Michael Polly Fort Myers / Cape Coral Real Estate News Blog

First Quarter posts double-digit improvement over ‘07

My voice mail message light was blinking when I arrived at my office one Monday morning four weeks ago. Believing optimism trumps pessimism, I envisioned the message would lead to new business; it would be a great beginning to a new week.

I was right, sort of. I could tell by the tone of the man’s voice in the message that he was actually giving me the business because he did not like what he read in my latest article. I’ve learned that any message that begins with the words “Mr. Grimes” wouldn’t be one I’d want to build my week on.

He basically accused me of lying in my article that came out in Sunday’s paper, just a day earlier. I reported that pending sales for the first two months of the year were up 16 percent over the previous year. He was then kind enough to read from The News-Press that was tossed on his driveway early that morning. He gleefully read that “existing home sales have fallen since the beginning of 2007.” I couldn’t help but wonder why he chose to believe the more pessimistic of the two stories. He must be a potential buyer.

I’m a glutton for punishment, because I stand by my comment. In fact, let me update my report by saying pending home sales for the first quarter of this year are up 29 percent from the same period last year. Don’t worry; there is plenty of room in my voice mail box, so if you feel you need to call and ball me out, be my guest.

Before you do, let me explain the reason for the discrepancy in the sales numbers. Notice, I use the word “pending sales,” which means contracts that have been written but have not closed. The News-Press receives their monthly sales reports from the Florida Association of Realtors, and those reports use closed sales, although the word “closed” is omitted. I am trying to encourage them to add the word “closed,” so it will be less confusing for the public.

Solid arguments can be made for both methods of measurements. Those that use the closed sales approach rightly state that a sale shouldn’t be counted until it closes. Therefore, they only count closed sales. The disadvantage of that method is that closed sales measure what happened 30 or 60 days ago, not what is happening now.

The closed sales for January and February were lackluster because they reflected the market’s velocity from last November and December, which are typically slower months. You will soon hear that sales (closed) are showing improvement. Why, because pending sales have been increasing, therefore there will be an increase in closed sales. It’s not rocket science.

Your reporting method of choice will depend on when you like to receive your information. If you would rather watch The Masters via your TiVo over the Labor Day weekend, then you will prefer the closed sales approach. My preference would be to watch it live. Therefore, I prefer tracking pending sales because they reflect more of a real-time picture of the market’s temperature. Sure, some of the sales will fall out and not close, but that percentage is as predictable as expecting Tiger Woods to be in the hunt during the final round. The bottom line is that sales are increasing, so why not talk about it now instead of two months from now?

The news today that foreclosures may have peaked spawned the headlines "Lee's housing market bottoms out."

Working in the industry and studying the market intently I often sit back and wonder what this means. Correctly put I believe that it should say Lee's housing market may have hit the TOP of the foreclosures. (Maybe)

We are really looking for different signs that point to recovery. At the end of the article there is a mention that baby boomers may in a couple of years come back into our market and revitialize it. I would argue that they already are!

The reason they left or stopped buying in the first place was our market became overpriced and was seen as overvalued. Our cost of ownership put many out of the market with insurance and tax costs. Now as our market corrects we are seeing the buyers come out and buy. Many are baby boomers from all over the country. Evidence of this was seen in the recent liquidation sale at Coral Lakes.

We may be seeing the top of the foreclosure market only time will tell. We need to see the top of the inventory growth and we have not yet seen that as our inventory grew again in March to just over 16,150 for single family resale homes. Sales were good but no enough to create a drain on the inventory.

We are feeling and seeing the bottom of the builder market as they are building and selling as low as we will see. As fuel and transportation costs rise so will builders costs and so will the cost to the buyer. If there is a builder with inventory or putting footers in the ground today, it may be the bottom for this sub-market.

We still have to work through the bank sales and short sales and this process is like trying to suck peanut butter through a straw.

Sellers are still hurting adjusting to what the market will offer for their home. This is hard as these foreclosures are really putting pressure on prices.

These tops and bottoms are all good signs just like watching a wound heal. Our market is healing and buyers are starting to realize that the deals are here and now.

