Spring 2008

Last year at this time we wrote (see separate article in this section if you’re interested) about the history of real estate prices on the Emerald Coast , the 2004-05 bubble, and how the market had played out since then. We observed that although homes in neighborhoods with full-time residents had held their values relatively well during the weakness into the spring of 2007, investment properties had not fared as well. We ended by perhaps overstating the obvious – that we were in a buyer’s market – and encouraging potential second homeowners and longer-term investors to consider acting soon. Well, we think we were directionally right, if perhaps a bit early. Here’s an update.

What’s New?

We see five major trends affecting real estate in our primary market area from Ft. Walton Beach to Panama City Beach . To some extent, they affect all categories of residential property - single family homes, condos, and developed land – and all geographic areas close to the beach.

1) Prices have declined – dramatically, in some cases – to the point where some very attractive values are available. In some large, relatively homogeneous developments such as WaterColor, actual selling prices per square foot have declined by over 35% from their peaks in 2005 and are now below their levels of the first part of 2004, when all this craziness began. In individual cases, it’s now possible to acquire a beach-front or near-beach home for less than half what was asked for it 2-3 years ago. Land in developed communities can sometimes be bought for a quarter of what its owner paid for it. Primary residence communities have done better, but they’ve suffered as well.

2) Developers have all but ceased operations, and some are desperate for cash and thus willing to deal on properties they still hold. It’s possible now to drive through some newer developments and not see a single home being constructed. One that we’re aware of has a two-page list of owners who aren’t paying their monthly homeowner’s assessment for maintenance and common utilities. Several large condo developments in Panama City Beach have been cancelled or shelved indefinitely. Luxury condos planned for the Destin area have been downscaled, resized, and/or deferred. There are brand new properties in a number of areas that can be purchased from their developers at significantly reduced prices from their original offerings.

3) Inventory growth has slowed and is gradually being reduced as buyers are attracted by lower prices and sellers remove properties from the market. In the Walton County beach areas, inventories are down from a year ago in all categories, though they’re still a lot higher than they were in ‘04/’05. That’s the first drop we’ve seen since the current downturn began. Sales volumes are up in all categories from the depressed year-earlier levels (single family homes up 22%; condos up 58%; land up 100%).  Call or e-mail us if you’d like details.

4) Distressed properties are growing fast. They're now a larger, though still small, percentage of what’s on the market. Auctions, many of which are “absolute” – indicating the seller will take the highest offer with no reserve price – are a growing trend as sellers can’t wait for the traditional marketing process to operate effectively, given the large number of properties on the market. Short sale properties, where the seller owes more on the property than the sale will bring, now make up a full six percent of the local single family home market. There are also a growing number of bank-owned properties that have been foreclosed. Negotiating for these types of properties involves dealing with institutional processes and can take some time, but it can be rewarding.

5) Lenders have tightened their standards. “Stated Income” loans are much more difficult to obtain, loan-to-value ratios are lower, and appraisals are stricter. While this will deter speculators, we’d argue that they’ve already left the building if they aren’t desperately trying to unload some properties they got caught with. Loans are still available to well-qualified buyers at attractive interest rates.

What to Do?