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Julia's Real Estate Blog

Julia thinks a lot.  And for the last 30 years she has been thinking about real estate.  Here are her thoughts about trends, markets, where real estate has been and where it is going.

ALL BETS ARE OFF

Naples Real Estate update Nov 2022

Julia Shelly

For the last two- or three years Naples has been in a real estate bubble. There were a few conditions that influenced this.  For example, there was too much money in the economy thanks to the FED and the very high stock market.  COVID caused people to move when they had not planned to, or at least if they had thought about it COVID gave them a push.  The baby boomers were retiring, and interest rates were low. Everyone wanted to flip a property including major real estate investors like Zillow. But bubbles do not last forever.  In Naples the bubble peaked in April of 2022. I myself missed the top of the market by one month and $100,000. But that is the wisdom of hindsight, I sold my condo and made a great profit. Then the deflation started. In my last article I estimated that the bubble would start to burst in the fall of 2022.  Then it takes about two years for the real estate to settle down to a level that can be sustained.  But here in Naples we had a huge hurricane.  Ian landed on Ft Myers beach and Sanibel when it was forecast for Tampa.  Ft Myers beach is a barrier island and Sanibel is an island.  That means that they are very vulnerable to anything the weather is doing.  High tides, winds, and hurricanes are all a threat. To be hit dead on by a hurricane is a disaster. And it was. 

 

So that is why I say, “all bets are off.” The circumstances in southwest Florida are going to be heavily influenced by the aftermath of the hurricane.   My first guess would be that the housing bubble will not deflate as fast as it would have.  We just do not have enough housing. The news reports say investors are buying up damaged properties for the land value.  (I am going to add a postscript about buying properties for land value.)  They are cash buyers so higher interest rates are not a problem. (By the way my personal opinion is that 7% is a mortgage interest rate that contributes to a healthy economic balance.) There will also be a boom economy as a result of insurance money coming into the area.  Jobs will be plentiful, and housing will be in short supply. 

If we had not had Ian, the demand for real estate would have slowed for several reasons.  I mentioned mortgage rates going up, the stock market going down, prices got too high, and also what I will call “forward selling” the market.  What I mean is that people have been motivated to buy all of a sudden in the last two years and that will reduce the number of buyers in the future years.  Now with Ian and so many people losing their homes the market has gotten new buyers and renters that were not expected.   All bets are off. 

 

Historically November is the start of the season in Naples.  Listings and sales increase. That has happened but not at the levels that would be expected.   At this time listings in Naples are at about 4000 units which is 2000 below normal. Even so, there is no overall increase in prices. The good buys are selling.  Listings that are priced as though we were still in a bubble are not selling.  And those listings are reducing their asking prices.   For example, in Imperial, my community, a house went on the market at $1,500,000 in July.  It is a very unusual house and requires a unique buyer.  In a bubble when people buy houses sight unseen that is no problem, but now after the bubble is over, people are taking a very good look at houses and the cost per square foot and the comparable sales etc, etc.  So, this house has been reduced to $1,250,000 and still has not sold.  I predict another reduction.

 

On the other hand, a relatively new, modern, elegant house in one of Imperial’s best neighborhoods went on the market last week for $1,500,000.  The price per square foot is reasonable for that neighborhood and the appeal rating is very high.  It went pending in one week.  So clearly there is still demand and prices are holding up for the “best” listings. 

 

Generally, December and January slow down in terms of sales but not in terms of new listings.  Asking prices are still too high.  It takes time for sellers to start off with lower asking prices. People must see that the sales data clearly indicate a falling market.  The number of reductions is increasing every day, but sellers are still starting off with asking prices that are too high.  So at this time the market is not frightening people with falling prices. We will see how well it holds up in March and April of 2023. 

Julia Shelly              November 2022      

 

P.S.   Buying for land value is something that is best left to professional investors. Nobody knows how bad the damage has been either to the property itself or the infrastructure of the community. Also building codes may change. I do not recommend it to ordinary homebuyers. 

 

 

REAL ESTATE UPDATE WINTER 2022

I see that the lead subject of my posting in the summer of 2011 was the question of “when is the Naples Real Estate Market going to recover?” Needless to say there have been lots of ups and downs since the summer of 2011 but I have not written about them. As my husband said, you had better get writing. 

