When it comes to making a decision about real estate right now, many feel like a deer caught in headlights -- "frozen.” Turn on the tube these days and top TV personalities across channels are talking about the housing market. Whether it be CNBC's Jim Cramer of Mad Money, Today Show's Matt Lauer, NBC Nightly News' Brian Williams, Anderson Cooper on CNN, or Glenn Beck, the public is being inundated with paralyzing commentary and news about the real estate market. No wonder prospective buyers are biting their nails and feeling uneasy.
Unless you've been living under a rock, you cannot escape bad news in the media about housing. You flip channels and hear the gloom over and over again. Do you believe in self-fulfilling prophecies?
"Buy low, sell high" -- what everyone wishes they were smart enough to do, when it comes to both the stock market and real estate. Timing the market – accurately forecasting the top and bottom, whether it be stocks or the real estate market -- is something even the top Wall Street experts have a tough time doing (being right, that is -- they're always verbose with predictions….)
That's why a long-term investment objective, rather than quick profits, is usually a better wealth-building strategy for most people. With the stock market, it's called dollar cost averaging and buying for a long-term holding period. Certainly not selling within a year when capital gains taxes are highest, or risky “day trading.”
Real estate has proven itself to be an excellent long-term investment. And unlike stocks, real estate is not just paper or an electronic record. You can actually touch it, live in it full time, or visit it on the weekend and vacations. Even if it gets blown away or goes up in smoke, typically, the land is still there, and if you're insured, you can rebuild. Getting a piece of land, buying a home, is the American dream, dating back to pioneer days when you could literally race across the prairie and stake your claim.
Many would agree that buying real estate still remains one of the best long-term investments, building equity over time and getting tax breaks along the way, like deductions for property taxes and mortgage interest. Plus it's yours – you can make it your own without worrying about the landlord, including having pets as you like.
Real estate is cyclical, so buying at the absolute bottom is going to be as difficult to time perfectly, as selling a home at the highest peak in the cycle. How many people have the investment acumen to succeed at that? If you plan to own the property for awhile (you're not looking to “flip” for a quick profit), then it appears to be a good buyer environment for prospective buyers in Florida – better than it's been in years. Buyers today have lots of choice in the marketplace, and sellers are now more willing to deal. New home builders in Florida, in particular, are offering buyers huge incentives to make a new home purchase. Mortgage interest rates still remain historically low. If you have good credit, banks want you. It's harder to get a loan these days, but for those who have good credit scores, you're golden, and banks want to offer you a good mortgage deal.
Has Florida housing hit the absolute bottom yet? No question in Florida, rising property taxes, rising homeowner's insurance premiums, and soaring housing prices during the boom years, have made the purchase of a Florida home less affordable for many, contributed to the slowdown in the housing market, and created a huge supply on the market. It's going to take time for the demand/supply equilibrium to come into better balance.
There's pain out there, especially for those who tapped large sums of equity out of their homes when values soared, feeling more wealthy, and used the money for other things than improving the home. Some people took on more debt than they should have, were issued loans when lending criteria was too loose, and are having trouble making their payments. The real estate market is experiencing a hangover from quite a party.
Property tax reform legislation has been a top issue in Florida this year. It was Florida's Governor Crist who said with the proposed Florida tax relief plan, Florida property taxes are going to “drop like a rock.” In reality, it's housing activity that has dropped like a rock, this past month, especially. Only 14 dwellings were sold during the month of September 2007 on Amelia Island, compared to 40 closed sales last year in September 2006. (Sales data is for the categories of condos, duplexes, single-family residential, and townhomes located on Amelia Island in areas 1-6, sold by Realtors® and recorded in the Amelia Island/Nassau County MLS from September 1 to September 29 each year. MLS data may contain errors and is not guaranteed).
However, Amelia Island real estate sales activity for the full third quarter is not so bleak. From July 1, 2007 through September 29, 2007, 91 dwellings were sold by Realtors® in the categories of condos, duplexes, and single-family residential homes on Amelia Island, at a median price of $420,000. During last year's third quarter of 2006, 115 dwellings in the same categories were sold on Amelia Island by Realtors®, at a median price of $389,500. While the number of sales transactions reflect lower activity year-to-year, with about 20% fewer closed sales, the good news for local property owners is the median sales price during the latest three-month period is up 7.8% on Amelia Island. Amelia Island property values have not been “dropping like a rock.” It appears that coastal real estate may hold its value better during the housing slump.
