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. The 2BR/2Ba units sold for $225,500, including the auction fee, which is about 20% less than recent sales of very similar Emerald Isle 2BR/2Ba units. This tells us that there are a few buyers out there willing to buy at a 20% discount. The Palazzo auction in August told us there were a few buyers out there willing to buy at a 10% discount. The question is whether buyers will demand more than a 20% discount at the next auction.
We reported in July that there were over 1,300 unsold, high-quality developer units in beach-side buildings in Panama City Beach. The Palazzo auction sold 50 units in August, the Ocean Reef auction sold 35 units in October, and Sterling Breeze closed 30 units in-house since July. That still leaves around 1,200 unsold developer units that need to be sold. 1,200 unsold developer units most likely means more auctions and lower prices.
The local condo market continues to trend downward. The chart later in this post indicates that sale prices as of October 2008 are down 15% compared to October 2007. New lows are set almost every month in high quality beach-side buildings. There are numerous examples of list prices that are below the lowest reported sale price of a particular model unit. Foreclosure proceedings in high quality beach-side buildings have accelerated in every quarter over the past year. The number of monthly, arms-length, market-rate sales from the 70 buildings within our database continues to decline. The market dynamics at play in our local market and just the market inertia will most likely drag prices lower.
Is there any good news here? If your basis for news is the year 2005, then market values have declined 50% and the world is coming to an end. However, if your basis is the year 2002 then story is more upbeat. Let’s look at the 744 square foot, 1BR/1Ba units in Long Beach Towers. These units were selling in 2002 for around $175,000. Currently, they are selling in the $215,000 range for a 23% increase since 2002. The rate of inflation in constant dollars over the same period was 21%. Not bad when you consider any other long lived item (vehicles, equipment, etc) you purchase almost always depreciates over time.
It is unreasonable to assume that residential property will always increase in value at a rate higher than the inflation rate. If you extend price increases at a 2% to 3% rate above the inflation rate over a 30 year period, people will be spending more than 75% of their income on a place to live. That is not a sustainable scenario.
Is this a good time to buy? If price is your main consideration, the operative question becomes “is it a good time to buy today relative to what point in time”. Certainly, today is a better time to buy than six months ago. But is it a better time to buy today than six months from now? The answer you will get depends on the agenda of whom you ask. Speculation in this kind of market is not for the faint of heart.
The following is an update of our usual, no spin data from www.condosaletrends.com which we hope will help you in your investment decisions. As always, if you lie to yourself about things concerning money, you lose.
We recently updated our Panama City Beach condo sales data through mid October 2008. The graph below illustrates the number of monthly re-sales from the 70 Panama City Beach condo buildings in our database. The 2008 monthly re-sales since July appear to be trending lower than past years.
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, 2007 so we could show the price trend for the preceding 19 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, 2007 market value for each type of unit was determined by analyzing sales data from January 1, 2007 to June 19, 2007. 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, 2007. In other words, a unit type with a May 1, 2007 market value of $400,000 is represented as 1 or 100%. An October 2007, $380,000 sale of that type of unit is depicted as .95 or 95% of the May 1, 2007 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 were not included. There were 177 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 rate of price decline has been mostly steady over the past 19 months. Compared to October 2007, it appears that typical prices have declined approximately 15% over the past 12 months. Price stabilization is not indicated.