2007 Panama City Beach Condo Market (cont.)

by March 17, 2008 • 6 comments

In an effort to answer some questions about the analysis he provided on the condo market in Panama City Beach, Sam Portmans from CondoSaleTrends.com offered the following:

In order to have an intelligent discussion about market value, market trends, and the data used to evaluate the market, we have to agree on the definition of market value.

There are two relevant types of value, Current Market Value and Speculative Value. Current market value is what lenders and the banking system have agreed to use. When the definition of current market value is boiled down to its essence, it is the highest price that will attract a buyer over a defined marketing period. Implicit in this definition, is that there is always a buyer at market value. Say you have given yourself six months to sell your unit. After six months it has not sold and your Realtor tells you that there are just no buyers out there. What he is really telling you is that there are no buyers out there willing to purchase at above the current market value. If your unit has not sold in six months, it is priced too high to sell. There are always buyers at market value. Buyers don’t care what you paid or what you think your unit is worth. Buyers pay market value 99 percent of the time.

If the current market value of your unit is $350,000 but you think it would sell for $400,000 next year, the $400,000 is a speculative value. Speculative value is a valid concept that investors use all the time in evaluating their investments. Should I sell today at $350,000 or is it advantageous for me to wait until next year and try to sell at $400,000. As a general rule you can never sell a condo unit today at a price equal to next year’s speculative value.

Do foreclosures have an effect on current market? Absolutely. Over at the Celadon (built in 2004) there are nine 1BR/2Ba units listed for sale. The five lowest priced units ($201,900 to $229,000) are in some form of foreclosure. The lowest priced unit that is not in foreclosure is listed at $284,000 (seller paid $339,000 in June 2004). The two most recent sales of this type of unit were at $240,000 and $245,000 in November and December of 2007. The five foreclosure units, four of which are very nice, will certainly have a negative effect on the current market value of the units that are not in foreclosure. The ugly reality is that if you want to sell your 1BR/2Ba, 846 SF unit in the Celadon within a reasonable marketing period, the price will have to be lower than the $240,000 November 2007 sale. If you believe that your unit will sell for more next year after the foreclosures have cleared the market, then that is speculative value and not current market value as defined above.

The market trend line has caused some confusion. It is structured to show a sale price trend measured in terms of the percentage sale price as of a particular date. The starting date used was January 1, 2007 so we could show the price trend for the year January 1, 2007 to December 31, 2007. We chose units from a variety of buildings of different ages and sizes that had a sufficient number of sales as to be statistically significant. The units used in the analysis were:

Boardwalk Beach; Opened in 2005; 1,380 SF; 2BR/2Ba
Calypso; Opened in 2006; 1,226 SF; 2BR/2Ba
Celadon; Opened in 2004; 846 SF; 1BR/2Ba
Grandview East; Opened in 2005; 1,492 SF; 3BR/2Ba
Gulf Crest; Opened in 2003; 1,388 SF; 2BR/2Ba
Emerald Isle; Opened in 2005; 1,146 SF; 2BR/2Ba
Treasure Island; Opened in 2005; 1,370 SF; 2BR/2Ba
The Summit; Opened in 1983; 912 SF; 1BR/1.5Ba
Regency Towers; Opened in 1975; 1,114 SF; 2BR/2Ba

The January 1, 2007 market value for each type of unit was determined by analyzing sales data from January 1, 2006 to December 31, 2006. The sale price of each type of unit is only compared to the typical sale price of that particular type of unit as of January 1, 2007. In other words, a unit type with a January 1, 2007 market value of $400,000 is represented as 1 or 100%. A July 2007, $380,000 sale of that type of unit is depicted as .95 or 95% of the January 1, 2007 sale price. The 2007 sale prices and sale dates were charted with a price trend line for each type of unit. The chart contained in the 2007 price trend analysis is a trend line of the trend lines of the sale prices of each type of unit from the nine buildings. Foreclosure sale prices that were unrealistically low were not included. The analysis does not try to skew the price trend in any direction. The data is just the data.

According to the Wall Street Journal, there will be 85% more adjustable rate mortgages resetting in 2008 than in 2007. Adjustable rate mortgages always reset at a higher interest rate than the current 30 year mortgage rate. There is almost always a hefty prepayment penalty associated with an adjustable rate mortgage if the loan is refinanced. The financial requirements for someone wishing to refinance their ARM have increased significantly over the past six months. Most properties in Panama City Beach that were financed with an ARM during 2005 and 2006 have a current market value significantly lower than the purchase price. Owners with a 90% or 100% ARM will find that they will have to bring a significant amount of money to the closing table if they qualify for refinancing.

