Is Naples Florida representative of the state of America's Housing Markets? No.
I love Naples FloridaVia Big Picture, I saw this NYT's David Leonhardt's Dec. 6 article "What Statistics on Home Sales Aren’t Saying" describing the "real state" of the housing markets as counterpoint to the media's sudden softening on the housing bubble (Toll Brothers , Greenspan saying the housing slump is close to over, etc.).
For the article, Leonhardt chose Naples, Florida - the #1 overvalued metropolitan market according to Global Insight/National City Housing Valuation Analysis (June 12, 2006). He chose home auctions as his gauge for state of American housing. Auctions are an effective home selling technique (see Pax Bay Area for more information on the auctioning process) usually employed as the last resort for a house that won't sell because it guarantees sale to the highest bidder. He then continues to state how prices paid at these Naples auctions were 17-28% lower than their original purchase prices in 2005 (btw, the auctioneer may take up to 10% off the top and may recompensate auction buyer and listing agents). And he implies these losses reflect the hidden side of falling housing prices that the media doesn't seem to acknowledge.
Yes, I agree there are many markets where investor flipping activity caught investors with their pants down and headed to auctions. Yes, prices are falling and perhaps inventory will continue to grow in these markets as Leonhardt projects. This story only highlights the problem of these areas. Then, Leonhardt steps over the line:
But [despite the high investor activity in Naples], Naples is not as
unusual as you may think. The truth is that the official numbers on
house prices — the last refuge of soothing information about the real
estate market on the coasts — are deeply misleading.
In
bubble-ista fashion, Leonhardt takes Naples as the poster child
city of "things aren't too rosy" (and I bet they aren't, I see what's
happening closer to me in California's Central Valley) and applies its condition
to the general market as the first indication of the impending crash being propelled by homeowner debt loads. He
then makes comparisons to other recent crashes (Asia
meltdown in the 90's, the dotcom bomb) and says we're living on
"borrowed money and borrowed time".Yes, I get it... but I don't see the point of parading Naples Florida home auctions - the bleakest possible examples of irrational investments gone bad - as the symbol for impending doom. Housing markets are local, crashes will happen... and who knows what will happen if interest rates start dropping to maintain the economy as posited by the financial press lately. As I always say, nowadays economic conditions can change on a dime... and prediction is difficult.
Related articles - a tribute to Tom @ The Real Estate Bloggers, who has similar thoughts on this topic:
- All Real Estate is Local - Some SF Communities Still Strong
- Housing Prices Adjust, Rental Rates Soar
- Flippers Bigger Part of Real Estate Market than Previously Thought
Technorati Tags: bubble, housing bubble, Naples Florida, house flipping, real estate investment, home auctions
Flippers can be some of the worst for over estimating profit and underestimating expense. In anything other than a bullish housing market it's a bad mix.
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Living near Naples, I can say that I have seen that very thing happen. But I agree with you- that is an extreme example. Here, in Cape Coral, our homes were extremely over valued about a year ago and the correction has hit some homeowners and investors hard. But, I can't say that it wasn't expected.
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I certainly agree that many people are choosing auctions as a "last resort" to sell their property - we see it all the time! However, there are also many sellers who say they will never sell another way besides at auction because they don't want to deal with the hassle of contingencies & negotiations (i.e. Jack Welsh - former CEO of G.E. who has used auctions in business and personally). As always Pat, thanks for another great article! I always enjoy reading the latest RE news on your blog!
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Thanks for your local commentary Mary (even out here in California, we have a few Cape Coral real estate investment advisers... and they are highly respected )... Stacy, you're in fine position to provide market liquidity. Thanks for the compliments!
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Not all Florida Real Estate is in the dumps.
Stillwater Capital Partners just purchased a 30 story condo tower on the water in West Palm Beach Florida for a good price ($36,500,000) and we plan to invest about $300,000,000 in West Palm Beach over the next 3 years.
Not all Florida real estate is alike and we believe there are great opportunities available to the patient investor.
The Stillwater Asset Backed Fund was the vehicle through which we
found the properties (we were approached for loans) and now our real estate division is very excited and optimistic on the prospects in West Palm Beach.
In 2 or 3 years we expect to sell Waterfront condos at more than $900 a square foot.
We are building 4000 square foot Ultra-luxury apartments with incredible amenities.
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