Déjà vu All Over Again

I’m often asked how far waterfront home prices have fallen this past year by buyers who kicked themselves in 2005 for not buying in 2002 and 2003 and thereby missing out on the large profits made in 2004 and 2005.

For buyers looking for a retirement or vacation home along the Gulf of Mexico in 2005/2006 the prices made their dream home unattainable. Now there’s a window of opportunity to obtain that dream home as prices hit pre-2004 prices in this strong buyer’s market, but you better look now or you might just be kicking yourself again later!

Let me give you an idea of the bargain prices out here on Florida’s Gulf Coast with some recent numbers we compiled from the Multiple Listing Service (MLS). We compiled historical list and sold prices from the waterfront communities of Gulf Harbors, Gulf Harbors Woodlands, and Sea Forest in New Port Richey, Florida. These communities sit next to each other directly on the Gulf of Mexico. The waterfront homes have direct gulf access with deep water. Each community has amenities such as golf course, tennis courts, pools, boat ramps, private beach, and more. Most of the homes have docks which can accommodate a sizable boat. Some homes have boatlifts, some have pools.

The statistics focus only on the waterfront homes because these homes have the greatest potential and are the most sought after homes by buyers. There are approximately 1800 waterfront homes in these 3 communities combined.

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During the period of June 2007 to October 2007:

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Average Number of Waterfront Homes For Sale: 157

Homes Sold: 21

Average Days on Market of Homes Sold: 295

Average Original List Price per sqft. of Homes Sold: $303

Average List Price per sqft. at Time of Sale: $259

Average Sale Price per sqft.: $241

Average Price Reduction From Original List Price When Sold: 20%

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Let’s compare these numbers to what was going on in 2005.

During the peak of home sales in 2005, average list prices were approaching $390 psqft for waterfront homes and the average sale prices were hovering in the $350 psft range. Today’s prices reflect a 33% reduction from 2005 prices and places the price of waterfront homes back to the pre-speculative investor prices of 2003.

“Yeah, but how do I know these prices won’t come down further?” you may ask. The numbers show a flattening of price reductions. In fact, most of the largest price reductions occurred a few months ago. Over the past two months, reductions only averaged 8%. So we could be seeing the bottom of the market as sellers become unable to reduce prices further due to loan balances, home value, and other factors. However, they are still leaving room in their prices with expectations of negotiating with buyers.

Where are the buyers?
National figures reflect the housing sales slump. Could it be that nobody needs a new home? Has the birth rate taken a dive along with home sales? Has promotions and job relocations froze? Of course not. Indicators show buyers are in a log jam. Buyers have held out as long as they could due to market jitters. The multitudes of buyers are stacking up behind the log jam and the pressure is increasing. When this log jam clears we could see a reemergence of the buying spikes witnessed in 2004/2005 but this time with more moderate price increases. The continual tightening of mortgage qualifications should prevent the unqualified part-time investor from getting the jumbo mortgages that were so easy to obtain in 2004/2005. The current default of these investor mortgages played a large role in today’s market slump.

When will this log jam clear?
This scenario reminds me of the scene in Jaws when during a beautiful, hot and sunny day on the beach none of the beach-goers would go into the water for fear the menacing shark would get them. After the mayor got one of his cronies to go into the water the entire beach population started to get into the cool water. That’s what it will take to clear the buyer log jam today. A few buyers have already started to take advantage of the current market conditions and low prices. These leading buyers have the pick-of-the-litter in homes and are able to negotiate the hardest for a great deal because the sellers are at their most desperate hour. As these leading buyers pave the way for following buyers, sales will begin to increase. Although list prices might not immediately increase with the improving market, sellers will less likely negotiate as desperately as they are now ripened to negotiate.

NOW is the time to test the waters!
Don’t worry about boys with fins strapped to their back scaring buyers back out of the waters of home-buying. There’s bound to be some market start-up scares during the next few months but there are methods to ensure you get the best deal you can (see my previous blog posting). Simply put, you the buyer, currently hold all the cards. The list prices are now lower, but the leverage is still there to negotiate much lower.

