 2006 price in 2008 means your property is simply going to sit unsold because buyer's are not going to pay it. It's time to get realistic.

For buyers, gosh, what are you waiting for? Prices are down, the selection is huge, many sellers are desperate. Now really is the time to buy.

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

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Proof Positive: Sales Directly Related To Price

Month after month, real estate agents have been advising sellers that if they want to sell their property, they need to reduce the price.

In two stories published on November 19th, the St. Petersburg Times has proven this point better than any real estate agent could ever illustrate it.

Story One

In the Heard It Here section of the Business Page, the Times ran a little sidebar story headlined "Home Sales Rise While Prices Sag".

This story basically says that from July 1 to September 30, home sales increased from 5,913 to 6,502 year over year.

During that same period, the article says that the median sales price in the Tampa area dropped 19-percent, from $210,700 to $169,700. A big portion of this drop in price has to do with the great number of short sales and foreclosures forcing prices down.

Okay, so the summary is that as prices go down the number of sales go up. If you're a seller, you want to keep that in mind.

Story Two

Same newspaper, different section. The headline: "Prices Up, Sales Down In Greater Bardmoor".

Apparently people who live in the Bardmoor area of St. Petersburg haven't gotten the message being explained in the first story.

The paper reported that the median price of a single family home in Bardmoor was up 21.7-percent from the second half of 2007 to the first half of 2008.

Sales in Greater Bardmoor, however, fell 22.2-percent for the same time period.

So, as prices increase, sales decrease.

Don't these two little articles kind of prove what real estate agents have been saying for a couple of years now? I think it does.

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

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New Real Estate Site Is Very Interesting

Want to know how real estate is selling in your neighborhood? Maybe you just want to see how sales are going in a specific area of Pinellas or Pasco Counties. Perhaps you're a real estate agent wanting to trace sales in an area for the past few years. Or a buyer who wants to see what nearby properties are selling for during the past few months.

What ever the case, you need to know about www.watch.tampabay.com.

This new website gives you up to date info on sales made in many areas of Pinellas and Pasco Counties. The searchable data base is accessed through drop-down menus of dozens of neighborhoods. Sales data going back to 2004 is available using easy-to-read maps and aerial photos, and you get the important data on each sale made in an area for each year.

This is neat! Give it a try.

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

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Short Sale VS Foreclosure: Effects On Credit

A very experienced real estate agent in St. Petersburg, Florida, Sandy Ewing of Tourtelot Brothers, sent me an e-mail recently in which he raised some very interesting questions about the hidden dangers of short sales which are now so common in today's marketplace. Fully one-in-three real estate sales in Pinellas County, Florida, are distress sales -- either short sales or foreclosures.

These distress sales, as Ewing correctly pointed out, are forcing real estate prices to fall at alarming rates. Moreover, Ewing thinks that this trend may continue well into the future and be especially damaging to sellers who are being forced to sell due to illness, job transfers, forced retirement and layoffs, and other matters not fully controllable by the seller.

One of the things that Ewing pointed out was the danger a short sales does to someone's overall credit rating.

There is a misconception among many sellers that if they get permission from their mortgagee to conduct a short sale, that the debt -- as one seller said to me recently -- "is wiped off my credit report."

I hate to say this, but that is not the case.

The effect of a short sale on a person's credit is identical to that of a foreclosure. The credit people with whom I have spoken say a short sale represents a ding to a seller's credit of from 200 to 300 points. A foreclosure represents the same drop in credit score. In either case, if you had a credit score of, say, 650 and you do either a short sale or a foreclosure, you are likely looking at a new credit score of from 450 to 350. With a credit score that low, good luck getting another mortgage, car loan, boat loan, tuition loan or virtually any other kind of loan.

The other danger to be found in a short sale is something called a deficiency judgement. The lender, in many instances, has sole discretion about whether to pursue a deficiency judgement against the seller. Before you just up and decide to do a short sale, you need to have a heart-to-heart discussion with a real estate attorney. In fact, having a discussion with a real estate attorney before pursuing a short sale or a foreclosure is highly advisable.

The other thing to consider when trying to decide to pursue a short sale or foreclosure is the time period before you can buy another house when a mortgage will be involved. Currently, you may have to wait from 24 to 72 months before you will see another affordable mortgage with a foreclosure on your credit report, but only about 24 months with a short sale. To be honest, that may be the only possible advantage to a short sale over a foreclosure.

So, before you opt for a short sale or a foreclosure remember this: from a credit standpoint, you are really making a choice between getting run over by an east-bound train or a west-bound train, and it's going to require many months before you recover.

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

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Foreclosures And Short Sales Now Count In Value Calculations

For many months now, I have been wondering if real estate agents should include short sales and foreclosures in the Comparative Market Analysis (CMA) calculations done to determine the value of real estate being sold.

I think we may have been given that answer today, according to a St. Petersburg Times article written by Will Van Sant.