 

So, here we are in the middle of a Real Estate bubble that has popped up in almost all corners of the United States. In the Naples bubble environment listings stay on the market for a few days at best. The usual in Naples is months, not days. This has been going on in Naples for a little more than a year. The average price increase for condos has been about 50-75 per cent. In the period from 2014 to 2019 the average condo price was $250,000-300,000. From 2019 to the present the average has gone up to $300,000-$550,000. For private houses the averages went from $650,000-$850,000 up to $1,000,000 to $1,400,000. There have been cases where the prices doubled or sky rocketed. A house built in 1957 which is located on Naples Bay and has a large Dock just sold for $22,000,000. The last sale was in 1999 at $760,000. The tax valuation is about $7,500,000. Any way you look at it this is a bubble.

 

So what has caused this bubble?  As always there are several factors. One factor you can always count on to dominate markets is the law of supply and demand. In this case a very unexpected source of demand arose from COVID. People were unexpectedly motived to move or make a change which they had not otherwise planned. Another factor is the availability of money. For example mortgage money is very cheap. Plus the stock market is very high so people can take profits from their stock appreciation and buy things. On another front house flipping has become a national pastime. Furthermore major corporations got into the flipping game. For example Zillow bought thousands of houses in order to flip them. In Naples we almost always have more supply than is needed. However, the demand of the last 18 months has been over the top and decreased the supply considerably. As prices moved up people who were thinking about selling decided that the good prices warranted putting their properties on the market. And with flippers working in this environment a property may well be sold and come back on the market within a month or two. Still demand exceeded supply and as long as that is the case we will have a bubble. But, it does not last forever. In September of 2021 Zillow announced they would stop buying properties and sell off what they owned. Things don’t last forever. 

 

So how do we know when the balance gets to a  more even level, or tips the other way? There are things to watch that will help to tell which way the market is going. Things like the Zillow decision. Prices have been going up and up but at some point the buyers begin to feel that the prices are too high. Sales will start to slow down. As properties sit on the market the prices tend to get reduced. Also, the number of buyers starts to peter out. The rush of COVID is over. If the stock market slows down that will reduce the amount of money available. Mortgage interest rates may go up. The FED claims they are going to raise rates but so far nothing.  These things will contribute to a slow down. In my community during the past year houses have been selling within a week. At the moment there are three houses on the market that have been for sale for close to two months. One has just been reduced. Condos are still selling within 5 days so no reductions yet. There is also the question of whether there is a standard length of time that a bubble can expect to last. Different pundits day different things about this question. In my opinion the maximum time would be two years. In that case the Naples bubble would be over in the fall of 2022. Then it takes about 2-3 years for things to wind down. 

Julia 

Naples RE update summer 2011

          Everyone is asking me when Naples Real Estate is going to recover. As I said in the last newsletter, it is recovering. If people are hoping that we are going back to the over heated prices of winter 2006, well, that is not what is happening. What we need is for the whole Naples real estate market to bottom out. Then it can go up to the long term trend line. Some areas are doing just that. Any area that has foreclosures goes through this process faster than areas without foreclosures. This is because the banks want to move foreclosed inventory FAST. Owners who can afford to hold on to their properties when they feel that they are not getting the price they should be getting do not help the market bottom out. Often these owners hold a unit for years while paying taxes and maintenance. In the end they don’t get the price they imagined. This very often happens in Pelican Bay because the owners are not in financial trouble and would prefer to lose money as they use their vacation condo than to lose money on a sale. So prices are slower to bottom. My neighbor just sold her condo in Pelican Bay.  When it was built in 1990 is cost 121,000. At the top of the market in 2005 she bought it for $500,000. She just sold it for $280,000. Dreadful for her but the unit is now on the correct trend line for real estate appreciation without even dipping below that trend line. $280,000 is almost exactly where the price should be if things had been normal. So, unless the US has a total economic collapse, my area in Pelican Bay has recovered and can start appreciating again. Let’s hope the appreciation is at least 3% per year, which is normal. All of Naples is recovering even if it only means that the market has stopped going down. 