Be a savvy negotiator!

• Start negotiations low but with realistic expectations. Even in this market you are not going to buy a home for 50% or even 40% off the already lowered list price. But don’t be afraid to start negotiations at 30% off the (correctly priced) list price. Do your homework and get in touch with a Realtor that knows the area of interest.
  


• Create a top 5 list of homes you will negotiate on in order of your most favorite.
  
  
• Assign a top price you are willing to pay for each home and stick to it.
  
  
• Start with your favorite house. If negotiations stop above your assigned top price move on to the next home on the list. Let the seller know you have a list of 5 homes all similar in size, style, and location and you plan to negotiate with the other sellers if you can not come to an agreement.
  
  
• During the negotiations, write down notes on each home about the seller’s feedback, counter offers, and even their demeanor. How much time did they take to respond? Were they considering your price but hedging for additional money? These notes will be useful if you decide to return to the home for further negotiations. If a seller calls you back to accept an offer they previously declined you now have additional leverage. Let them know that you are now in negotiations with another seller, but perhaps if they threw in that extra-something you might be swayed to switch back. This extra-something could be anything from furnishings, to the little speed boat sitting out back, to a lower price. Approach this extra negotiation area carefully as you have already been successful in getting the price greatly lowered. If you feel satisfied with just your previous offer simply accept and close the great deal you made.
  
  
• Don’t go into negotiations timidly. Don’t start off by stating, “I know it’s a low offer but…” Instead, state that in this declining market you feel you are taking a risk and they (the seller) should carefully consider the offer prior to rejecting it.
  
  
• Your offer must be a written offer with the largest amount of earnest money you can afford to place into escrow. Do not go in with a verbal offer. A written offer sits before them and has an immediate impact. All they have to do is sign the offer and they can put this part of their lives behind them and move forward. No more open houses, no more panic cleaning sessions prior to a showing, no more strangers walking up to see their home without appointments.
  
  
• Consider writing a personal letter to the Sellers to be presented to them with your offer stating why your offer is priced right in this market. If they are represented by a Realtor the Realtor will likely welcome any tool to help make a sale in this market. Remind the seller (and their Realtor) that the loss they are taking on this home will likely be made up in the savings they make on their next home if they purchase immediately and negotiate skillfully. We successfully used this method recently during a negotiation session. After several rounds of negotiations, our final price was $50K from where the sellers wanted to end up, but after talking with the sellers it was learned they were going to buy a home up north which they had looked at back in 2005. The home had been reduced by $150K since 2005. We reasoned the $50K lost in the sale of their current home applied to the $150K reduction in price to their northern dream home still netted them a $100K gain had they purchased the home back in 2005. After they thought about it overnight they accepted our offer and later signed a contract on their dream home.

So get out there and buy...or it might be déjà vu all over again and you’ll be kicking yourself once more.

Have housing prices hit rock bottom?

Home prices, can they get any lower? It's the big question lately. There are several indicators which could indicate Tampa Bay housing prices have indeed hit rock bottom. One indicator to look for is investors. Have investors returned to the housing scene? If so, their collective knowledge, investigative prowess, and gut feel would indicate they think so.

And indeed, the early signs to the return of the investor are here. I've been working with investors who are looking for the low hanging fruit. The listings that are ripe to negotiate a good deal due to the large existing home inventory. The listed prices of these homes might have hit a low, but the sellers are still willing to negotiate from these prices even further. Sometimes as much as 20% from the low list price.

And it is at this level where investors are willing to come in and purchase. Remember, the real successful investors didn't buy in 2004 or 2005. The most savvy investor saw the profit potential as early as 2002. Many more climbed on the magic bus in 2003. But as 2004 started to see a historic spike in selling prices the best investors read the writing on the wall and the sell off began. The sell off continued into mid-2005 with good profits being made. But these were left-over sales of homes being purchased by late-comer (too late) investors and home-buyers who were concerned if they waited any longer home prices would be out of their price range. By the end of 2005 the housing market was on life support, the public just didn't know it yet.

