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May 27th, 2009 9:39 AM by David W. Welch
This appears to be a potpourri of topics, but inevitably these three topics come together quite often. The median price here in Orlando is roughly half of the peak. Actually, it is a little less than half of the $264,400 in July of 2007. I think that price was just an anomaly, since prices were bouncing around $250,000 from the second half of 2006 through the first half of 2007 with this one spike. Never the less, that was our highest median price here in Orlando. March’s median was $132,000, April $130,000 and so far in May with over 1,100 closed sales posted so far it stands again at $130,000. With prices so far down the affordability index is running very close to 200. What that means is the median wage earner can almost afford to purchase two median priced homes.
There are two groups that are driving the sales of the lower priced homes; investors and first time home buyers. First time buyers are taking advantage of bank owned and short sales which are often priced at the lower end of the market. Many times the first time buyers are being beaten out by investors paying cash for REO’s. So short sales seem to be plan B for a lot of first time buyers. Unfortunately, they may run out of time waiting for the seller’s bank to OK the deal. To qualify for the first time home buyer tax credit, you must close by the end of November. That seems like plenty of time, but it really is only six months away. Considering most short sales I have been involved with have taken three to eight months to get the approval plus another 30-45 days to close, I think contracting on a short sale may be pushing it. Keep in mind the bank could deny the short sale altogether or approve the short at a higher price. I just had the latter happen on one of my short sales in Baldwin Park.
For those of you still waiting to see what is going to happen, I have another statistic that I have been looking at. It is called the cap rate, and it is the capitalization rate or rate of return that real estate investors look at when pricing a potential investment property. I am seeing over and over again that returns of around 8% seem to be popping up. The median rent in Orlando is running around $1,100 for a typical 3/2. You could expect at $130,000 purchase price to pay around $1,950 in property taxes per year plus another $750 for insurance. If you take the $13,200 annual rent less the $2,700 in taxes and insurance you are left with net operating income of $10,500. Divide the net operating income by 8% cap rate and you end up at $131,250. I see this in the condo sector a lot with prices running around $60,000 for a 2/2 which will rent for $800/mo. Between condo fees and taxes the $9,600 annual rent is reduced in half to around $4,800 divided by 8% puts you back at the $60,000.
Orlando Real Estate, David Welch Real Estate Optimist, @RealtyOptimist