Introduction Area Overview Market History Recent Trends
Analysis Short Term Long Term Summary

 

2006 Mid Year Trends

Introduction

There have been countless theories put forward with regard to the current and historic trend of the real estate market in Volusia and Flagler counties. The most important question, of course, is where are we going next? We have addressed this topic previously with regards to the seasonality that exists in our local market. That is still a relevant discussion and should not be discounted. However, there are other factors at play which are having a considerable impact.

Area Overview

For those of you who are not familiar with the local market, there are two counties in North Central Florida that generally incorporate a large market area. Flagler County has repeatedly been the fastest growing county in the United States according to the U.S. Census Bureau. Flagler’s largest towns include Palm Coast, Flagler Beach, and Bunnell. Each of these has a different appeal to home buyers. Another city in Flagler County, Marineland, famous for a marine research park, is much smaller but may have considerable development in the years to come. Flagler County borders the Atlantic Ocean and is south of historic St. Augustine, the Nation’s oldest city. About 65 miles north is Jacksonville, Florida.

Just south of Flagler County is Volusia County. Volusia County’s most well known city is Daytona Beach with its popular destination for motor sports. Among other events, each year the city hosts the Daytona 500 race, the Pepsi 400, and multiple motorcycle events. Other larger cities on the east side of the county include Ormond Beach, Holly Hill, South Daytona, Port Orange, Daytona Beach Shores, and Ponce Inlet. These cities collectively form the Greater Daytona Beach Area. Further south are New Smyrna Beach, Edgewater, and Oak Hill which form the South East Volusia Area.

On the west side of the county are DeLand (county seat), Deltona, and Orange City among others. The West Volusia area is more heavily influenced by the city of Orlando than East Volusia as many of the residents of these cities work in Orlando and the surrounding area. DeLand has a long and rich history and includes a very scenic downtown.

In addition, Volusia County boasts several major colleges and universities including Embry Riddle Aeronautical University, Stetson University, Bethune-Cookman College, Palmer Chiropractic Institute, and Daytona Beach Community College. The Ladies Professional Golf Association (LPGA) is also based in the area along with USTA Florida who promotes tennis throughout Florida.

When flying to the area, there are three primary choices. The Daytona Beach International Airport offers several flights from major carriers. Orlando and Jacksonville both offer larger alternatives. Drivers access the area from the north or south on US-1 or Interstate 95 (to Jacksonville or Miami) and from the west on Interstate 4 (from Orlando). Scenic A1A traverses both counties along the oceanfront.

Market History

Historically, the local real estate market has been extremely strong. With over 30% growth in value over each of the last few years, home values have been increasing on par with the most impressive levels in the country. Both Orlando and the Daytona Beach Area ranked in the top five fastest appreciating markets over the last few years. In addition, Money magazine has consistently ranked the Daytona Beach Area as having the best predicted increases in the upcoming years. There have also been a number of other very impressive stories relating to the area in several notable newspapers and magazines including the New York Times.

More generally, the prices have increased year over year for some time. Figure A shows the average sale price for a single family home across all homes listed in the Daytona Beach Area Multiple Listing Service. The chart includes data from January of 1998 through the end of 2005. Clearly an investment in real estate would have outperformed almost any other investment available. Very few stocks, bonds, mutual funds, or deposit accounts have such strong returns with so limited a downside. In addition, remember that most real estate transactions are extremely highly leveraged. Consider a scenario in which an investor purchased a home for $150,000 in 2003 and sold it for $275,000 in 2005. The investment may have only cost the owner a small percentage of the original amount. If the owner had purchased the property with an 80% loan to value, they would have had an initial cash outlay of only $30,000 plus monthly payments to service the debt and continue to pay down the principle. The gain of $125,000 ($275,000 - $150,000) would be pure profit.

 


Figure A - Average Sale Price By Month

Of course, one of the concerns with regards to Real Estate investment is the lower level of liquidity that it affords in comparison to other investment options. Liquidity refers to the ability to convert an asset into cash. For example, a stock which is traded on a major stock exchange such as the NYSE or the NASDAQ is extremely liquid because it can be sold during business hours for cash. In contrast, a hard asset such as real estate may be less liquid due to the length of the sales process. A strong measure of the liquidity of the local real estate market can be judged based on the number of transactions that are taking place. Figure B relates to the number of transactions that took place by month between January 1998 and December 2005.