          In the news you see that people cannot renegotiate their mortgages because the banks just go ahead and sell delinquent property to somebody else for cash. Sometimes the banks sell it for much less money than the owner owed on their mortgage. Simply, the banks want the cash. This happened to an acquaintance in West Palm Beach. During the bubble he bought a new high rise condo for $600,000. The value fell below his mortgage which was $500,000. So, he approached the bank about a mortgage adjustment and signed up for a possible short sale. He was not behind in his mortgage payment but the unit was an investment and not profitable. The bank went ahead with a short sale and sold the condo for $250,000 to a buyer from Brazil. Why? They wanted the cash, whereas adjusting my friend’s mortgage would not net them any cash. Needless to say my friend would have loved to buy the condo for $250,000 but the banks often will not do that. This is especially hard on low income people who are behind on their loans. In order to help low income people who are in jeopardy of losing their homes there are a couple of non-profit agencies that have been set up around the country to get around the problem of banks wanting cash. The agencies are buying owner occupied foreclosed properties at the hugely reduced prices and then selling them back to the original owners.  These programs help people stay in their homes. It is a complicated process and essentially requires charity efforts to accomplish. 

          So you remember in summer 2010 when the figures came out for new home sales and existing home sales? They were the lowest since 1995 for existing homes and the lowest ever for new homes. But what happens if you break down the houses by price category. Houses over one million actually increased in sales. So what? The rich are not having the same economic problems as the middle class. Now that prices have come down the rich are taking advantage of the situation and buying real estate at fire sale prices. Lucky for them. 

          So far this year the number of real estate closings in Naples is not above last year. That may be because prices are creeping up or it may be because the buyers looking for a bargain have already bought. www.Realtytrac.com which is a very useful real estate site has just published figures which agree that volume of sales declined in 2010. The economy has to improve in order to create more buyers. I just do not see evidence of an improving economy, either here or in Europe. At the moment we have to be thankful that we have stopped the dropping and just hope there is not some further drop when the public realizes that things are not getting vastly better fast. If you are thinking of buying real estate now I would go ahead but I would not expect to make a profit for at least five years.  Perhaps the fall of 2011 will see new low prices and would be a good time to buy. There are some sturdy souls who are buying and flipping in this market but it is not for the faint of heart or those with limited funds. 

          I expect prices to bounce along the bottom until 2015. If the great inflation really comes then they will go up due to inflation. That would argue for buying now with today’s cheaper dollars. Good luck. 

 

NAPLES REAL ESTATE UPDATE SUMMER 2010

           It is official. Naples has hit bottom and is recovering. As I said in the winter UPDATE we were bouncing along the bottom. The circumstances are now in place for prices to start firming up. So how do I know this is it?

           Well, to start with the investors are back. And I do not mean the investors who took a GET RICH QUICK course at the Marriot and are looking to buy something, anything! I mean the real investors who watch the market year after year and know how to evaluate risk and value. A friend of mine stopped investing in the Naples area 7 years ago because the prices had gone too high. Recently he has been doing what he calls “nosing around” and that includes Craig’s List.  He noticed a short sale offering in Naples. It was an area he knew well. I would call it a touristy area, busy but not chic, old but in fair condition, potential was limited but the value was sound. At least the value was sound at the right price. The asking prices were $80,000 to $125,000. He looked up to see the price he had paid for a similar unit in Old Naples in the early 1980’s. He found he had paid $35,000 for a unit similar to one that was being offered on Craig’s List at $80,000. So, he offered $35,000 and his offer was accepted. He knows it will be some years before he gets a big profit since there are more of these foreclosed units available, but in the meantime he will have a rental income. And there starts the recovery.

           For another thing the inventory of FOR SALE units is being reduced. Thank heavens building has slowed.  Also, units are going pending at a faster rate than they are coming on the market, so at some point there will be a  shortage of available units. That will give us some pricing power.  I own a house in a very wonderful community called Longshore.  Longshore is a great place but prices fell just as they did all over Naples and there were foreclosures. Today however the inventory of houses FOR SALE is at a 7 year low and the foreclosures are selling within a couple of weeks of coming on the market. On my street an investor bought a foreclosure in June for $265,000. He painted the house and put it back on the market and sold it in two weeks for $355,000.  At $355,000 it still represents a very good value. That is why this flip worked. The foreclosure price was amazing, but the flip price was still one of the best buys in Longshore. Remember that!!! Part of the reason that the bubble burst was crazy pricing. I can give you another example from my street in Longshore. In 2005 an investor bought a house (the same model I own) and he paid $569,000. He put it on the market a week later at $869,000. In four years he could never sell it and so finally it sold in foreclosure for $350,000. Believe me I bid on it. Now, if he had priced the house at $689,000 instead of $869,000 way back when he bought it, he would have sold it and had a decent profit. Oh well. 

