Home Prices Fall Nationwide

Seems like 2010 has been a never-ending year of bad news for real estate. Let's hope that the new year brings in some good news for a change.

The boys at Standard & Poor's/Case-Shiller have just reported that home prices fell 1.3 percent in October from September. Every city in the report's 20-city index experienced a drop in prices. Atlanta fell the most; prices there dropped 2.9 percent from a month earlier. Washington, D.C. dropped 0.2 percent after posting six consecutive months of increases. (How come prices inside the Beltway went up but they went down around the rest of the country during those six months? Perhaps we had to bail out our politicians so those who lost in the mid-term elections could still sell their Washington property at a profit.)

Locally, Tampa Bay area prices fell another 0.9 percent from September to October. Sales volume, however, appears to be increasing. Sales of existing homes rose 7 percent from October to November according to the Florida Realtors. Tampa Bay sold 2,060 homes in November compared to 1,923 in October. The median home price was $125,000 for the region.

Don't know about you but I'm ready for two things: first, some good real estate news and second, some warmer temperatures.

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Real Estate In November Looked A Lot Like October

I wish I had some kind of eye-popping news to share with everybody about real estate sales in Pinellas County for November, but I don't. It was pretty flat. In fact, if you read on, you will see that November looks very similar to October.

Let's start as always with the Absorption Rate (AR) for November. As you know, the AR is calculated by dividing the number of units sold in the month by the total number of units in the MLS. The result is your inventory turn.

For single family homes in November, the AR moved up a little to 8.3% from October's 7.9%. So, the average home will require about 12 months to be sold in Pinellas County.

For condominiums, the November AR moved down to 6.3% for November from October's 6.6%. This means condos will average almost 16 months on the market before selling.

Single Family Stats

During November, there were 6,540 single family homes listed for sale in the MLS system as compared to October's 6,666. So, inventory dropped a little in the last 30 days, but the reason probably had more to do with sellers removing homes from the market than due to an upsurge in sales volume. During November, only 542 single family homes were sold compared to October's 528 sales. So, sales volume was pretty much stagnant month to month.

From a price standpoint, if we compare November 2010 to November of 2009 we find that prices continued to fall. The median price for November of this year was $128,000 as compared to last November's median price of $146,500. That's a drop of 12.6%.

By the way, for those of you who keep track of such things, the median sales price for a single family home in November of 2005 was $259,000. So, if you're a seller, you might want to keep that kind of info in mind when you are setting your sales price and negotiating with a buyer. As they say, prices ain't what they used to be!

Condo Sales

Condos continue to lag the market despite the fact that so many lovely units are priced so low. Demand just seems to be down for this kind of lifestyle, especially in the communities that restrict residence to those over the age of 55. St. Petersburg is no longer the Mecca for retirees because so many seniors are opting for the new communities throughout Florida and for the tried-n-true retirement areas of Miami. Additionally, many of those who want to buy condos must sell their family home first, and in many cases that is proving to be a difficult task given the overall state of the economy. So, the condo market locally is very slow and prices in such communities are suffering due to lack of demand and the inability of many would-be buyers to make a purchase.

How slow is the condo market?

Well, in November there were 5,422 condos in the MLS in Pinellas County -- about the same as October's 5,484 units. Of those, only 342 were sold during November and only 362 in October. So, that's a pretty flat market and it is not setting any sales records.

Condo prices are continuing to fall. The median selling price in Pinellas was $107,500 for November 2010, a drop of 7.3% from November 2009's median price of $116,000.

By the way, the median condo price in November 2005 was a robust $177,000. Quite a large drop in only five years.

So, that's the way things are with only one month left in 2010. Hopefully the figures will be better in the year's final 30 days.

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Investors: Change Strategy And Buy Now

Despite all the bad news about real estate, I think there is still money to be made for real estate investors in today's market.

In order to make it, you have to shift your strategy from the one you had in 2002 to the one you need in 2011.

Back in the days of real estate's "great run-up", most of the property investors I worked with -- and this included myself -- were primarily concerned with property appreciation. They treated real estate like a stock investment. They wanted the value of the property to go up (like a stock) and treated rent as a little added bonus (like a dividend). As long as you broke even on your expenses from the rent, well, everything was okay because the building was appreciating so rapidly. When you sold the building, you stood to make a handsome profit; or so the prevailing reasoning for many investors at that time.

If you bought the property by the early 2000's and sold it by the end of 2006, you probably made out pretty good based on the stock market approach to investing in real estate.

The thing of it is, we are now living in the days of the "great run-down" and you can no longer treat real estate like a commodity. You have to shift out of that stock-market mentality and adjust your money-making strategy to reflect the way the real estate world is today.

This means your strategy has focus on your rents, not on property appreciation.

For the foreseeable future, the market value of real estate is likely going to continue to fall or, at best, become pretty flat. So, the wise investor will shift his goals to making money every month from the collection of rent payments. You have to make certain that your rent rates cover all the costs of owning and operating the building while providing a profit to you for your risk as the owner and your role as the property manager.