Michael Polly - Vice President Denny Grimes and Company

By Denny Grimes
Originally published on July 29, 2007 News-Press

I just ran across this article on Home Builders that speaks volumes to what we are seeing in our marketplace. Builders are drastically slashing prices on existing inventory and there are some great deals to be had. It also makes a direct point on the downward pressure on our existing home prices. Land continues to fall in value and there is less and less interest in new construction starts.

Bloody Week in July

The last week has been an apocalyptic one for the home building industry, as you can see from the stories below. Public companies posted more than $2 billion in combined losses during the most recent quarter. Figuring that they might as well get it over with now, since no one expects the market to get better real soon, these companies took big impairments in land, and they abandoned option contracts.

What does this mean to the rest of the industry? It's only going to heighten competitive pressures and squeeze margins. When the publics say their land is worth less now than it used to be, they start from the new basis in pricing their homes. Land write-downs partly explain how prices in that community of $320,000 homes suddenly dropped in the latest phase to $240,000.

D.R. Horton reported a staggering $852 million in write-offs of land and options, the biggest single quarter impairment charge in recent history. Pulte was a close second with $749 million. Standard Pacific took $165 million, and so on down the line. And the publics aren't done yet, though they are past the half-way point; there's likely to be another round next quarter.

For many of these companies, the losses are on paper only. Before impairments, many produced operating profit and generated positive cash flow. Meritage, for instance, would have made $13 million, if not for $70 million of write-offs.

Nearly all the publics, to allay growing concern in the debt markets, emphasized that they are in campaigns to bolster cash flow. What does that mean to competitors? It means that public companies are very eager to make a sale. They want to convert their fixed assets, land and inventory, into liquid ones, cash. They are willing to make concessions to make it happen.  

This bloody week in July potentially speaks to even bloodier ones in the new home sales marketplace for the remainder of the year.

Michael Polly

Vice President Denny Grimes & Company

Where do we go from here?

I am sure we will dwell on this issue from time to time for a few years to come. Where do we go from here?

Inventory is softening for the summer which is our usual trend. Sales are in the mid 500's for the past month which puts us at or just under 2000 levels of sales. New inventory is our major competitor for resales. homes from $300K-$600K are competing with new home communities that are dumping inventory to raise cash and reduce debit. They are offering such discounts that resales are suffering from what we call the "Slinky Effect"         

You remember the Slinky from your youth? You start it on the top of an incline and step by step it release the energy generated from coil to expansion and works it way down the steps.

Robert Hooke identified this principle in 1678, on the basis of his experiments with springs, stretching wires, and coils, stated a rule between extension and force.This led to Hooke's law which states that strain, the relative change in dimension, is proportional to stress. If the stress applied to a body goes beyond a certain value known as the elastic limit, the body does not return to its original state once the stress is removed. Hooke's law applies only in the region below the elastic limit.

That is exactly the way our market is behaving. The changes happening in our market are proportional to the stress applied to it. A seller in xyz development has to sell, he prices it below the competition and accepts an offer less than everyone else, the slinky just went down one step. Investors with 3 properites that have to sell, the bank has accepted a short sell and the bank is willing to take less than what is owed. Ching, the slinky just went down another step. Our under $250,000 inventory is growing at 15%-20% per month as homes fall into the just sell it category.

Other inventory price ranges are staying fairly consistent overall. With this type of data it is hard to see any relief in the near future. Builders are still dumping inventory meaning they are not purchasing land. Land prices continue to drop which eludes that the basement for first homes has not been reached. Many investors and builders have been dumping lots or not exercising options. I've seen builders offering on your lot homes for, get this, $119,000 including lot prep! Names you would recognize.

With the statistics for sales and inventory currently in front of us it is hard to see relief or any flattening of the market in the short term. The pipeline of new inventory still looks to be 1.5 years away from selling out. I see many developments with concrete block showing where they have just started building so those with development orders in had have not yet pulled back. I know one such development off of Challenger has just closed down. Be careful of purchases in upstart communities as they may not finish in the promised time frame. 

These are all ramblings of what I see coming with the future but buyers and sellers need to know and need realtors willing to express the truth to clients. We are very positive on our region, our state and our market  but for the short term, 1.5-3 yeras we see much of the same and continued downward pricing pressure.