Van Sant has pointed out that many tax appraisers are now going to include short sales and foreclosures in their analysis of value for tax purposes.

This decision is a very big deal!

The reason to start including these sales is that short sales and foreclosures are now part of the normal operations of the real estate market and, in Pinellas County for example, account for about 30-percent of real estate sales. Such a high percentage of distress sales may be re-defining what the term "market value" really means and how it is calculated. That's what makes it such a big deal.

If you are a property owner in an area where there have been a lot of distress sales, this may mean that your property taxes will drop in a year or so -- good news for many struggling homeowners.

But if real estate agents and bank appraisers start using distress sales to determine market value for property as is done in a CMA, using distress sales will likely mean that the value of residential and some commercial real estate will fall even farther than it has in the past two years.

The reason? The banks and mortgage companies who sell foreclosed properties greatly reduce the value of the properties in order to get it off their books. The discounted value of those homes is now going to be used to determine the value of your home, even if you are not trying to sell short or are in danger of foreclosure. This will mean your property value is very likely to drop.

Real estate agents and appraisers have historically not included short sales and foreclosures when calculating property value. The reason? Such sales did not have much of an impact on the marketplace. According to the Times, in September 2007 only 6 percent of sales were distress sales; in September 2006 only 1 percent. Such figures were removed from value consideration since they were not "arms length transactions" and had little if any impact on the overall market value.

Today, with roughly one transaction in three being a distress sale, many real estate agents and property appraisers believe they must include distress sales since they have a huge impact on overall property value. How much of an impact? According to real estate consultant Peter K. Murphy with Home Encounter in Ybor City, banks last month (October) were selling foreclosed homes for an average of 60-percent of market value.

Why are banks doing this? Simple. Banks want money. Banks do not want real estate. So, rather than hold on to a depreciating asset (the house), they are willing to sell them on the market for an average of 60-cents on the dollar. Since one sale in three is a distress sales, and since the value of your house is now going to include distressed sales, what do you think will happen to the value of your property? Of course, it's going to go down.

Here's the other thing to consider. Assume you find a buyer for your house at your current price. If the buyer is going to have a mortgage, the mortgage company is going to have your home appraised to make sure it is worth the amount of the mortgage. The bank appraiser is probably going to use those distressed sales in his analysis, thus driving down the mortgage value of your property. If the bank appraiser comes in with a figure that is lower than your contract price, the bank won't give the buyer the mortgage. No mortgage means no sale in most cases. So, it does not make any sense for sellers to keep holding on to high prices due to the new appraisal techniques now being used.

Who will be hurt the most by this change in the way values are determined? I can only guess, but I would think those who will feel this the most are ...

• Sellers of single family homes in areas that have a high percentage of short sales and foreclosures. This would include recently developed communities in New Tampa and southern Hillsborough County.
• Sellers of condominiums where speculative buying and selling activity were rampant during the 2004-2006 time frame; that would include the Gulf beaches and downtown St. Petersburg areas which saw a fast spike in prices followed by a troubling lack of sales.
• Sellers of older properties that were bought and extensively remodeled for the purpose of "flipping" the house for a profit. This was common all over the Tampa Bay area. It may now be that those houses are simply over-improved and over-priced pieces of real estate whose value is going to take a big hit once distress sales are included in their value calculation for both marketing and mortgage purposes.

Who is probably not going to be bothered too much by the inclusion of distress properties in value calculations?

• Sellers of condominiums in retirement communities. Many of these residents own their units free-and-clear and are not troubled with short sales and foreclosures because so few of them have a mortgage. With fewer mortgaged properties in their immediate communities, sellers are not heavily impacted by bank-forced sales driving down prices.
• Sellers who own property in areas where distress sales are not common. If there are not many distress sales in an area, such properties will not be included in the CMA and will have minimal if any direct impact on values.

Given this new set of circumstances, what should sellers do if they have property on the market today?

My initial suggestion is that sellers should contact their real estate agent, or call in a professional property appraiser, and ask for a new value analysis which includes the latest comparable sales in the area. Make sure the agent uses all appropriate short sales and foreclosures in the CMA. This will give a more accurate valuation of property in today's economic climate. If the property has been on the market for some time without a price adjustment, and the property is in an area with a lot of short sales and foreclosures, sellers should be prepared for some shocking re-evaluations of property value thanks to the inclusion of distress sales.

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

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October Was S-L-O-W

Point your finger at Wall Street. Point your finger at Fannie and Freddie. Point your finger at news of a pending recession. Point your finger at whatever you want, but October was a slower than average month for real estate in Pinellas County.

We begin, as usual, with a look at the Absorption Rate (AR). The AR is the inventory turn and it is determined by dividing the number of units sold in the month by the total number of units in the Multiple Listing Service (MLS).

The AR for single family homes fell in October to 6.0 percent; in September it was at 6.2 percent. That's not much of a drop, I grant you, but it is a drop nonetheless. For condominiums, the AR remained the same in October as it was in September at 3.6 percent. That AR is not so good for condo sellers, because it looks like the market is both slow and flat for condos.

