August 2009 Panama City Beach Condo Market Update

by September 17, 2009 • 8 comments

During the last 12 months we have seen a meltdown of the financial markets, the stock market tanked, and the housing market continued a steep decline.  The Feds invested a significant amount of money to stop the free fall.  The question on everyone’s mind is “have we begun to crawl out of the hole”.

The answer to that question depends on your perspective.  From a national standpoint, large banks have begun to stabilize but smaller regional banks continue to be at risk due to their exposure to the mortgage backed securities in their portfolio.  The stock market has regained approximately 50% of its’ loses.  The overall national housing market appears to be stabilizing.  However, we are more concerned about the Panama City Beach condo market than the national indicators.

First, the good news.  The following chart indicates that the number of sales of condo units from the 70 buildings in our data base is up 7% during the first eight months of 2009 when compared to the same period last year. That is a positive sign.  Before we extrapolate that increase for the entire year, we need to look at the history.  For the first eight months in 2008, the number of sales was slightly ahead of the number of sales in 2007.  However, for the entire year there were 3% fewer sales in 2008 than 2007.  Statistically speaking, we will have to wait and see if the number of sales for 2009 will be substantially different than the past three years.

The graph below illustrates the number of monthly re-sales from the 70 Panama City Beach condo buildings in our database.  The 2009 monthly re-sales through August appear to be trending somewhat higher than the past three years.

The number of bank related sales, foreclosures and short sales, continues to put downward pressure on current market values.  Bank related sales accounted for an average of 43% of all sales within our data base during the first six months of 2009.  42% of the July sales were bank related.  There does not appear to be any moderating to the number of bank related sales during the short term.

The market trend line is illustrated below.  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 May 1, 2008 so we could show the price trend for the preceding 16 months.  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; 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
  • Sterling Reef; Opened in 2005; 1,076 SF; 2BR/2Ba
  • Splash: Opened in 2006; 1,074 SF; 2BR/2Ba
  • Seychelles; Opened in 2006; 883SF; 1BR/2Ba

The May 1, 2008 market value for each type of unit was determined by analyzing sales data from January 1, 2008 to June 1, 2008.  The sale price of each type of unit is only compared to the typical sale price of that particular type of unit as of May 1, 2008.  In other words, a unit type with a May 1, 2008 market value of $400,000 is represented as 1 or 100%.   An October 2008, $380,000 sale of that type of unit is depicted as .95 or 95% of the May 1, 2008 sale price.  The sale prices and sale dates were charted with a price trend line for each type of unit.  The chart contained in the price trend analysis is a trend line of the trend lines of the sale prices of each type of unit from the 12 buildings.  Foreclosure sale prices that were unrealistically low (mold problems for example) were not included.  There were 153 sales used in the chart.  The analysis does not try to skew the price trend in any direction.  The data is just the data.

The data indicates that the current market values of Panama City Beach condos have declined approximately 16% over the past 12 months.  The rate of decline is similar to the 15% decline from August 1, 2007 to August 1, 2008.  The trend line shows a moderating of the rate of decline over the past four months.  This is a positive sign, however over the past three years the steepest rate of decline was in the September to February months.

There are several factors at play that will continue to put downward pressure on current market values.

  1. During the market run up the vast majority of buyers were speculators lured by the prospect of easy money.  These buyers are no longer in the market.  Current buyers are those that actually want a beachside condo in Panama City Beach.  Fewer buyers coupled with a supply that far outpaces demand will tend to drive prices downward over the next couple of years.
  2. Financing a condo continues to be extremely difficult for the average buyer.  Fannie Mae and Freddie Mac designated most area condo buildings as “condo-tells”.  Fannie Mae and Freddie Mac will not buy mortgages backed by “condo-tells”.   Financially qualifying for a loan has become much more strenuous.  The difficulty financing a Panama City Beach condo means fewer buyers.  Fewer buyers mean decreased demand while the supply remains high.  The difficulty in financing will put downward pressure on current market values.
  3. There are still a very large number of owners who have a mortgage in excess of $100,000 more than the current market value of their condo.  Bank related short sales now outnumber foreclosure sales.  A Short Sale is the sale of a condo in which the proceeds from the sale are short of the balance owed on the condo. Typically, banks do not record their intention of accepting a short sale.  Public records may indicate a moderating in the rate of foreclosures while the number of foreclosure and short sales combined is not declining.  There is no evidence that the number of foreclosure and short sales will decline in the near term.  Forty percent of the sales within our data base over the past seven months have been foreclosure or short sale bank related sales.  Bank related sales do not appear to be moderating and will continue to have a negative effect on sale prices over at least the short term.
  4. The supply of developer owned units that have not been sold far exceeds the demand.  The following chart shows the number of unsold developer units from ten high profile beach side buildings as of 7/24/2009 according to Bay County Assessor and Clerk & Recorder records.  There is some anecdotal evidence that Aqua has several contracts that have not closed. There are over 1,000 unsold developer units that will need to be transferred to private ownership at some point.  These 1,000 units don’t include the 1,500 plus unsold units at off-beach buildings such as Laketown Wharf.  These unsold developer units inflate the supply of available condos and will continue to put downward pressure on current market values.