Investors know real estate investing is a cyclic beast. The golden rule of the investor has a large "duh" factor pinned to it, but it holds true in its simplest form, "Buy low, sell high." The second rule married to this global profit-making truth is, "and don't be greedy." I can't tell you how many sellers I talk to who can't sell their homes today, but had offers in 2004 and 2005 of tens and even hundreds of thousands of dollars more than what they are currently listing the home for today. They past up huge profits with the expectation of making "just a little bit more" a year later. It was gold fever 21st century style.

So, you buyers out there are asking yourself, "Is it time to be in with the same lot of savvy investors of 2002/2003?" No one expects to see a return of gains seen in 2004/2005 over the next 2-3 years. So don't go into the real estate market with the expectation of flipping a home within months of purchasing. If you are looking for a safe bet investment over a 5 year or longer period or you are looking to purchase a retirement or vacation home then NOW is the time to purchase.

Investors are beginning to buzz out there and interest rates will not hold this low forever. Expect to see interest rates start to climb in 2008 and 2009. Some have even predicted double digit interest rates (remember the 1980's?). Yes, I know, just yesterday (9/19/2007) the prime was lowered a 1/2 point. Don't expect this to last too long. The U.S. dollar has taken a pounding partly due to these low rates. Although, the silver lining to this is foreign investors taking advantage of their high currency conversion rates and the low U.S. housing prices. Expect to see an increase of U.K. buyers of U.S. homes.

Belloise Realty was recently quoted in the Guardian, a prominent U.K. journal titled,
"The holiday homes you can afford." The journal stated:

One of the fastest-growing - but now fastest-falling - property markets in the world is Florida, writes Patrick Collinson. The sub-prime mortgage crisis gripping Wall Street and the City has its origins in states such as Florida, where easy lending spurred a house price and building boom that is moving sharply into reverse. But amid the misery of "foreclosures" are the first signs of investors buying at rock-bottom prices. We report from Clearwater Beach on the Gulf coast, where prices have tumbled as much as 40%.

The US mortgage crisis has resulted in a huge number of repossessions - and that's attracting the bargain-hunters.

Welcome to the world of foreclosure. One in every 80 homes in Florida is currently being repossessed by banks, as the sub-prime mortgage crisis rips through the Sunshine State.

While this means misery for evicted home owners, it spells opportunity to others - and many of the buyers are British, taking advantage of the best dollar exchange rates for a decade.

At Belloise Realty (belloiserealty.com), owner-manager Sal Belloise is a realtor (estate agent) in Clearwater Beach, which is regarded as one of the best beaches in the US. He says: "We've just put a property on the market that 22 months ago we got $1.8m (£889,000) for. Even though it's on the bay front, we'll probably end up with a sale price around $1.1m (£544,000).

"At the top end, the properties selling for $2.5m-$2.8m (£1.2m-£1.4m) are now going for $2.1m-$2.2m (£1m-£1.1m), while properties in the interior which had gone for $600,000-$900,000 (£296,000-£445,000) are going for $450,000 (£222,500)."

House prices in holiday centres such as Miami, Orlando and Clearwater boomed in the years running up to 2005, stalled in 2006 and are now falling fast as the foreclosures work through.

"It was bizarre how it came to a halt at the end of 2005," says Mr Belloise. "For the past 23 months it has been like someone flicked a switch and said 'no more sales'." Initially Mr Belloise blamed it on overbuilding of condos (apartment blocks) and media reports (he cites CNN) predicting that the boom couldn't last. His guess was that cheap condos bought by investors - those priced around $300,000 (£148,000) - would be hit, but family homes would remain unaffected.

But the truth was that every mortgaged household was being affected by a sustained rise in interest rates, which saw the Federal Reserve raise borrowing costs 17 times in succession between 2004 and 2006. "People who had adjustable [variable] rate mortgages saw their payments doubled or even tripled," says Mr Belloise.