           On my block in Longshore it is totally amazing to buy a perfectly good house for $265,000. It is also a very good buy to get it for $355,000. However, this does not represent enough of an up trend in prices. The prices need to continue to increase until they return to the long term trend line. The house in question should be selling for about $450,000. So, the big question is, when will we get back to the long term trend line, if we get there at all. If the economic situation in the country continues to progress then the real estate market in Naples should recover in the winter of 2012. That means that in 2012 we can hope to start seeing real increases in prices and not just increases from dreadful, collapsed market lows. When we had a recession in the real estate markets in 1990-1991-1992 it took until 1998 for the recovery to begin. That would mean 2016 today.

           There is another side to the coin. There are properties that shot way above the long term trend line and still have not come down to normal prices. This type of property would include waterfront houses and also some houses in Pelican Bay or Bay Colony. You remember I told you about the gulf front mansion that started out for sale for $26,000,000 in 2003 and finally sold for $12,000,000 in 2008? That house came down a lot, but, it did not come down to the long term trend line for houses in Naples. 

           The long term trend line varies depending on where you live.  American real estate appreciates at about 3-4 percent per year, except in the Rust Belt where appreciation is hard to get. Intermittently, you get times like 1991 to 1998 when there is no appreciation and actual depreciation, which sets you back. What we hope for in Naples is a return to regular appreciation and NO NEW BUILDING so we do not get another flooded market.  In addition, we hope that the market does not get flooded with units the owners have been holding as they waited for the market to recover.

 juliashelly2010

 

NAPLES REAL ESTATE UPDATE  FALL 2009

           Okay, so Wall Street is having a rally, almost chasing a bull. But that may be bull, I am suspicious. What I am sure about is the bull market in Naples Real Estate. This bull concerns the number of sales, not the dollar amount of the sales. Prices are down 25% to 75%, or maybe even more in isolated cases, from the top of the bubble in winter 2006. (Please remember that at the top the number of sales dropped to a 12 year low signaling the end.) So, lots of people who have money or credit are getting off the fence and jumping into the market. In the early 2000’s a condo development that is around the corner from me sold units at $179,000 to $259,000. They are now available for $50,000 to $80,000. Or maybe not, since they are being snapped up daily. So friends ask me if they should buy one and rent it out. Well, that is a good idea, perhaps. First of all it is hard to tell how much damage has been done to the condominium association by the bankruptcies of so many owners.  Fees may have to go up to cover loses. The image of the community may be affected. And, most of all, lots of other people are trying to do the same thing so with all that competition the rents go down. All the same I believe that the Naples market is bottoming out. I cannot predict how long it will stay on the bottom but I do believe the current prices are once in a lifetime opportunities for buyers. Naples is still a beautiful community with a superb location and great weather and lots of rich people who will carry it through. 

           In the mid 1970’s when I was going for my first mortgage I did not qualify. Why? first I was a woman, second I was single, third I only had a part time job, fourth I was buying in New York city in the mid 1970’s and fifth it was the 1970’s. You might say, “How unfair”. Yes, but all the regulation prevented a mortgage bubble. When they relaxed regulation on the savings and loan banks we ended up with dreadful fraud and a scandal of the mid 1980’s. When they relaxed regulation of mortgages we ended up with more dreadful fraud and a disastrous financial bubble in 2005. Frankly, I would like to say “this is America, let people take any risk they please” and if the fail, let them crash and burn. And don’t do a thing to save them!!! The trouble is that when they fail on a large scale they affect all of us. This is difficult for America. 

