January 21, 2008

View from Florida, 2007 (Part V)

(c) copyright View from Silicon Valley, 2008.  All rights reserved.



Wrapping up our annual Florida series (I know, I know, finally!) let's move from what happened to last year's glut of listings to what we actually saw in the trenches.

We stopped at the sales office for a nearby gated community wondering if we would get pawned off again on the agent with the really bad breath or the one who decided we were "tourists because you are wearing new clothes."  Regardless, we just wanted "the list" so that we could drive around and check them out. (To enjoy last year's rant, please visit, "View From Florida (Part IV, Gated Community)," at http://www.viewfromsiliconvalley.com/id291.html)

We were not totally surprised to learn civilians were no longer allowed to drive around inside the gates to look at houses.  We now have to be accompanied by an agent. (Sarcasm alert:)  This new policy is not to protect the commission of our in-house agents.  We would never do anything to make it harder to buy houses here.

As an aside, you may recall during last year's visit we found the "gate" really only kept out --well nobody.  If the gate and security guard did happen to thwart a prospective burglar or vandal, the prospect could just drive around the corner to where the subdivision is "protected" by tall oleanders and walk right in.  But alas, I digress...

Since we were stuck listening to this agent, maybe we could at least pry out some interesting tidbits.  She was a recent retiree from "the corporate world" who was delighted to be away from the drudgery and instead is out meeting and talking to new people.  Her shiny, new Lexus ES350 was one her of her joys.  Upon hearing we were from northern California, she used the now-obvious technique of stating she had just been out to Oakland and how wonderful that whole area is to live.  (Yeah, yeah, and my sister, mother and niece all have the same name as you.  Remember, I'm in sales too...)

She prodded us two or three times to fill out a visitor information form.  We kept nodding OK, asking more questions and ignoring the form.  After a few minutes, she dropped it and jumped into selling mode.

Even though it was obvious we were on vacation, she was only too happy to squire us around to as many listings as we were willing to view.  Unfortunately, she explained, there is no price or availability list, per se.  We were welcome, however, to page through their three-ring binder of listings and pull out any that were of interest.  She would fix their book later.

We learned they had 60 listings earlier in the year (out of ~730 properties) but they were now down to only about 40, with six closings scheduled this month. (It was the 28th.)  Is 60 some kind of magic number?  Or is it just coincidentally the same figure used in the other subdivision we visited --although they were claiming 60 sales in 2007, not 60 listings.)

The "interesting" part was her follow-on statement that "only seven of those listing are bank-owned foreclosures."  She also mentioned there were some houses in "pre-foreclosure."  Wow!  When I asked how many were in pre-foreclosure she just shrugged and said it was impossible to know until they went into actual foreclosure.

Looking back, we infer she was privy to the Homeowner Association's (HOA's) books.  She may know how many owners are not up-to-date on their $2,150 annual HOA fee and sees it as a leading indicator.  Given she didn't deny that even more houses were in pre-foreclosure, we infer there were at least another handful.

OK, we want to look at a couple foreclosures, plus one or two of the other lower list prices.  It turns out this year's listings started at $340K.  Before we set off, she called one of the listing agents, hoping to make sure the first house was presentable.  We could clearly hear him on the other end of the line saying, "Bring me an offer," before hanging up.

As an aside, you may recall last year's cheapest listing in this subdivision was $389.9K.  Right off the bat, we know the "bottom" of the market is -$49.9K or -13%!  (Down from 11x to "only" ~9.5x the local median family income.)

It turned out 2006's $389.9K listing was owned by the second flipper of this same property.  The original flipper paid $239.9K in 2003 ($104 per SqFt) and flipped it at $339.9K in March, 2005 ($148 per SqFt).  The 2006 owner /flipper /bag-holder wanted $389.9K ($170 per SqFt).  Apparently, the second owner assumed this would be so easy that he just marked it up by another round number.  Neither owner made any improvements.  The lot was adjacent to the subdivision's oleander "security hedge" and also near overhead power lines. (i.e., it's in a lousy location!)  As of today, this property has still not sold.

This year's lowest-priced house was not listed as a foreclosure but had "real fixer upper" handwritten on the flier.  In our minds, regardless of the actual listing, this house was effectively a foreclosure.  It was $340K for a 4/3/2 with hot tub in 2,935 square feet ($116 per SqFt) built in 1993, sold "as is, with right to inspect."  The  multiple mud dauber wasp nests near the front door, the emerald green décor and warped wood flooring inside accompanied by the green-water hot tub on the back porch made it clear this house had empty for awhile.

The next-cheapest house was listed at $384K for a 5/3/2 and pool with 2748 square feet ($140 per SqFt) and an admitted foreclosure.  The front door was actually unlocked.  There were bed frames, a child's coat and stuffed animal, business cards, PC printers, etc. strewn across the house.  If the person whose card was scattered all around the house and garage was the previous owner, it was a real estate agent!  (Or maybe now an ex-Real estate agent?)

The next house of interest listed at $449K for a 4/3/3 with 2675 square feet ($168 per SqFt).  It was also vacant and turned out to be up against the cinder block wall enclosing the subdivision.  There was some screw-up in the lock box so the agent riding shotgun on us had to go back to the office for a different key.

While waiting, we noticed the house across the street was also vacant with the back door  standing wide open.  It looked to be the same design and we decided to skip the "third" house and going to the "fourth" one.  It's flier said $549.9K for a 4/4/3 plus pool and 3417 square feet ($161 per SqFt).

This was supposedly a corporate relocation and it had been vacant at least four months.  This probably explains why someone was still cutting the grass and making some effort with the pool.

In short, houses could be had in this subdivision in 2003 for $104 per square foot.  They were asking $170 (and up!) in 2006.  The three houses we viewed this year averaged $146, with a low of $114.

Call us when a move-in-ready house can be had there for ~$100 per square foot.

Conclusion:
Obviously, Florida house prices today are down significantly from late-2006.  Given the abundance of foreclosures, and presumptive pre-foreclosures, prices figure to keep dropping.  So far, this is not really "news."  You can find this info on a lot of blogs.

Our unique insight is from an incidental comment made by the agent.  She "helped a buyer make an offer" on a foreclosure.  However, she was very frustrated because "the bank" had not given them an answer for two months now.

Yikes!  This says it doesn't make sense to start sending low-ball offers on these foreclosures --yet.  If you want to live there, you need to have somewhere else lined up while you wait and you might end up waiting several months.

In theory, an "investor" might react to this condition by "moving up the food chain" to houses whose owner is still in possession.  However, since so many of these owners will have no equity, "theory" will not work.

In practice, most foreclosures will be difficult to sell, even after the seller finds a willing and well-funded buyer.  Until this is problem is fixed, renting will be an attractive option.