Real Estate Recession Needs Realistic Sellers
January 30, 2008 - The lousy housing numbers for 2007 became official last week, and here’s the worst part: They probably have to get even lousier before things will get better.
According to the Florida Association of Realtors, the median price of single-family homes in the state dropped every month, compared with 2006. Sales of existing homes dropped 32 percent in Martin and St. Lucie counties, and 19 percent in Palm Beach. Condominium sales in Palm Beach County were down 25 percent. The only “good” news locally is that some markets in Florida, such as Miami-Dade and Lee counties, are in far worse shape.
Why, some Realtors have wondered, aren’t more buyers taking advantage? Mortgage rates are near housing-bubble lows and will go lower if the Federal Reserve cuts interest rates again today. Throughout Florida, especially in this area, there’s plenty of housing inventory. Sellers are getting desperate. Isn’t this a classic buyers’ market?
Not yet. To understand, let’s put home prices in perspective.
As of December, the median existing single-family home price in Martin-St. Lucie was $226,100, down from $255,200 in December 2006. In Palm Beach County, the median price had dropped from $384,700 to $369,400, with the peak having been roughly $400,000. That’s a drop from the high of 8 percent, which sounds dramatic until you check recent history.
As recently as April 2000, the median home price in Palm Beach County was $139,300. During the late 1990s, prices were going up 7 or 8 percent in what Realtors considered a hot market. Between 2000 and 2001, though, the rise was just 3 percent. If, after 2001, prices had continued to increase at between 6 and 8 percent - a very strong rate, if not for the artificial madness of the bubble - the median price this year would be roughly $236,500.
Looked at that way, it will take a decline of another $133,000 to loosen up the Palm Beach County market and a proportionally equal reset to generate more sales in the Treasure Coast. No forecaster has made that prediction, but a working theory for the stalled market is that too many sellers still are pricing as though it’s 2004. That year, one economist calculated that 70 percent of the condo market in South Florida was made of speculators, not residents. The Post carried stories about people who would buy two or three houses, keep them for a few months, and flip them for a quick profit.
Then came the hurricanes of 2004 and 2005, followed by higher interest rates, higher insurance costs and higher taxes on “flip” properties that were not protected by Save Our Homes and were assessed at values that had attracted the flippers. Growth in Florida has slowed. Some speculators may believe that they need to keep prices high or get wiped out. Some homesteaders still may believe that they can finance retirement from the sale of their house.
During the bubble, the mind-set was to buy now, because prices will keep rising. The new mind-set is to wait, because prices will keep falling. When enough buyers act as though it’s 2008, the real-estate market will start moving up from lousy.