Michael Polly, Vice President, Denny Grimes & Company 

June Single Family Activity

Here we are 18 days into June, let's see how we are shaking out. There have been 237 single family resale homes go pending. Of those 76% have been priced below $300,000. Another 34 were below $400,000 and $33 where above $400,000. That means that 90% of the sales so far have been below $400,000.

If you prorate the sales per day out to the 30 days in the month of June the total sales fall under 500! Now take the fact that we are averaging our sales month to month being 27% less than 2006. Looking forward to year end our total sales could fall below 7000. Lots of coulds and ifs and buts. All based on the facts of what is real in real estate today. Decisions that are made based on fantasy or what someone wants the facts to be hurts the market.

Five hundred sales would have been great in 2000, today they seem pale and weak. What is normal appreciate? 3%, 6%, 10% pick one. If you apply it to 2000 prices we still may have a way to go before we reach normality of value and price in our real estate market.

A look at the real estate inventory, home for sale, (resale homes only) revealed a drop in inventory! Before anyone celebrates let's look at the facts of this information. Yes it is good that there are a few less homes on the market. Inventory fell from 15,600 to 15,400 in round numbers, a drop of 200. Condos fell from 9550 to 9050, or about 500 condo/villa/townhomes came off the market. Sales were below 2006 so they didn't come off because of sales. They came off because people left and gave up for the summer or the banks have taken over the sale and they are not relisted in the MLS. For the last few months we have noticed high numbers of expired listings.

The real deals are getting scooped up quickly as buyers are sitting watching, like duck hunters in camoflague. Pricing remains key to sales.

Getting back to inventory supply, if we look at year over year inventory levels you'll notice the same thing happened last year before we began increases in the fall. Historically sales have declined from May - Dec. If these patterns hold the true we will see more of the same for the immediate future. Expect another slight drop in supply before the fall and the time when seasonal sellers return.

Michael Polly, Vice President Denny Grimes and Company

How can opinions vary so much when everyone is or should be looking at the same road signs? For example, a recent article in The News-Press reported that existing home sales for March were up 50 percent over February. Most of us read it and just mentally filed it away as positive information. One positive month does not equal a trend! But those with extreme opinions on our market, the outliers, have already cut it out and have it magnetically affixed to the refrigerator. It hangs as supporting evidence in favor of their beliefs, although they are completely opposite from each other.

One extreme believes that such positive news is a fabrication or manipulation of data in order to pander to the real estate and development industries, who are major advertisers with the paper. Can you spell conspiracy theory? The road sign this group sees is one you would only see while driving in the mountains, the one that warns of a steep descent ahead. Some in this group have e-mailed me and predicted that home values would fall to 1980 levels!

The other extreme believes that our residential market is well past the bottom (mostly sellers or agents who sold tons of investment property). They believe if it wasn't for all the negative stories in the newspaper, and people like me preaching that prices must fall, they would be back in the clover. Some have even encouraged me to announce that the good old days are back and that would open the floodgates of buyers. Their road sign would say "End Construction," as they feel there is nothing but smooth driving ahead. For some reason, this extreme sounds a lot better to me!

Then we have the middle ground folks. This group's sign would read "Speed Bump Ahead." There are positive indications that our market is recovering, such as inventory growth is slowing, pending sales are trying to inch upward and markets like new home construction in Lehigh appear to be reaching their bottom. Statewide, there seems to be positive momentum on solving spiraling property tax and insurance costs, two nagging issues that will determine how much of the Baby Boomer market we will really get.

Even with this cumulative news, patience will be a virtue here, regardless of how tempted you are to hit the gas pedal. It's hard to believe that it's been almost two years since our market peaked, but we are still very early in the recovery stage. There will be more negative headlines and sad stories before we reach the land of milk and honey, so keep your seat belt buckled and your expectations in an upright and locked position.

The bell-shaped curve may help me to understand the continuum of opinion, but my sign of choice would show a different curve, the one that indicates there is a cure ahead. Our market is beginning to turn, but we will experience bumps and ups and downs before we hit the straightaway. Don't worry about asking "are we there yet," because like driving on new pavement, you will know it when you get there.

