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.
- 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.
- 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.
- 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.
- 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 PortmanPrint Story