Single Family Homes

In October, there were 8,691 single family homes listed for sale in the MLS system. In September there were 8,642. So, the number of homes on the market increased a bit in the last month.

Of those homes in the MLS during October, only 523 were sold. That's down a little from September's sales figure of 536 units sold.

The median price for a single family home fell to $150,000 in Pinellas County. Just a year ago in October of 2007, the median stood at $212,000. So, we've seen a 29.2 percent drop in the median price. The average selling price, reported as the "mean" price in the MLS data, was at $199,700 for October 2008; it was at $286,400 for October 2007. That is a drop in average selling price of 30.3 percent. That's good news for buyers, but disappointing news for sellers.

Condominiums

In October, the MLS reported 7,112 condos for sale in Pinellas County. That's up a little from the 7,061 for sale in September.

Condo sales remained at about the same level. In October there were 255 condos sold in the County, as compared to 251 sold in September. Not much activity, is it?

The median price for condos in Pinellas County fell to $137,000 in October of 2008. In October of 2007 it was at $180,000. That's a drop in median of 24.2 percent. The mean or average price in October 2008 was $227,300 as compared to October 2007 of $318,000. That's a drop in average price of 28.5 percent. Again, good news for buyers, bad news for sellers.

If you're like me, you're seeing these prices taking a big drop during the last twelve months. This is where raw MLS data may lead us to some improper conclusions about pricing. I have been told that about 35 percent of these recent sales have been short sales or lender foreclosures. In either case, these were distress sales that may not have been purely arm's length transactions and the houses may have been sold at less than open market value.

Since there is such a large percentage of these distress sales in Pinellas County, they are most likely having an adverse effect on the pricing data and may be forcing the reported numbers to appear lower than they should be. Of course, some other very good real estate agents are saying that the distress sales reflect today's true market value for property, not the results of the overly inflated values of a few years ago when the market was super-heated. There may be some validity in that concept.

At any rate we know one thing from these figures -- prices continue to fall and the market remains very sluggish despite having loads of motivated sellers and fairly agreeable mortgage rates. So, where are the buyers? If you find out, please let me know.

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

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The New Dangers Of Overpricing

Many sellers just don't seem to believe real estate agents who present lower than expected figures when estimating home values in today's falling market. Invariably, sellers look at the Comparative Market Analysis (CMA), glance at the comparable homes (comps) used to determine the price, and inform the agent that they want or need to get a higher price when selling their home.

Sellers who deviate from the suggested figures used in the CMA are usually making a mistake. Here's why ...

More and more mortgage companies are now demanding that the comps used to determine property value be no more than 90 days old. It used to be that agents and appraisers could use comps that were from 6 to 12 months old, but as prices have fallen mortgage companies have determined that those older comps lead to an inflated value for the property. Today, 90 day old comps appear to be the norm when mortgage companies ask appraisers and agents to support their valuations.

In addition, mortgage companies are demanding more extensive data about local listings, pending sales within an area, and the ratios between listing and sales prices. If these figures do not meet the lenders underwriting requirements, they may elect to not fund the mortgage for the contracted price. When this happens, sellers are often forced to accept lower prices for their homes even after the contract has been signed for a higher amount.

These 90-day appraisals and CMA's are forcing sellers to lower their asking prices as the value on residential real estate continues to fall. It does a seller no good whatsoever to price a property higher than the CMA value only to find out after months on the market that the property's value has become less over time, and that the buyer's mortgage company will not make the loan for the contracted amount. When this happens, agents like to say that the property "did not appraise". When a property does not appraise, there are few options available:

• Request a new appraisal and hope for a higher figure (which is highly unlikely);
• Ask the buyer to pay the difference in cash (an even more unlikely scenario);
• Agree to the lower price and sell the property at a lower price than that originally contracted (the usual thing);
• Call the deal off and put the property back on the market (the least acceptable option).

Property always sells for its current market value. No more. No less. The reason is that mortgage companies have become the ultimate arbiters of property value because they control the money. Sellers can ask whatever they want and sometimes a buyer will agree to pay it, but sellers will only get the appraised value because that's all the mortgage company will give to the buyer. Remember, if the buyer can't get the mortgage he can walk away from the sale and get his deposit money returned. Wording to that effect is in the contract.

So, what sense does it make to overprice a property? It makes no sense at all because you can't sell it for the overpriced figure.

Here's something to think about if you are a seller. If your house has been on the market for over 90 days, and if you priced it at a figure higher than the one in the original CMA that your agent prepared for you, ask your agent to do another CMA using only 90-day sold properties in your area. Then, re-price your house so that the new CMA number is your top dollar figure. When it comes down to it, that's all the mortgage company is going to loan on your property and that's all you're going to get for it no matter what you're asking or no matter what the contract price is. You might as well get your price in-line with today's market value, sell the house for it's current value, and get on with the rest of your life.

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

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