All indications are that there is more pain ahead for the local market.  How far do we have to go before the bottom?  It is not unreasonable to assume that sale prices will decline another 10% or more over the next 12 months and that may not be the bottom.

As always, if you lie to yourself about things concerning money, you lose.

Check out our new Panama City Beach Condo Market blog at the web address www.condosaletrends.com/blog.

– Sam Portman

www.condosaletrends.com

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1 James September 17, 2009 at 10:15 am

Shouldn’t the title of your article have read “4 Reasons Not to Buy Real Estate Now”??

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2 B. Harris September 17, 2009 at 4:20 pm

“Shouldn’t the title of your article have read “4 Reasons Not to Buy Real Estate Now”??”
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Exactly what I thought. I was impressed by the last line: “It is not unreasonable to assume that sale prices will decline another 10% or more over the next 12 months and that may not be the bottom.” So why buy now? Anyway, I put a link to the blog article on my own condo blog as it is an interesting thread.

The problems outlined in the article are found in spades at our condo. 58 of 168 condos are still unsold, 2 units gone in bankruptcy (same owner), another 7 in various stages of foreclosure with probably another 3, at least, going soon.

Last list I saw of owners debts to the condo assn. had 42 owners out of 110 on it, a good dozen+ were in signifigant amounts.

I have frequently raised the question and will do so yet again, has anyone EVER been told by a realtor that it wasn’t a ‘good time to buy’?

——————————–

Here is a seperate issue to put forth for realty professionals who read here. The various foreclosed condos that go ‘on the courthouse steps’ seem to be bid on and purchased by those banks who own the dud mortgages. This seems to ace out any private sales to individuals looking for a condo at a greatly reduced price.

A clerk at the Bay County Foreclosure section said this is usual and the banks or mortgage firms will try to buy them for $100 but if there are other bidders they usually take the bids right up to the amount owed. This has happened to the last 3 condos at our development. I was thinking of bidding on one over my own condo which is soon to go but it seems that it would be a waste of time. Comments please!

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3 Sam Portman September 17, 2009 at 4:26 pm

Jason changed the title from “August 2009 Panama City Beach Condo Market Update” for some unknown reason.

Sam

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4 B. Harris September 18, 2009 at 11:17 am

I particularly noted one of the closing comments “It is not unreasonable to assume that sale prices will decline another 10% or more over the next 12 months and that may not be the bottom.” So why buy now? Anyway, I put a link to the blog article on my own condo blog as it is an interesting thread.

The problems outlined in the article are found in spades at our condo. 58 of 168 condos are still unsold, 2 units gone in bankruptcy (same owner), another 7 in various stages of foreclosure with probably another 3, at least, going soon.

Last list I saw of owners debts to the condo assn. had 42 owners out of 110 on it, a good dozen+ were in signifigant amounts.

I have frequently raised the question and will do so yet again, has anyone EVER been told by a realtor that it wasn’t a ‘good time to buy’?

——————————–

Here is a seperate issue to put forth for realty professionals who read here. The various foreclosed condos that go ‘on the courthouse steps’ seem to be bid on and purchased by those banks who own the dud mortgages. This seems to ace out any private sales to individuals looking for a condo at a greatly reduced price.