In other words, you have to start acting like a real landlord, not a building owner. And, you have to start operating your investment property like it was a business, not a stock investment or hobby. In addition, you have to begin dealing with tenants in a much more businesslike manner, and this includes collecting rents on time and, if necessary, removing tenants who fail to make timely and full payments.

Now, I know that some of you are going to be reluctant to run your rental property like a real business. That's okay. That's why there are companies out there who will do it for you. They are called Property Managers, and for a percentage of the monthly rent they will do virtually everything to make sure your property is operating the way it should and making money the way you want it to. Essentially, you can arrange things with your property manager so that your only involvement is to take your check to the bank at the end of the month -- heck, you can probably even have that direct deposited to your account so you don't have to drive to the bank!

In the local MLS right now, I see dozens of good looking, well-maintained, properly priced duplexes, triplexes, quads and small apartment buildings all over Tampa Bay. If you are new to investing in real estate, owning one of these smaller properties is a great way to get your feet wet and find out if you like being a landlord. Also, buying a single family home in a nice neighborhood is also a great way to get into the investment end of owning real estate. With so many short sales and foreclosures in today's market, prices for many of these properties make them very attractive from an investor viewpoint. So, you might want to give it a try without risking your entire future.

Just remember this: The strategy now is to make a profit every month from your rent. If the building appreciates in value sometime in the future, that's just icing on the cake.

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Bay Area Real Estate Prices Continue To Fall

Let's start with a look at the big picture. Nationally, home values dropped 0.6% from September to October, 2010 according to a story in today's St. Petersburg Times. The Times quotes Zillow.com as the company that tracks the figures.

In Tampa Bay, home prices dropped even more than the national average. Here, prices fell 0.9% from September to October according to Zillow. So, if you had a house, condo or apartment building that was worth $500,000 on September 1st, in just 30 days it's value fell to $495,500, a $4,500 loss in a month's time.

Let's let a little more time pass. Between the second and third quarters of this year, property values in the Tampa Bay area dropped 2.4% in 90 days. So, if you had a property worth $500,000 at the beginning of April, at the end of June it would be worth only $488,000, a loss of $12,000 in 90 days.

Let's say you've been trying to sell your property for a year -- from October 2009 to October 2010. During that 12 month period, property values here fell 9.2%. That same $500,000 property would now be worth only $454,000, a $46,000 loss in one year.

The real estate market turned south in the summer of 2006. That's when I started tracking the market in the hope that I might predict the next upturn. During that 4-1/2 year period, experts say that property values in Tampa Bay have declined by 46.3%. So, we take that same $500,000 property from 2006 and bring it up to today's values, and it is now worth $268,500; that's a loss of $231,500 in 54 months.

These kinds of losses are why real estate agents are telling sellers that the longer a property remains on the market, the less it is worth. According to Zillow, we have had 52 consecutive months of declining property values. The monthly declines have grown in each of the past six months, and are now at their highest point since March 2009. That means the market is not getting better, it is getting worse.

So, what can a seller do about this in order to get his property sold?

First, price your property to sell in 30 days. Buyers today are purchasing only bargain priced properties. To be a bargain, the property needs to be priced about 10% under its market value as determined either by a CMA prepared by a professional real estate agent or by an appraisal prepared by a certified appraiser. If your property does not sell in thirty days, re-price it but make sure you get down under market value.

Second, give the property a good clean-up. Even bargain hunters want to make sure that the property they are buying was well maintained and is in good condition. So, add some paint here and clean up the yard there. Get the place looking tip-top. That will help your property sell faster and probably for a little better price.

Third, negotiate every offer. Even if you don't like the price and terms being offered, don't just say "no". Say "maybe". Go back to every prospective buyer with a counter-offer and see if you can hammer something out. Remember, the buyer is looking for a deal and you need to make it look like you're giving him one.

If you've been reading this blog regularly you probably remember my comment that there are only two reasons why a property does not sell. When a property does not sell in a reasonable period of time, it is either overpriced or it is undermarketed. Most professional real estate agents do a pretty good job of marketing property. So if the property is not selling, the only other place to look is the price. The only person who controls the asking price of the property is the owner.

Real estate agents don't set prices, they respond to market conditions and can pretty much tell a seller what a property is worth based on current market prices. Ultimately, however, the owner sets the asking price for the house. While the owner sets the asking price, it is the buyer who determines the selling price. An owner can ask for the moon, but may have to settle for green cheese.

One final comment about prices here in the St. Petersburg area: During the 30 days from September to October of this year, Zillow reports that prices in the City of St. Petersburg fell 2.2%. That is the largest monthly dip found in all the major cities in this area. So, how long are you going to wait to bring your property into line with market conditions? Remember, the longer you wait, the less it will sell for. That's why they call it a declining market!

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