You remember the two communities I mentioned in previous letters that had developed a bull market in the summer of 2008? They have bottomed out and with a few more sales will get into a position where they can expect to have some pricing power. The inventory is low and the bank foreclosures are decreasing or sold off already. What was happening in those communities in the summer of 2008 has now spread to other communities. Some of those communities are strong and represent a very good buy and some are not so great. As a broker said to me in 2007 when we could not sell anything in Naples, “The problem is nobody is buying the junk.” Indeed, she was right. During the bubble year buyers would buy anything whether it represented a good buy or not. It is still necessary to distinguish between good and bad buys. 

           Another product that is having a bull market is beachfront mansions. You remember the $26,000,000 mansion I told you about that was on the market from 2003 to 2008 and suddenly sold for $12,000,000? That was because people were taking their money out of the stock market and moving it. That is still happening and it is getting harder to find a beachfront mansion in Naples, especially ones that are selling at half of the asking price. But if any of you are interested I will gladly show you the ones that remain. Think $13,000,000 and up. 

           One very nice aspect to all this action is that middle class working people who could not afford to buy a house in Naples can now afford it. That is, if they did not ruin themselves in the bubble. If their credit is still in good shape then the prices are really affordable for the first time in years. Prices on many single family homes are back to 1998 prices which takes us back to the long term trend line in house cost. That is good. Possibly this is once in a lifetime. We can go up from here.

           Condos are not doing so well. There are always too many condos in Naples and too many new ones being built. There are some units that are selling below the long term trend line, like the community next to me, but they are not always such good buys. One must be cautious. Other units are real bargains. It just depends on location, maintenance costs, taxes, condition of the unit and the community, etc. etc. Opportunities and be found.

 Julia Shelly 

 

Naples Real Estate Update, Winter 2009

           Well, Wall Street may not be having a bull market but Naples has shown some serious bull market. Furthermore, the Wall Street bear market situation and the Naples bull market situation are caused by the same entity, which I will very generally call, The Money Center.

           People ask me all the time about the real estate bubble, “ how did this happen?” In my opinion there were several contributing causes, at least in Naples where I work.

          Mega developers lead to “investors” and “speculation”.   In Naples houses are built by developers who developed hundreds of acres and hundreds of housing units at a time. Because there may not be an actual housing need for hundreds of units the builders have marketing departments that sell the houses and condos to all sorts of people, investors, vacationers, potential retirees, current retirees, working people, etc. As long as the economy is good all these people can afford housing they do not need. The problem is that when things get, bad they cannot. 

           Investors versus homeowners.  Many of the people who bought these unneeded houses were investors who put no money down and did not intend to use the property. They intended to sell it as soon as possible at a profit. That is fine as long as people need to buy, but when they don’t, or when they realize that prices are much too high, or when they cannot get a mortgage, the property ladder collapses. 

           Questionable lending practices and misleading rates from the Money Center.

Much of the reason “investors” were able to buy houses was because the mortgage deals where totally unrealistic. No money down, no investigation of the buyers’ solvency, very, very low teaser rates, and irresponsible appraisals, or perhaps, no appraisal. My husband and I have long had a saying which goes something like this “if all banks were run like the BNB (our little local bank) there never would have been a ….(originally it was SAVINGS AND LOAN) scandal.” But now we use can insert any financial institution. Everybody knows how to follow sound lending practices, but, when all the people around you are exhibiting irresponsible behavior and making tons of money, it is a hard to be wise.  

           Last Summer I identified two communities near me in Naples that had developed a bull market. Of course, it was summer and people do not like to list their units in the off-season if they can help it. Therefore fewer units were being added to the market. But mainly there were short sales and foreclosures, which resulted from The Money Centers taking over properties and wanting to get them off the books ASAP.  That action brings lower prices and moves inventory. Then, everyone lowers their asking price in order to sell. When the public sees that they are able to buy a house for (sometimes) half the price of two years ago, and that house is in Naples, they respond and a market develops. You notice I say house. I mean that as opposed to apartment/condo. The bull market is in affordable houses in good communities. These communities are very well managed, have excellent amenities and good locations. Most of all they have housing that offers a very good buy for the money (down considerably from the bubble prices) and the residents are solid, stable middle class, and they are residents, not investors. We have a bull market in affordable houses but that does not mean prices are going up. It is precisely because prices are down so much that we have a bull in the ring.