A clerk at the Bay County Foreclosure section said this is usual and the banks or mortgage firms will try to buy them for $100 but if there are other bidders they usually take the bids right up to the amount owed. This has happened to the last 3 condos at our development. I was thinking of bidding on one over my own condo which is soon to go but it seems that it would be a waste of time. Comments please!

Reply

5 Herbito September 22, 2009 at 9:37 am

One major thing not mentioned are the unreasonable appraisals being ordered by the lenders. Using the lowest sale price without regard to wether the subject property is a short sale or foreclosure is killing us. The sale prices for these types of units are artificially low to get the banks whatever they can to clear their books. We all know that! So, until enough noise is made to change this unreasonable situation, the market is going to continue to stagnate. I also mentioned using the lowest sale price for appraisals. My experience lately is that if on a given day 5 same type units sold for 500K, and one for 350K, guess what the future appraisal would be fo any future sale of one of these units? You got it, 350K. This is not right!

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6 Don Giles September 22, 2009 at 11:08 pm

Herbito,

Don’t put the blame on the messenger[s]. Under the same scenario you mentioned, if there are competing units on the market at an asking price of $385,000 there is no way the unit is worth $500K, or even $385,000. Sales are not the only criteria that appraisers are required to analyze. What INFORMED buyer/investor would pay $500k [or any amount] when a suitable alternative is READILY available for less? Supply, demand and economic conditions…Foreclosures and short sales are the largest part of the market at this time. Just read the many marquees and advertisements around town, and look at the market stats. Most lenders I have dealt with on short sales order appraisals to check reasonableness of offers.

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7 Herbito October 11, 2009 at 11:21 am

You have missed the point I am making. Your analogy is understandable. Price is everything, right? But, taking the lowest priced similar unit as the total criteria for an appraisal has become the norm. Let’s face it, some units have low loan balances resulting in low listing and sale prices. If I sold my home for $1 dollar would that now be the “fair” market value of it? It’s the same principle.
Another area that I don’t think John Shinner addressed is the “condotel” situation. When things were going well, Freddie and Fannie could have cared less when backing these loans. Now it’s become a big issue resulting in difficulty in buyers even finding financing. Unreasonable appraisals and difficulty in finding suitable financing are the two biggest things effecting the condo market in PC Beach. Most of my sales in the last year have been cash buyers. Thank our lucky stars for them!

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8 John Skinner "The Condo Man" October 11, 2009 at 8:21 am

Mr. Portman, I have read your Condo Market update as of August 2009 and I think you’ve misled potential buyers. In the detailed analysis you combined “gulf-front” properties with properties “off the beach”. The products are totally different. By combining gulf-front properties with property not on the beach you’ve misinformed the public into thinking they can easily purchase any property including gulf-front. This is simply not the case for the gulf-front properties in West Panama City Beach. Smart buyers are realizing that now is the time to purchase! Our database shows over 326 west-end condo sales since October 2008. In addition, some of your numbers are so inaccurate it’s hard to trust the data.

For example, your table says there are 880 units at Emerald Beach Resort when in fact there are only 541. Another example, in your blog of October 2008 you wrote “The Ocean Reef auction on October 18, 2008 concluded with a reported 35 sales. Sounds good but they still have over 140 unsold units in their inventory.” There are only 161 units in Ocean Reef and several units had closed prior to October 2008. This comment was detrimental to sales at a time when there was clear sales momentum.

To set the record straight, I would like to specifically respond to the three major issues:
1. Supply of developer owned units
2. Condominium financing
3. Short sales and foreclosures

1. Supply of developer owned units – Since I work mostly in West Panama City Beach, I’ll share my West Side, Gulf-front, Story. This includes the following Gulf-front condos built after 2003: Aqua, Calypso, Celadon, Emerald Beach Resort, Emerald Isle, Ocean Reef, Palazzo, Splash, Sterling Breeze, Sunrise, Tidewater, and Tropic Winds. The total number of units in the above mentioned condominiums comes to about 3,225.

Let’s review the number of developer unit’s that are unsold. First we’ll eliminate the condos that have no developer units for sale. This list includes Calypso, Celadon, Emerald Beach Resort, Emerald Isle, Splash, Sterling Breeze, and Sunrise. This leaves us with Aqua, Ocean Reef, Palazzo, Tidewater, and Tropic Winds. The total number of unsold developer units from this group is approximately 336 or 10.4%. Tidewater and Tropic Winds make up 235 of the unsold developer units.