Some may not agree with the analysis, but the facts are persuasive. If you get all of your information from a source whose career and income relies on a particular event happening, then you can be assured that that information will be skewed toward that event happening. Real estate investing is ruthless and it is heartless. If a real estate investor lies to himself about things concerning money, he always loses.

– Sam Portman

The original analysis can be found here.

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1 Jacob Dore March 17, 2008 at 5:24 pm

It is amazing that so many individuals who have so much invested in this market rely solely on articles, agents, and second hand opinions to determine market value – while the last person asked is the only person legally qualified or educated to determine market value – a real property appraiser (real property being property considered to be real estate and not personal property). Agents are definitely a good starting point in determining where to price a property – however many times agents will call us prior to placing a listing because they want to know a realistic market value. Appraisers are vital in not only protecting the consumer – but all parties involved with the closing/purchasing/refinance of the property. In the current market appraisers tend to be viewed as the enemy because we are often accused of “coming in too low” while what we are actually doing is simply reporting data from the current market. The above article is accurate in regards to a property priced above market and not selling in the time frame the seller had hoped for, however far too often people will not employ the services of an appraiser to find out exactly what the market is doing and how they should proceed. I am happy to speak to realtors as well as buyers and sellers to make sure they make informed educated decisions as well as to avoid wasting time (for the seller, buyer, and agent). I am not trying to promote my company – but my profession. I have read so many articles on real estate activity in Panama City & Panama City Beach, and rarely (if every) read that an appraiser was consulted. Educated consumers, agents, and sellers will be a key component in correcting the market – of course several other factors (the economy, rates, etc.) will need to be in place in order to start seeing a significant change. In this market, you can never ask too many questions – and to make the mistake of taking the advice of those only with a vested interest in the transaction could prove to be financially devastating.

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2 John March 18, 2008 at 7:56 am

I very much appreciate the infomation Sam has provided. While the information is not the result we would like, it is one that is subject only to scrutiny of the mathematical method used. Emoton and hope does not count and do not change facts.

As an engineer who studied statistics and aced the nationally based exam on them, the only question I would have about Sam’s analysis is whether the sample he used is large enough to be “statistically significant”. That was a key provision of his work.

From there, the methods are standard and known to statisticians. As engineers say, it’s “plug and chug”.
(No reference to Spring Break intended).

It’s a good time to be a buyer, lousy to refinance, and the time to be a good landlord to ensure steady tenants.

Makes me wonder where the rental market is going. Perhaps that could be Part 2.

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3 Debby March 18, 2008 at 8:29 am

Thank you for presenting the information on true market value. In the real estate auction process, we are able to deliver 100% true market value to sellers. Many don’t like to hear that, still believing that the “fantasy” market a few years ago will come back. A property is only worth what a buyer is willing to pay. That’s it.

I talk to people everyday who are beginning to realize that they simply can not afford the property that they purchased only a few years ago. Many are using credit cards to hang on, only to find themselves in worse shape. I professionally negotiate short sales for those who must sell, and negotiate loan modifications for those who qualify. It is a painful process. When we realize that all of this is needed to get through the current situation. We don’t want to go through it, but the faster it is done, the faster we get to recovery mode.

With the right attitude, we will all get through this. Thank you again for reminding us about true market value. I hope to see more articles like this in the future.

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4 Billy Joe Smiley March 18, 2008 at 10:41 am

I agree that ARM resets are a big problem. However, ARM interest rates do not always reset at at rate higher than the current 30 year mortgage rate. I have an ARM that has gone thru two adjustments cycles and it is still lower than the current 30 year mortgatge rates.

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5 Billy Joe Smiley March 18, 2008 at 11:05 am

Great article. I agree that ARM resets are a big problem. However, ARM interest rates do not always reset at at rate higher than the current 30 year mortgage rate. I have an ARM that has gone thru two adjustments cycles and it is still lower than the current 30 year mortgatge rates.

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6 Scott March 25, 2008 at 10:51 pm

A very well written article. The appraisers comments are interesting. I have found to many sellers who have in their possession a recent appraisal that they have paid for which names the value to be much stronger than current market value. Oftentimes you will see a listing advertise 150k below recent appraised value. Of course the irony is its days on market is like 175 and counting. Although USPAP regulates the professional standards there still seems to be an awful lot of subjectivity amoung appraisers in this market. I have found it comical to see that a year ago everyone cried about how high their assessed values were so over infalted. In many cases they were indeed high and the crying was justified.Now that many adjustments have been made the Tax Appraiser for the bulk of the properties seems to be spot on and the sellers are not willing to cede a sale at just market value because the now becry its to low. Market value, is, what it is and it was aptly described in this very well written article.I know that folks who are in the market to sell ought to be priced to sell and if thats simply not possible then perhaps one should just wait if at all possible. Having overpriced listings off the market would help the whole market to get stronger.

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