           So were investors the problem??? The lenders? The homeowners? Frankly, you need a combination of irresponsible behavior. Lots of homeowners refinanced taking as much money as possible out of their house and then abandoned the house. We have no debtor’s prisons. In a couple of years people can work out their credit problems and if they spent the refinance money on a college education they are ahead.  

           Remember the beachfront mansion I told you about last summer that was pending?  In 2003 this fabulous beachfront mansion went on the market for $26,000,000. Well worth the price, it was a custom built palace. It sold for $12,000,000 in November. Bargains are everywhere.

Julia Shelly

NAPLES REAL ESTATE UPDATE  Summer 2008

         Remember all real estate is local! I am reading lots of articles about The Hamptons, of interest because I live there, and the articles indicate hints of a slow down. But people are asking me about Naples where there are more than hints of a slowdown. Moribund would describe the past year. 

         However, some interesting things happened this spring. First was my email. For the first time in at least a year I got email about mortgage money being available. You needed good credit and low LTV (loan to value), but that is a start. I also got mail from agents in other cities whose clients wanted to invest in foreclosures. Then, I was at a party in The Hamptons and one of my friends said that “vulture funds” were forming and they intended to pay ten cents on the dollar (or worse) for real estate. 

           Let me clarify what I mean by “ten cents on the dollar”. If you buy a house for $1,000,000 and you sell it for $100,000 then you got ten cents on the dollar. If you bought a house for $500,000 and you tried to sell it for $1,000,000 but you got $100,000 then you got twenty cents on the dollar. When it comes to what people are making or losing, the things you hear about real estate prices in Naples are often perplexing.

          Owners in Naples have some very confusing ideas about values and prices. My neighbor bought his condo for $260,000 in 2001. He put it on the market for $500,000 in 2007. He sold it for $360,000 in 2008. He says that he “lost” $140,000 but in fact he made $100,000. And he was very lucky to make that in a down market and selling a condo. Generally in Naples the inventory of condos is much larger than is needed, so prices do not appreciate much. The real estate market of the past 4 years has created very unrealistic attitudes. 

         So, real estate in Naples has suffered from these very unrealistic attitudes and a very unrealistic top to the bubble. What now? I am now seeing prices that represent fifty cents on the dollar. For example, I have seen houses that sold for $500,000 at the top sell for $250,000 today. Prices adjust down faster when the institutions get involved. Unlike owners, institutions have no ego involved in the sale price of a house nor do they wish to be landlords. They want out, ASAP. So that actually creates a market. For the first time in 3 years I am seeing bidding wars. The banks take over a property and put it on the market for a very low asking price and then it (hopefully) gets bid up.  I recently saw a house in The Moorings put on the market for $525,000 and sell for $601,000. That is a bargain price but frankly, that is more or less what the house should cost, or it might even be a little high. The house was sold new in 1989 for $210,000. It sold in 1996 for $296,000 and in 2005 for $950,000. Normally houses in Naples appreciate on average at about 5%-10% per year. Condos are more like 2% to 3% per year. So we are getting back to normal and we are getting action due to the foreclosures. 

         The most amazing bubble has been in private houses with beachfront. They have doubled, tripled, quadrupled, and so far I have not seen a sale at a loss. Two houses are pending at the moment. One was put on the market in 2003 for $26,000,000 and went pending in June 2008 at $16,000,000. The original owners are selling it and I do not know their cost in 1993 but I would guess about $8,000,000 to $12,000,000. Assuming that the sale price is near the $16,000,000 they will have made several million. The other house went on the market in 2002 for $6,800,000 and is pending at $8,400,000. Again, I do not know the cost when it was built in 1994 but I would assume about $3,500,000. So it seems that a beachfront house is still pure gold, if you can get insurance and afford the maintenance costs.

         As all the foreclosures come on the market and get sold off we hope there will be a supply problem. I heard Phillip Duff on the TV business channel make a profound statement about markets, and I quote, “It comes down to supply and demand”.  With the banks getting involved and prices crashing down we may eventually create a market. Inventory will go down and demand will increase. Will we see ten cents on the dollar, probably not much in Naples, but fifty cents is here already. And a few cents lower still won’t ruin the long-term picture. This season will be interesting. 

Julia Shelly

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