The total number of sales since October of last year for Ocean Reef, Tropic Winds, and Tidewater is approximately 185. This is an amazing number of sales considering our depressed economy! It is likely the remaining developer units in Aqua and Palazzo will be sold within the next several months as “developer specials” are now in place.

If nothing changes, meaning we are still in a recession, financing is difficult, Pier Park is slow, and the new airport doesn’t help, it may take another year and a half to sell the remaining inventory. However, if any good news materializes the remaining developer units will be sold quickly and procrastinating buyers that are sitting on the fence will be shutout.

Since I work at Ocean Reef, on a daily basis, I would like to present some pertinent facts as they relate to our development. Since October 2008 there have been 82 developer sales. Ocean Reef is one of Panama City Beach’s newest developments and benefits in having a majority of new owners that purchased after the market decline. Therefore, there are no short sales, no foreclosures, and no resales. All of our owners are paying their HOA dues and the association is in great financial shape.

Many have inquired about the success at Ocean Reef and why vacation home buyers and investors are flocking to our development. The First and foremost reasons are the price, opportunity, and development stability that Ocean Reef has to offer. The “Ocean Reef Deal” is often thought to be “too good to be true” but, it’s not! It’s the “Real Deal”! Our prospects are astonished to learn that you can now purchase a brand new, gulf-front, 2 bedroom, 2 bath, beach condo (located in a stable development) in the mid $200,000’s. In addition, the home owner association fees have held steady, for the past 18 months, at an affordable $284 per month! Ocean Reef is a stable development with strong sales and without the risks associated with foreclosures, short-sales, and bankruptcies. Most important, Ocean Reef is one of Panama City Beach’s newest developments and benefits in having new buyers, paying mostly cash, which purchased in 2008 or 2009.

2. Condominium Financing – I agree in general that financing a condo is difficult for the average buyer. However, with over 326 sales since October 2008, just counting our west end condo data base, it shows that qualified buyer’s are realizing that now is the time to purchase! Buyer’s that choose to wait until prices decrease more are also gambling that interest rates will hold steady or drop. For example a 30 year fixed loan of $250,000 at 5% carries a monthly payment of $1,352. A loan of $250,000 at 6% carries a monthly mortgage of $1,499. During the course of a 30 year term the additional cost for interest would be $56,455. If you believe that prices are going to fall by $56,000 or more, then wait. However, the reason interest rates are at a historical low is because the government has pumped approximately one trillion dollars into the bond market keeping interest rates low during the recession. This is about to change as the economy stabilizes.

3. Short Sales and foreclosures – Mr. Portman, you indicated that 43% of all sales in your data base during the first 6 months of 2009 were related to foreclosures and short sales. By combining gulf-front properties with properties not on the beach you have misled your readers into thinking they can easily purchase any property including gulf- front. This is totally not the case and should be corrected. The fact is, in my data base of 3,225 west end condos, the total short sales and foreclosure sales, for the first 6 months of 2009, are as follows:

Aqua = 0, Calypso = 0, Celadon = 8, Emerald Beach Resort = 9, Emerald Isle = 2, Ocean Reef = 0, Palazzo = 0, Splash = 5, Sterling Breeze = 0, Sunrise = 3, Tidewater = 0, and Tropic Winds = 0

In summary, 27 sales out of 326 were related to short sales and foreclosures from 10/01/08 to 10/01/09. This is about 8%. These numbers indicate that in most cases developer sales or resales are priced better than the short sale and foreclosure market and certainly are less risky.

In summary, Panama City Beach, the “Next American Boom Town”, boasts beautiful sandy pristine white beaches, perfect emerald waters, romantic sunsets, and attracts millions of visitors each year. Today, luxurious new condominiums, an upcoming international airport, new shopping centers, and new entertainment venues are attracting real estate investors, condominium owners, and beach lovers from all across the U.S.

Condominium ownership, along Florida’s Emerald Coast, has never been better and now includes the new amenities our area has to offer. Panama City Beach is undergoing a complete transformation, including new multi-million dollar developments, that provide priceless family fun, exquisite lifestyles, and of course our #1 investment opportunities for both Ocean Reef and Tropic Winds.

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