Although if you listen to the national news media, with generalized comments, you might think prices have tanked. Remember the basic rule of real estate – it's local. No doubt you've probably heard some neighborhood gossip of a home selling much lower than what it would have fetched in 2005. No doubt some buyers are getting a good deal. For a bigger picture, year-to-date sales data for the first nine months of the year also reflects an increase in median housing prices on Amelia Island, comparing the past three years 2005 vs. 2006 vs. 2007 -- see 3-year comparison chart below). The median sales price of an Amelia Island dwelling (single-family residential, condo, town home, duplex) for the first nine months of 2007 ending September 30th, is $429,554 -- that's 4.8% higher than the median sales price for the same period a year ago in 2006, when it was $410,000. Last's years median price for the first nine months of 2006 was also 5% higher than the previous period for the first nine months of 2005 (the last "boom" year), when the median sales price was $390,000. Thus, median housing prices on Amelia Island have held their own to date, outperforming many other areas. In the near-term, of course, there's no guarantee that prices won't edge lower in the fourth quarter of 2007 and into 2008, since a large surplus of inventory does put pressure on prices.
While the number of sales transactions has dropped dramatically from year 2005, like the beach erosion of a strong noreaster storm, surprisingly, Amelia Island housing values have not washed away with the tidal wave of bad housing news. Not yet, at any rate. This reality, that Amelia Island median housing prices have held up, even increased, is surprising. It does "appear" rather ominous. One need only drive around the island to see all the “For Sale” signs. The fact is, there are a lot of homes for sale, a high supply, and many homes are remaining unsold – many listings are “expiring” in the typical 6-month listing timeframe, before a buyer comes forth. There are many more people trying to sell, unsuccessfully this year. The shoe's now on the other foot. It was a difficult environment in the boom years for buyers (prices soaring, homes getting snatched out from under you, competitive bidding). Now it's a difficult environment for sellers.
Florida does need to address property tax and homeowner's insurance issues, and yesterday is not soon enough. But market psychology has also come into play, perhaps exacerbating the housing downturn. Just look at communications now compared to twenty years ago. Back then, at the bottom of a real estate cycle, the public wasn't inundated with news and commentary, watching 24-hour cable TV with thousands of programming options and commentators, the internet didn't exist, nor did podcasts, satellite radio, or Blackberries. Consumer confidence is low. No wonder, with the avalanche of bad news.
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The just-released quarterly report (September 2007) from the
“After coming out of several years of very hot [Florida] housing markets moving into a relatively slower period (houses are, in fact, still selling, and prices have not imploded…), feels shocking by comparison because of the stark difference in these markets. Feelings are not facts, and looking at the latest report on existing home and condo sales for
While Dr. Snaith does feel housing prices in
With regard to the
There is only so much supply of coastal property. People with money can afford the best life has to offer. There's a huge generation of babyboomers entering retirement age during the next 20 year period. Many successful, high income boomers. Florida coastal property will remain appealing to those who can afford it – who doesn't love the beach? And who hasn't dreamed of living on an island? It may be that coastal real estate will, indeed, hold its value better than other areas, during the housing slump.
Note: Housing sales data from the Amelia Island/Nasau County, Florida MLS (Multiple Listing Service ) for January 1 through September 30th in each year (2005, 2006, 2007). Chart shows sales by Realtors for MLS-listed properties on Amelia Island (areas 1 to 6 in the MLS), and also off the island in Nassau County, on the mainland (areas 7 to 9 in the MLS). Data pulled from MLS was for single-family residential, condos, townhomes, and duplexes. MLS data may contain errors and is not guaranteed.
About the author -- W. B. Lawson has lived on Amelia Island fourteen years, and writes tourism, lifestyle, and real estate articles (a Florida real estate licensee). Send eMail to contact@ameliaislandliving.com.