It's June 2004. That was the last time prices were this low in Orlando. The median price back then was $175,000, and it looks like we are going to see a median price in November 2008 pretty close to that, maybe a little lower. Just to remind everyone, June of 2004 was really before we started our big boom here in Orlando. Most of our price appreciation happened over about a six month period early in 2005. From February to July of 2005 our median price went up 25% from $196,000 to $245,000. For the next two years the median bumped along between $240,000 and $254,900. It did jump up once to $264,436 in July of 2007, but for the most part for two years we saw monthly ups and downs in the $240's. August of 2007 was the last time we saw the $240's. Since then, prices slowly until June of this year. In June the median price was $216,000 dropping nearly 18% to $178,000 in October.
I have been saying that we are at the bottom for three reasons: first, investors are starting to pick up bargains; second, rents and prices are in parity (properties can cash flow with 20% down); third, the affordability index is over 120. Of course not all properties are price appropriately, so you still have to do your research. It is also my expectation that prices will fall a bit more as these cycles tend to over correct. I am looking forward to Mr. Obama selecting a treasury secretary, so that will be one more uncertainty taken out of scheme of things. I am sure that he is waiting on that until the last minute so that the fourth quarter numbers cannot be attributed to his administration in any way. That is a smart political move, but it delays recovery by a month while the markets wait for stability. Secretay Paulson in the mean time could help quiet things by not continuing to change policy on a weekly basis.
Some of these pearls I got from Kevin Hassett at a luncheon yesterday sponsored by SunTrust. He is Director of Economic Policy Studies at the American Enterprise Institute. He also served as economic advisor to John McCain's campaign. According to his analyses the markets have priced in a 50% default rate for corporate blue chips. The highest default rate in the history of the market is 3%, so he believes that there is some over reaction going on right now. One reason for it is the questions still unanswered about the "bailouts". The bigger reason has to do with a couple of policies that Obama supported in the past that could replicate some of the conditions of the Great Depression. Mr. Hassett does not believe that Mr. Obama will look to modify his position on those issues in light of the current economic situation. Specifically, they deal with unionization and restraint of trade in the form of tariffs. Just google Kevin Hassett for more on his views. I found them very insightful.
I would like to thank SunTrust and my host Marcus Hopkins with Endowments & Foundations Services for giving me the opportunity to attend Mr. Hassett's presentation.
David Welch, Orlando Real Estate Blog
It has been many years since I sat in ECO 101 and studied endless supply and demand curves. That was not my last course in economics, in fact I even took a couple of post graduate courses as I contemplated a second masters degree in economics. In all those courses, I cannot recall speaking at any length about psychology. In one of the last courses I took as well as a banking course I had as an undergrad we spoke a little about the Fed's power to impact the market with their commentary. We probably discussed consumer confidence as a leading indicator, but that was probably the end of that discussion.
A lot of what our country is dealing with right now has to do with those supply and demand curves. I don't want to take anything away from Keynes. We really over built houses here in Orlando, and we really went overboard on condo conversions. My point I have been trying to make is that the primary reason the supply and demand curves get out of balance, is psychological. Supply was getting low for housing here in Orlando, and demand was growing because our job market was the strongest in the nation. Read some of my blogs from a few years ago. Jobs equate to the need for housing, so there were real pressures on prices and the supply curve. Buyers began to fear that they would never be able to buy a home, and investors, builders and sellers took full advantage of the market situation. In the end, greed and fear drove the economy more so than need for housing.
Now we see the same two forces, greed and fear, driving things back the other way. Just like the driver that hits a slick spot in the road and over corrects out of a fearful reaction, our economy is now over correcting. Just think of the bailout as the stability control that comes in a lot of newer cars. It is expensive and probably is not going to do as much as people think, but it is comforting to know it is there. Given the fragile psyche of the consumer these days, it might be just the thing to quiet some fears. If Detroit was building Prius' they might not be looking for a bailout too.
City of Orlando voted to spend $6.7 million in Federal Neighborhood Stabilization money. This will go to purchase about 30 homes in selected neighborhoods in the city of Orlando. I have to agree with the plan to focus the purchases in specific areas to derive the greatest benefit. Had the money been spread around more the impact of the program would have been diluted. Hopefully, this plan will allow the targeted neighborhoods to see real results and have a favorable impact on the homes surrounding the purchased properties.
In the end, while I am generally not in favor of such invasive governmental actions, I believe this will have a positive impact on our local real estate market. A similar program on a larger scale is underway in Orange county. This should be the more effective way to combat the escalating foreclosure situation in our area. Although, I beleive we may already be seeing a small improvement in distressed properties through market activity. While the number of distressed properties continues to grow, the prices are attracting investors and first time home buyers alike. The buyer activity appears to be slowing the growth in the number of distressed properties on the market.
The development of Baldwin Park near downtown Orlando began several years ago, and from the beginning they sought to preserve the natural beauty of Florida. Recently, the Baldwin Park community was recognized again for this commitment to the environment. You can read more by going to www.BaldwinParkFL.com and checking out the community and news tabs. It is truly a beautiful place to live, because of all the parks surrounding and throughout the neighborhood. Baldwin Park is really all about greenspace and preserving the areas around the lakes. There is a 2.5 mile path around Lake Baldwin with environmentally protected lands. The city of Orlando and the developers have worked with the Audubon Society to restore and protect these sensitive areas.
