When we look back on the year 2012 from the not too distant future, many will say that it was a bellwether year for residential real estate. It will be seen as a year of low prices, cash only deals, historic low interest rates, foreclosures galore, the decline in the American dream of home ownership and possibly, quite possibly, the year that the great depression in real estate ended and that proverbial light at the end of the tunnel was first realized. At least one can hope so, and in that vein I look at some of the current trends in South Florida Real Estate.
Prices: Most experts agree that we have hit the bottom of price deflation. Values are at ten to twelve year lows. Individual homes may go lower, but because we have lost so much value, it is unlikely that there is any further room to decline.
Some current examples of the market decline in Boca Raton:
8700 Jasmine Way: Listed for $99,000.00; last sold in 2003 for $126,950.00
10297 Allegro Drive: Listed for $250,000.00; last sold in 2007 for $425,000.00
5874 Harrington Way: Listed for $895,000.00; last sold in 2005 for $1,125,000.
6380 Boca Circle: Listed for $145,000.00; last sold in 2005 for $230,000.00.
10890 Lakemore Lane, Unit 101: Listed for $139,900.00; last sold at foreclosure in 2011 to the lender at only $57,800.00; sold in 2001 for $124,000.00
4001 N Ocean Blvd, #1002: Listed for $525,000; last sold in 2005 for $390,000.00. Tax collector value at $425,000.00, Zillow value at at $532,900.00
As you can see, for the most part, the declines are real and they are big. However, we can see some bright spots in the trends, with some values stabilizing or even going up, such as the Lakemore Lane home.
Mortgage Rates: Mortgage rates have continued to decline with the average fixed rate mortgage for thirty years at 3.73%, with the fifteen year rate at 3.02%, both historically record lows. Compared to rates a few years ago, the monthly savings are astonishing (chart shows a $250,000 loan):
Market Rate Five Percent Seven Percent
Monthly Payment $1,154.95 $1,342.05 1,663.26
In fact, today’s fifteen year rate monthly payment of $1,730.06 is equal to a rate of only 7.375% over thirty years. The continuing problem in the market is the difficulty in qualifying for these fantastic rates. In order to get these great rates, you have to have a very high credit score plus at least 20% down payment. This shuts out many buyers, with many more potential buyers sidelined due to the fact that nearly half of all homes are underwater (based on a 42% non-equity rate reported in the media, plus costs of sale of 8% for commissions, title and doc stamps).
Investors: Buyers with cash available are now big players in the real estate market. Traditionally cash buyers made up about 20-30% of all buyers with a low of only 13% in 2006. Today, as many as half the buyers on the market are cash buyers, a trend we see in our own real estate title company. Many investors see the low prices and are buying to either hold and resell, or to rent until the market recovers. Taking the Boca Circle home above, a buyer paying cash could probably acquire the house for about $130,000.00. Zillow estimates a rental rate of 1,345.00 a month. That is $16,140 net rental income a year. Taxes are $2,500, HOA fees are $3,240 and insurance is about $3,000 a year. Add in a healthy repair and miscellaneous budget of $1,500, the total costs are about $10,240, leaving a net return of $5,900. Based on the original investment of $130,000, that equals an annualized return of about 4.5%. Certainly better than 1% at most banks, but with a greater risk, such as defaulting tenants or large repairs.
As we can see, prices are low, interest rates are low, and interest is picking up. Based on these trends I believe that we will see a slow but steady increase in sales, with some properties, properly priced, selling quickly, especially at the low end (below $250,000). The owner-occupied $250,000 to 1,000,000 market will remain stagnant for a while as upgraders are trapped in existing homes, and the plus million market will likely vary with new popular units selling strongly while traditional large homes in older communities still moving slowly.
Michael Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County. They specialize in real estate law, and can assist owners and lenders in all real estate matters. They can be reached at 561.842.3000 or at www.warddamon.com