Figure B - Number of Transaction By Month

There are two things that we can pull from this graph. First, the number of transactions increased markedly over the past three years. Second, it is clear to see that the market is highly seasonal. The market does better in the period of June through September. Let’s start with the first observation.

With the sudden surge in real estate values over the past few years we can speculate that two things occurred. First, investors recognized the opportunity to collect higher returns than they may have been able to expect in other investment types while lowering risk by switching money into the real estate market. These investors created a higher number of transactions as they purchased property in record numbers. The increase in the number of transactions led to substantially higher liquidity and allowed properties to be sold in very short timeframes. As you might expect, the average Days to Close (the number of days between a property being listed for sale and the date of the closing in which the owner receives their check) declined proportionally with the number of transactions. Figure C shows the days to close trend over time.


Figure C - Average Days to Close

The second observation that we can make from Figure B is that the market is seasonal. You’ll notice that the transaction count increases dramatically during the months of March through August and declines substantially during the winter months. Figure D takes into consideration the average number of transactions in each month over the entire data set. In other words, the average number of transactions in January is roughly 2100 during each of the last several years. Likely the reason for these fluctuations is that our peak tourism season occurs during the summer months. Another reason is that the housing market everywhere is affected by the winter. A buyer who is selling a home in the North would have more difficulty selling and thus would wait to purchase a property here until the summer months.


Figure D - Average Transactions by Month

Recent Trends

More recently, the trends have been towards a correction in the market. Where we previously enjoyed 30% price increases year over year, this year has seen a more modest increase of approximately 10%. While the increase is a dramatic let down from previous years, it is important to note is that a 10% price increase still represents a very strong return on investment. In fact, it also represents a very strong market historically. However, the price increases are declining and even beginning to stall in the last quarter. Table 1 shows the average sales price for each month over the past eighteen months. What you will notice is that the dramatic increases which occurred previously are slowing.


Table 1 - Average Sale Price By Month

There are a number of factors affecting the trend. First, there are fewer buyers. The number of buyers has steeply declined as investors have become concerned about the market conditions and have begun to withdraw themselves from the market. You’ll note that Table 2 shows the number of closings during each of the first six months of the year as compared with the same numbers a year prior.


Table 2 - Transaction Count

There is another factor affecting the market as well. While the number of buyers has declined, the number of new sellers has increased dramatically. The number of new homes for sale has increased each month for some time now. The logical conclusion is that buyers are concerned about the long term viability of the market. The concern may be the result of increasing interest rates or the widespread press of a change in the housing market. Table 3 shows a month by month comparison of the number of new homes being listed for sale. Figure E shows the same information along a consistent line.


Table 3 - New Houses Listed



Figure E - New Houses Listed By Month

Please note that these increases are not an increase in inventory but an increase in the new homes being added to the inventory. Coupled with a decrease in sales, the effect is an exponential increase in the number of homes listed on the market. Therefore, the problems for sellers are compounded. A buyer coming into the market now has far more houses available to them than they have had in many years. Sellers, in turn, are seeing fewer and fewer showings despite their best efforts to sell the homes.

It is important to note that this correction was both expected and needed. The price increases of 30% and more each year were fantastic for those who were in the market, however, they were clearly not sustainable over the long term. In order to put the increases into perspective, a home bought for $150,000 in January of 2003 (roughly the average price) would have to sell for almost $1,000,000 in 2010 in order to maintain that return on investment. Clearly, that level of growth would be very difficult for any market to bear. Further, it quickly prices a number of people out of the market. Housing which is affordable to the average worker quickly becomes unavailable and has a negative impact on the ability to generate more jobs in the area.

Analysis

Short Term

With the price increases decreasing and far more homes coming on the market, it is a difficult time to be selling a home. For those people who are comfortably situated into a home, they may want to wait before trying to sell it. The long term market prospects are still very strong despite our current setbacks.

For investors and homeowners who are in a position which demands that they divest themselves of the home quickly, aggressive pricing along with proper incentives is the best bet. Homes are selling but only those that are priced appropriately. Over the past few years, we have seen the emergence of discounted brokers who promised that they could put a home in the multiple listing service and it would sell in short order. While that strategy has never worked well, it will surely fail today. A seller must explore the options and focus on working with a full service Real Estate Consultant who can guarantee proper advertising, a full co-broke offering to the Realtor community, and a right price offering on the home.