 By Denny Grimes
Originally published on May 06, 2007 Fort Myers News-Press

With over 168 golf courses in this area, the word FORE was used differently in the past. In April, 783 foreclosure notices were filed. That is six times what they were one year ago. These numbers include homes, lots, and commercial property. The bulk of this is single family homes with the largest part homes that are a year old or less (494). These are the 'investors' who bought new construction with hopes and sometimes promises of selling with a profit. So instead of a hole-in-one, they now face a double bogey.

Looking ahead, what will this mean to future sales and appraisals. I know appraisers take into account the terms of the sale, however, if inventory is so large that it takes this action and pricing to move the property then that is where the market is. I think these numbers may take a greater toll in the future in the under $300,000 market as these properties get disposed of by the lenders.

If there is a bright side, they represent a great buying opportunity for someone looking to take advantage of todays market.

Michael Polly, Vice President Denny Grimes and Company, Cape Coral, Fort Myers, and Lee County

According to the Commerce Department who reported Monday that sales of single-family homes dropped 3.9 percent last month to a seasonally adjusted annual rate of 848,000 units, the slowest pace in nearly seven years.

The decline followed a 15.8 percent plunge in January, the biggest one-month decline in 13 years.

The weakness in sales was accompanied by a drop in prices with the median price of a new home falling to $250,000 in February, down 0.3 percent from a year ago.

We are starting to feel this in our local markets as builders complete what was permited and started during the spring of 2006. It was not until the fall that building permits feel to lows so the conveyor belt of inventory continue to run and dump into an already overflowing market. The great news for buyers is that builders find themselves with homes they thought were already sold and are entertaining offers and creative deals. Make sure you are represented you visit a new home sales center. Remember, the onsite people work for the developer/builder and they will focus on what they get paid for, getting the developers inventory sold.

A buyers agent will be able to compare new homes to resale homes and educate you on the market for both.This can save you time and most importantly your money. The best part is the buyers agency services are free to the buyer.

We over half way through our "season", the time of year when all businesses expect to flourish with a rush of flocking customers escaping the winter weather up north. For Home and Condo sales these are important metrics on how the year will go. So far we are pleased that levels have maintained a steady pace. 

Like the SPAM you get in your email, you wonder why someone sends it, it must work sometimes otherwise they would just get discouraged and quit. We'll these silly questions must be getting serious answers and that appears all that buyers are looking for. I had another call from a referral from TN, he is a doctor there and had heard that our prices had fallen. He wanted something direct access, no bridges for 350K.... What a nice gulf access home was selling for in 2000-2001?

Sam Walton said

We hope to see this level of sales consistently improve. 

There are 5178 homes for sale and of these 51% sit at the original asking price. 49% have been reduced in price by an average of $45,000 or just under 12% from the original listing price. Since many homes are relisted now several times before they sell this may be a bit skewed. Still I think it shows that we still have pockets of problems in our market.

There are many sellers who today are still asking a price that is unrealistic. While driving around in Cape Coral this weekend I pull flyers on several homes. I have found several nice, gulf access, no bridges or restrictions, built within the last year for under $800,000. One flyer I pulled was smaller that these homes and older but was priced at $1.2M. Buyers are willing to buy and ready to price meets closer to value. This home, not on the river, 150' canal is priced at $533 / sqft.

It appears that while gulf access lots are selling much slower and at a lower number, sellers are reluctant to or can not because they purchased at the peak, sell at today's market prices.

Homes under $350,000 represented 72% of the home sales while homes under $250,000 were 40% of the total sales. Half of the homes under $250,000 were built in 2003 or later. - Michael Polly, Denny Grimes and Company.

It was a hard message to deliver yet was 100% the truth. Sellers have to realize and take to heart that values go up and down. If you want and need to sell you have to accept the value that 'today' not yesterday or tomorrow wiill set. That was the message along with a unified call to all agents to 'fess' up with the sellers and tell them what is selling.

When I was a kid we had an apple tree in our yard. I couldn't wait for them to ripen so we could pick fresh apples. The only problem was that I could only reach the ones that hung out from under the canopy of the tree. Those that were within reach and looked like a value because I didn't have to work extra to get it. When those were all gone I'd work a little harder to get the higher hanging fruit. Our inventory is so great and still growing that the low hanging fruit had not yet been picked. Until this happens and the inventory levels start trending downword that we will start to see the market bottom. Buyers do not wait until the moment, you won't know it is gone until it is over. Deals are out there and it is ok to take advantage of them now.