You can read the entire article at: http://money.guardian.co.uk/buyingpropertyabroad/story/0,,2164570,00.html

The article flags Florida as a great place to obtain a bargain to its U.K. readers. But this sentiment is not exclusively foreign. In a recent interview on CNN's Larry King Live, Donald Trump and other investment experts stated Florida and especially the west coast of Florida was the best buyer's market with the greatest profit potential in the U.S.

Okay, now that you have determined you want to be a passenger on that same magic bus the investors rode earlier, or at least, find a great deal on a second or retirement home, you ask yourself how do I find sellers with the greatest potential of negotiating a great deal?

I would be remiss here if I didn't recommend a Realtor with expert knowledge of the market and immediate area and with a history of strong negotiating skills in both upswing and downswing markets as your best bet.

There are several factors an experienced Realtor working on behalf of investors look at which dictates how low a seller might negotiate. These factors include:

• When did the seller purchase the home? If it was pre-2003 it's a good bet there is some room to negotiate. If the home was purchased during the heat of 2004 and 2005 the seller likely paid more than what the home can be sold for in today's market. But there is still a possibility to negotiate a good deal if the seller isn't delusional about the value of the house.

• What did the seller pay for the home. An obvious factor. A seller who states their purchase price is not a negotiating factor is fooling themselves. This might have been true in 2004 and 2005, but that boat has sailed. In today's market, investors are looking for the sellers with the most room to negotiate and they expect to negotiate without mercy. If you need to sell your home and you are still holding out hope to make a killer profit, wake up. If an investor approaches you, negotiate the best deal you can and sell. If you can wait out the market a couple of years then wait, but make sure you do the number crunching for the costs of mortgage payments, adjustable rate increases, taxes, insurance, maintenance, and stress before you say no to their best offer.

• What is the balance of the mortgage? This is as important as the price the seller paid for the house. This could work toward and against the investor. If a large down payment was made on the mortgage, or better yet, there is no mortgage the investor will see this as a bright beacon of light, a blue light special, and will see a good negotiation possibility. However, during the past few years low-interest equity lines were easy money for homeowners and too tempting for some to pass up. Therefore, even if a seller paid a small amount for the home there could be tens of thousands of dollars tied up in equity loans.

• Vacant homes. This sets off bells in the heads of investors. A vacant home could be an indicator that the seller could be paying two mortgages or renting elsewhere and still paying a mortgage. The seller could possibly be near the point to where he is willing to walk away from any profit or even sell for less than what they owe (sell short). At the very least, the seller is paying to maintain the home, taxes, and other costs which are piling up and reducing any realized profit.

Investors also gravitate toward surer bets such as waterfront homes over non-waterfront homes. Waterfront homes have a historical trend of greatest potential value increase during an upswing market and the least devaluation during a downswing.

These factors and numbers are just some of the science used in determining potential. There is also an art to negotiating a deal. A good Realtor is not afraid to make low offers with determination in this type of market. An experienced Realtor will educate over-priced sellers of their home's true market value in a declining market and provide them options. And for foreign buyers, an experienced Realtor will ensure all international requirements are met and works with proven lenders who have finance packages specifically optimized for foreign investors.

What? You're still here? Go! Get out there and buy!

Now legal mumbo-jumbo. All investments have risk and should be carefully investigated prior to acting upon. Although homes are generally considered a low risk long-term investment there are still risks involved as values do swing up and down. It is always advisable to consult with your financial planner prior to making any investment.

Lifestyles - It's all about the water!

Welcome! Welcome!

Our goal is to inform Buyers and Sellers to the current real estate market conditions along Florida's Gulf Coast. More specifically, along the coast surrounding the Tampa Bay area. This includes waterfront and non-waterfront homes in and about Pinellas County cities, such as, Clearwater, Clearwater, St. Petersburg, Palm Harbor, Safety Harbor, Oldsmar, and all the barrier island beaches from Clearwater Beach to Tierra Verde.

In Pasco County, the cities of New Port Richey, Port Richey, Trinity, and specializing in the communities of Gulf Harbors, Gulf Harbors Woodlands, Sea Forest, and Key Vista!

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