“Why are so many Properties for Sale and how is the Market?”
I frequently work with Buyers who purchase Condos and Single Family Homes and when we’re discussing current Inventory of Property on the market for sale, a question that many Buyers ask is “Why are so many for Sale?” In order to determine if “so many” REALLY are for sale, you need to first find out how many total Units exist in the Building or how many Homes are in the Neighborhood, because it’s all relative.
For Condos, let’s use Nu River Landing Condo as an example. Currently, 20 Units are listed for Sale, however, the Building has a total of 408 Units. Regarding a healthy level of available Inventory in a Building, ~10% of the total is considered a normal level of Units for Sale. Using this example ~10% would equal 40 Units, so their current level of Inventory is ~5%, which is very low and which creates a situation of lack of sufficient inventory to meet the demand. I remember when they had a lot more Units for sale. Currently, 27 Units in the Building are under Contract for purchase and:
- Within the last 90 days (December 7, 2010 – March 7, 2011), Buyers have purchased 19 Units in the Building (closed/finished sales, NOT Units that are under Contract for purchase)
- Within the same timeframe a year ago (December 7, 2009 – March 7, 2010), only 3 Units were sold
Using Las Olas Isles as an example of a Community of Single Family Homes, 82 Homes are currently listed for sale and the Community has a total of ~700 Homes, so the current Inventory level is healthy.
What has happened in many of our Buildings and Communities locally is that levels of Inventory are SIGNIFICANTLY lower than they were several years ago.
By “several years ago”, I’m referring to 2007 – 2008, which are the 2 years when we had the lowest number of sales. Sure, prices were higher during 2007-2008 than they are now, BUT that was not the peak of the Market in terms of the number of sales. 2005 and the early part of 2006 had the highest number of sales. During 2009 and 2010, the number of purchases increased significantly and that trend is continuing.
Many Buyers who are just now entering the Market are surprised and disappointed to discover that levels of Inventory are MUCH lower than they expected and that Properties and deals previously available have already been purchased. Interested Buyers who hear this news from me, a Real Estate Agent, usually express disbelief and it’s typical for them to scour numerous websites and contact multiple Agents in search of a different answer. Well, it’s not spin. The sales speak for themselves and can easily be verified. Such “Buyers” ask how the Market is and say that they “know how nothing is selling.”
I’m very well aware of what’s heard in the Media everyday about the Real Estate Market, but the reality is that such reports from the Media do not break down stats by Building, by Neighborhood, by City, by Waterfront vs. non-Waterfront, East vs. West, and many other variables which drastically affect prices and market conditions. They paint things with a very broad brush, which leads to extremely unrealistic perceptions, distrust, and uncertainty on the part of those who are considering purchases in the local Market.
You hear that First Time Home Buyers aren’t buying many Homes, but our local Market is not one that’s primarily driven by first time Home Buyers. Of course, we have some First Time Home Buyers, but South Florida also has the highest number of sales in the U.S. to International and Domestic Buyers who purchase Vacation Homes AND many Investors have returned to the Market, so we’re not in a position where our world stands still because First Time Home Buyers aren’t flooding the Market. Additionally, there are Buyers who are in none of the above categories and there are also move-up Buyers locally who are financially healthy, are selling their Homes (yes, Homes that currently have Equity), and are buying larger, more expensive Properties. Yes, such people exist. Not everyone is in distress. There are many Homeowners who didn’t buy during the Boom and who didn’t get rid of all their Equity through Refinancing during the Boom.
You hear that Mortgage Applications have decreased, however, our local Market is driven by large numbers of Cash Buyers, so again, a piece of information that’s widely distributed by the Media that doesn’t impact our local Market in the way that it affects some other Markets. ~80% of our Condo purchases are Cash and ~40% of our Single Family Home purchases are Cash.
Would we have increased sales if more First Time Home Buyers could purchase and if Lending criteria weren’t so strict? The answer is yes, but at the same time, sales are continuing to increase without the overwhelming presence of First Time Home Buyers and Buyers who are Financing their purchases.
In order to obtain accurate information, pieces of information should never be considered separately. They should be considered in combination with other relevant pieces of data.