There are plenty of areas that are also devoted to fun too. The path brings out dozens of people at almost any time of day walking, running, biking and skating. At one end of the lake in the Winter Park area is Fleet Peeples Dog Park. Yes, a park just for dogs with lake access, and trails through the woods to walk. There are also people and kid friendly parks all over Baldwin Park with playgrounds, big open spaces for football and kite flying, as well as baseball fields and soccer fields. Audubon Park Elementary School is right in the neighborhood as well as Glenridge Middle School. GMS shares their track, soccer field, tennis courts and basketball courts benefitting the school and the community. Baldwin Park also has three swimming pools and fitness centers just for residents. And all of this surrounds a Village Center with shopping and services within walking or biking distance. Even the Cady Way Trail runs right around the edge of Baldwin Park, so you can ride your bike to the mall or East to Winter Springs.
Today's Orlando Sentinel featured an article that was very important to me, because if involves my wife Carol. She is a teacher at Bay Meadows Elementary School in Dr. Phillips, and invited Hector the reading dog to come work in her classroom. The story and video feature Hector, his handler and some of the children in Mrs. Welch's class. Obviously, I am very proud of my wife who is always looking for creative ideas in her work. The children really like it too.
We are about half way through November, and there are 378 closed sales posted in the MLS so far. The median price is remaining somewhat stable, but lower at $175,000 with a median days on market of 104. If the time on market holds that will be a one week improvement in the time to sale. The other numbers I have noticed have to do with the inventories of homes for sale, distressed properties and contracts pending. The first two are actually down just a tad, like a handful of homes. The most significant thing is that the distressed properties are not continuing to climb. The pending contracts are continuing to climb especially among distressed properties. There are 1,674 pending contracts on properties identified as distressed with 6,359 active distressed properties. I have seen a high of 6,375 distressed properties, so like I said it is not a huge number.
I had a conversation with a gentleman named Tony yesterday, and thought that there may be other people out there with the same great questions that he had. First, he was questioning whether there was still money available in the various first time home buyer down payment assistance programs. Like most questions, the answer is "it depends". Many municipalities have first time buyer and down payment assistance programs available. As you can imagine, these programs have been very popular. They are even more popular since October 1st when seller funded down payment assistance went away. City or county funded programs typically run out of funds very quickly. Orange county has now added restrictions to the property. To qualify, the property must have had a significant rehab (not cosmetics), such as a new roof or new HVAC in the previous year. There is a state funded program that is available all over Florida that has money available without such restrictions. You can get more information at www.FirsTimeBuyer.info.
The second question that Tony had related to the Federal first time home buyer tax credit. That credit is in effect right now and continues through next summer. It is a tax credit not a deduction. That means if you file your taxes and owe $0 you will actually get up to $7,500 back as a credit for purchasing a home. You do not get the credit unless you buy a home during the specified time period, and you do not receive it until you file your income taxes. If you purchase in 2008, you qualify to receive the credit when you file you 2008 taxes. If you wait until after the first of the year, you cannot receive the credit until you file your 2009 taxes in 2010. You still have time to find a home and close this year, but you need to call me today at 407-924-7670.
Another question that people have been asking me has to to with lenders having money to lend. The answer to that question is YES!!! There is money to lend and the rates remain very favorable.
These are numbers you probably won't see anywhere else. One reason is that there is a degree of inconsistency with how distressed properties are being identified in the MLS. I have been to homes that are identified as pre-foreclosure, but in fact they are already bank owned. I have also been to short sales that do not have the pre-foreclosure or in foreclosure status box checked in the MLS. I say all this to qualify the numbers I am about to share. However, I will also say that even if these numbers are not the most accurate, I do believe them to be representative of what I am experiencing in the market.
First, while there are 6,398 properties in one of the three categories I described above, only about 1/3 are bank owned meaning 2/3 are probably in short sale situations. Second, out of the 1,659 distressed properties with contracts pending 55% are bank owned properties. Third, of the 462 distressed properties that closed in October 77% were bank owned. In raw numbers, there were 1,214 closed sales in October with 354 bank owned properties closing and only 108 short sales closing. Those numbers represent 29% and 9% of the closed sales respectively.
The official numbers are finally out. They have not hit the paper yet, but they should show up later today at www.OrlandoSentinel.com. Right now here is how they break down. While sales in October were down compared to September they were 10% higher than October 2007. This year's closed sales were 1,199 compared to last year's 1,090. The flip side of that is the price which are down month over month from $182,000 in September to $178,000 in October. That is a big 24% lower than October 2007's median of $235,000. In case you need help with the math that is an improvement of $57,000. On a 30 year mortgage at 6% interest that is a monthly savings of just over $340.00.
The number of pending sales continues to climb with 3,316 properties under contract compared to 1,923 a year ago. Homes still took on average 111 days to sell with the sale prices coming in an average 93% of the list price. The affodability index did go down slightly overall and for first time buyers because the average interest rate went up slightly. The inventory of homes available for sale declined very slightly to 24,657 which is 33 fewer than September.
