As of this morning the two most significant numbers I saw are inventory of 24,400, and median price of the sold homes at $170,000. What do these two numbers have in common? They are both down from last month. I have also been keeping an eye on distressed properties available which stands at 6,387 this morning. The distressed inventory is up from last month, but has been holding steady for a couple of weeks now around 6,400. I have discussed the inconsistencies with how those numbers are reported, but believe it to be a pretty good proxy. The other two numbers and the distressed properties go hand in hand in hand.
As the distressed properties have grown in number and dropped in price the median price has gone down significantly from the highs of 2006 and 2007 around $260,000. I posted in my Orlando real estate blog last week that prices have not been this low since 2004 (pre-boom). In June of 2004 our median price was $175,000. Sales lag prices, so as the big price reductions in the first part of this year started coming the sales have picked up. They are a little slower this time of year, but I suspect they should pick up nicely by the second quarter of 2009. The people jumping on homes right now are primarily first time home buyers taking advantage of the low prices, great selection, and the first time buyer tax credit.
It's June 2004. That was the last time prices were this low in Orlando. The median price back then was $175,000, and it looks like we are going to see a median price in November 2008 pretty close to that, maybe a little lower. Just to remind everyone, June of 2004 was really before we started our big boom here in Orlando. Most of our price appreciation happened over about a six month period early in 2005. From February to July of 2005 our median price went up 25% from $196,000 to $245,000. For the next two years the median bumped along between $240,000 and $254,900. It did jump up once to $264,436 in July of 2007, but for the most part for two years we saw monthly ups and downs in the $240's. August of 2007 was the last time we saw the $240's. Since then, prices slowly until June of this year. In June the median price was $216,000 dropping nearly 18% to $178,000 in October.
I have been saying that we are at the bottom for three reasons: first, investors are starting to pick up bargains; second, rents and prices are in parity (properties can cash flow with 20% down); third, the affordability index is over 120. Of course not all properties are price appropriately, so you still have to do your research. It is also my expectation that prices will fall a bit more as these cycles tend to over correct. I am looking forward to Mr. Obama selecting a treasury secretary, so that will be one more uncertainty taken out of scheme of things. I am sure that he is waiting on that until the last minute so that the fourth quarter numbers cannot be attributed to his administration in any way. That is a smart political move, but it delays recovery by a month while the markets wait for stability. Secretay Paulson in the mean time could help quiet things by not continuing to change policy on a weekly basis.
Some of these pearls I got from Kevin Hassett at a luncheon yesterday sponsored by SunTrust. He is Director of Economic Policy Studies at the American Enterprise Institute. He also served as economic advisor to John McCain's campaign. According to his analyses the markets have priced in a 50% default rate for corporate blue chips. The highest default rate in the history of the market is 3%, so he believes that there is some over reaction going on right now. One reason for it is the questions still unanswered about the "bailouts". The bigger reason has to do with a couple of policies that Obama supported in the past that could replicate some of the conditions of the Great Depression. Mr. Hassett does not believe that Mr. Obama will look to modify his position on those issues in light of the current economic situation. Specifically, they deal with unionization and restraint of trade in the form of tariffs. Just google Kevin Hassett for more on his views. I found them very insightful.
I would like to thank SunTrust and my host Marcus Hopkins with Endowments & Foundations Services for giving me the opportunity to attend Mr. Hassett's presentation.
City of Orlando voted to spend $6.7 million in Federal Neighborhood Stabilization money. This will go to purchase about 30 homes in selected neighborhoods in the city of Orlando. I have to agree with the plan to focus the purchases in specific areas to derive the greatest benefit. Had the money been spread around more the impact of the program would have been diluted. Hopefully, this plan will allow the targeted neighborhoods to see real results and have a favorable impact on the homes surrounding the purchased properties.
In the end, while I am generally not in favor of such invasive governmental actions, I believe this will have a positive impact on our local real estate market. A similar program on a larger scale is underway in Orange county. This should be the more effective way to combat the escalating foreclosure situation in our area. Although, I beleive we may already be seeing a small improvement in distressed properties through market activity. While the number of distressed properties continues to grow, the prices are attracting investors and first time home buyers alike. The buyer activity appears to be slowing the growth in the number of distressed properties on the market.
Great article in the Orlando Sentinel online this afternoon about existing home sales in Orlando. We continue to be the bright spot in Florida. We had almost four times the sales of the Miami area, even though they are quite a bit larger than Orlando. In fact 14% of all the real estate sales in the state of Florida occurred in the Orlando marketplace.
Almost every week, I read some negative article about Orlando real estate. Prices have fallen a great deal in the City Beautiful, the inventory continues to run very high, and there are quite a number of distressed properties. Despite the doom and gloom, the weather also remains absolutely fantastic. We have a cold front moving through right now so the high is only in the mid sixties with clear blue skies and lots of sunshine. We still have over a billion dollars worth of construction underway with our new performing arts, arena and Citrus Bowl projects. There is still a new medical city developing with a medical school, bio-medical hub, VA and childrens hospitals being built. Orlando is still one of the top tourist destinations in the world. We also have a pretty good digital media, simulation and defense contracting business in Orlando. Click the link below to read the article in the Orlando Sentinel.
http://www.orlandosentinel.com/business/orl-existing-home-sales-orlando-111808,0,2974631.story
We are about half way through November, and there are 378 closed sales posted in the MLS so far. The median price is remaining somewhat stable, but lower at $175,000 with a median days on market of 104. If the time on market holds that will be a one week improvement in the time to sale. The other numbers I have noticed have to do with the inventories of homes for sale, distressed properties and contracts pending. The first two are actually down just a tad, like a handful of homes. The most significant thing is that the distressed properties are not continuing to climb. The pending contracts are continuing to climb especially among distressed properties. There are 1,674 pending contracts on properties identified as distressed with 6,359 active distressed properties. I have seen a high of 6,375 distressed properties, so like I said it is not a huge number.
David W. Welch, MBA Broker/Associate Remax 200 Realty www.davidwelch.com davidwelch@davidwelch.com
I have a broad and diverse base of business experience including finance, marketing, sales, computers/information systems, and health care. I graduated from the University of Central Florida in 1987 with a BS in Business Administration with a major in Finance. I earned my MBA from the Crummer Graduate School of Business at Rollins College in 1990 with a concentration in Finance. UCF is the seventh largest university in the nation. Rollins' MBA was recently ranked number 37 in the nation and is one of the smallest programs in the nation. The diversity of my experiences helps me to listen and understand the unique needs and wants of all my customers.
I primarily work in Orange county with a focus on the downtown Orlando, Conway, Dr. Phillips, Windermere, Winter Park, Waterford, Winter Garden, Ocoee, UCF and Lake Nona areas. These are mostly in South Orange county and East Orange county. The majority of my business is single family residential sales, but I also am familiar with many of the condo and townhome communities. I also have experience dealing in vacant land, and commercial sales and leasing. You can read more at www.davidwelch.com/orlandobuyers and www.davidwelch.com/orlandosellers. You can also read about the most up to date happenings in Orlando Real Estate at www.RealEstateOptimist.com.
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