Sellers, do not hesitate to take your home off the market if you are not serious about selling and willing to accept what the market will bid for your home. The truth is that with our inventory levels in Lee County, we could very well see additonal declines. If it takes 2-3 years to start back up, it could be 3-6 years before sellers see the same price they could get today. Minus the carry costs of those years and unless they are end users living in the home this was a bad decision.

Here is the article from the News-Press with comments from last night's MarketWatch presentation.

Latest News -- 5:33 P.m. Market Watch experts: Housing soft for 2007 By Dick Hogan Originally posted on February 20, 2007 Construction of new homes could come to a screeching halt later this year as builders finish up the backlog left over from better times. That's real estate broker Denny Grimes' take on the residential real estate market, which he'll be discussing tonight at The News-Press Market Watch at the Harborside Event Center in downtown Fort Myers. Grimes ticked off the statistics: · Sales of existing single-family homes fell from 12,701 in 2005 to 8,951 in 2006; · The number of existing single-family homes on the market increased from 2,906 in January 2005 to 14,480 in January 2007; · Builders of new homes are up against tough competition: 42 percent of the existing inventory of homes was built in the past three years; Real estate broker Frank D'Alessandro's prediction for commercial property is more upbeat: commercial development will level off this year although rising insurance, property taxes and maintenance costs will push rents up for tenants and land prices will dip or remain flat. Grimes and D‘Alessandro both write columns on real estate for news-press.com and they're the only two presenters at this year's Market Watch. Tonight's event and a repeat luncheon performance Wednesday are both sold out. "Sales are still trending downward" for homes, Grimes said shortly before today's presentation. "The resales are having trouble competing with developers' blue light specials" on houses they built but haven't been able to sell in today's down market. Although the construction industry is still building homes that were ordered in 2005 and 2006, he said, demand for new houses will dry up soon. "They haven't felt the shock wave." D'Alessandro said the commercial market isn't that bad off although "office is clearly over-built, flex space is becoming over-built. That in my opinion is two red flags in the market." Things could get worse if the residential building slows, he said, noting that "over 65 percent of the industrial market is residential builders, suppliers and subcontractors." D'Alessandro gave some statistics supporting his predictions: · With 3 million square feet of commercial space being built in south Lee, there will soon be higher vacancy rates and fewer dollars spent per store; · Road impact fees are rising from $101,260 to in 2006 to $316,740 this year for a 20,000-square-foot retail building; · Insurance premiums are up 200 to 300 percent this year. Grimes urged residential real estate agents representing sellers to persuade their clients to lower prices or take the home off the market. Until that happens, he said, it's hard for the market to make a recovery because buyers don't know where they stand. "They're confused because they don't know what the real price is."   Michael Polly, Vice President, Denny Grimes & Company, ASR, ePro, GRI, USCG Captain

It seems that as the Lee County real estate market hunts for support some areas are getting closer. Waterfront gulf access homes in particular are looking very attractive. It is important to quantify waterefront homes and know things like idle time to open water, mean low tide depth, canal width, etc. Bridges and other obstacles must be taken into account when trying to find just the right home for you and your boat. While some home prices are still at 2005 levels there are good values to be found on the water.

Michael Polly, Vice President, Denny Grimes and Company, ASR, GRI, ePRO, USCG Captain

The News Press reported yesterday that Bonita Springs based WCI Communities had a rough 4th quarter. They got over 270 orders, but, they got over 260 cancellations or homes back into the system. At a net sales ratio of 10+ it will take a while for them to get rid of the inventory they have. Remember earlier posts about how building permits are only now at they lowest levels, homes already in the pipe line are still coming out of the ground and homes that are contracted for and cancelled are now being added back in. This is on top of the almost 15,000 homes in the resale market.

Other builders are facing the same problems. I think this will lead to even deeper discounts and incentives from the builders. Great news for buyers, bad for sellers. Some builders who are not as deeply entrenched as WCI, Centex and others may fair better. Ryland and DR Horton come to the market later and may not have as much build up of inventory as ones that have been in the market longer.

Michael Polly, Vice President, Denny Grimes and Company serving Fort Myers, Cape Coral and Lee County