For buyers who are looking to move into the market, now is an excellent time to explore your options. The Flagler/Volusia county area has been in a very strong seller’s market for several years. This is the best opportunity in a long time to find just the right house. Prices are appreciating but the trend is slowing while so many people try to market properties at the same time. Buyers can review many more houses than they have had an opportunity to review in many years. In addition, offers on homes can be more aggressive as the panic continues to seize the sellers. Buyers, move now. The market may turn very quickly and while it will take a while for existing inventory to be sold, seller’s attitudes towards the market can turn on a dime.

Individuals who are already on the market should consider their options. Those who are attempting to sell on their own without a Realtor need to reconsider their situation. It is highly unlikely that a buyer is going to find a home that a seller can not possibly market without a Realtor. If they have found a home, either by driving around neighborhoods endlessly or by scouring the newspaper or similar publication for “For Sale By Owners”, they are likely taking on this monumental task with the hope of either finding a seller who has grossly under priced a home or they are looking to find someone who will discount their home because they are trying to save a real estate commission. Either way, a seller does not want to be on the other side of the table.

Those who are working with a Real Estate Professional should ensure that they are getting proper promotion via advertising at multiple venues. Most important these days will be online advertising at multiple sites. Ensure that your Realtor has his or her own website as well as a well advertised company website in addition to other venues. It is also important to ensure that you are working with a company who has the right number of sales associates ready to sell your home. Look for a company with at least 150 agents locally representing the brokerage. Further, ensure that you are offering a full co-broke within the Multiple Listing Service. The co-broke is the amount of the total commission that is being offered to an agent who procures a buyer. Lastly, ensure that you are represented in all of the relevant systems. There are four Multiple Listing systems that represent the Volusia/Flagler areas.

Lastly, sellers, be patient. The situation may appear grim now but the long term prospects are much better.

Long Term

Without rehashing my earlier article with regards to why people choose our area, I’ll outline the basics. First, where are additional buyers coming from? Florida has long been the preferred destination for retirees. The largest group of retirees this nation has ever seen is on the horizon. While there are many articles in today’s newspapers with regards to what effect the baby boomers will have on Medicare and Medicaid, there has been less analysis on the potential effects on the housing market. Baby Boomers are defined by the U. S. Census bureau as people born between 1946 and 1964. That means that the leading edge of the baby boomers are currently turning sixty years old. The impending retirement of these people will have a dramatic impact on the areas of the country which have a history of being the preferred destination for retirement.

There is another factor which helps the Volusia/Flagler county area. While price increases have had a dramatic impact on the cost of housing in our area, we continue to be one of the most affordable coastal areas in the state according to statistics from the Florida Association of Realtors. Along the east coast, there is not a community with more affordable prices except the Jacksonville area. The same amount of money spent on a home in the Flagler/Volusia county area will buy a mansion compared to the purchasing power in West Palm Beach or Ft. Lauderdale.

In the long run, we have an opportunity to capture the large number of the baby boomers as the opportunity becomes available. We have an excellent location with the most affordable prices.

Summary

When looking at our real estate market the most important thing to note is that the sky is not really falling. While the market has very clearly slowed down, we have not entered into a period in which house values are declining. It is even possible that prices could decline compared to last years stellar performance but for most people who have been in a house for a few years their houses will still be worth far more than they paid for them. Sellers should assess their situations. Buyers should really look to take advantage of the situation while this type of opportunity exists.

Please don’t hesitate to contact your Adams, Cameron & Co. Realtor for more information on the market and the trends that we are seeing. Company representatives are available every day in twelve offices located in DeLand, Port Orange, Daytona Beach, Ormond Beach, and Palm Coast. Information is also available twenty four hours per day, seven days per week at www.daytonare.com.

Founded in 1963, Adams, Cameron & Co., is the largest real estate company in the Volusia/Flagler County area with over 250 agents in twelve offices. Adams, Cameron & Co. handles both residential and commercial real estate needs by bringing the most resources available with a pleasant family run atmosphere.

About the author – John Adams is a native of the Daytona Beach Area and is a third generation real estate broker. His education includes a Bachelor’s of Business Management degree from Florida State University and a Masters of Business Administration from The Kellogg School of Management at Northwestern University. His business experience includes several years with Arthur Andersen’s Business Consulting organization during which he handled engagements domestically and internationally. He was a cofounder in a marketing company which grew from startup to $40 million dollars in revenue. He took his first company public on the NASDAQ stock exchange at the age of 29.

Figure A - Average Sale Price By Month
Figure B - Number of Transaction By Month
Figure C - Average Days to Close
Figure D - Average Transactions by Month
Figure E - New Houses Listed By Month