The residential real estate downturn hit Lee County especially hard. It may be the first to come out if home sales continue to rise.
REAL ESTATE by Jean Gruss | Editor/Lee-Collier
The bottom in existing-home sales in Lee County may be at hand.
The evidence is compelling. Home sales in Lee surged 175% in September compared with the same month a year ago, the most of any area in Florida in percentage terms. The spark that spurred buyers was a 42% annual drop in the median sales price of a single-family home to $126,250. The median price in Lee County is now 17% below the 2003 level.
Real estate brokers welcome the number of sales as a sign of a healthier market. "For us it's exciting because we haven't seen this since 2005," says Barbara Watt, chief executive officer of Century 21 Sunbelt in Cape Coral, Lee County's biggest city. "It's fun now to see the numbers come back."
Everyone seems to agree that prices have fallen so much that even investors are returning to the market. "This is the bottom," says Art Darmanin, chief executive officer of Sellstate Realty Systems Network in Fort Myers. "Where else are you going to buy a home for $100,000 and be in an area like Lee County?"
The price drops have been especially pronounced in areas such as Cape Coral and Lehigh Acres, where speculation was most rampant during the boom. Kevin Williamson, a broker with Realty World C. Bagans First in Lehigh Acres, says he recently helped sell a home for $70,000 in a neighborhood where a similar home sold for $265,000 three years ago.
Some brokers are seeing homes sell after multiple offers, especially on homes priced aggressively. Homes priced under $200,000 have seen huge year-over-year percentage increases. Watt says some buyers have paid $10,000 to $50,000 over the asking price for foreclosed homes.
"Three years ago, it was extremely difficult to find any piece of real estate in Cape Coral under $200,000," says Tom Gunkelman, broker and manager with Coldwell Banker Residential Real Estate in Cape Coral. "Last month, two-thirds of our inventory was priced under $200,000."
But as significant as the increase in home sales has been, it hasn't been enough to make a material dent in the overall supply of homes on the market in Lee County. Real estate buyers are facing a recession and rising unemployment (it was 9.2% in Lee County in September). And the tidal wave of foreclosures is threatening to swamp any hope that prices will stabilize.
"I see prices declining quite a bit more," says Elmer Tabor, president of Wonderland Realty in Cape Coral and chairman of Riverside Bank of the Gulf Coast. "We're going to have a surge of units, which is going to drop the value."
Homes owned by speculators represented the first wave of foreclosures. Now Tabor says he's seeing homeowners who have been hit by the economic downturn and depleted their savings as they slipped into the foreclosure process. "We'll get out of this in 18 months, but I'll tell you, I've never seen it this bad," he says. "If the stock market had not gone wild and if we had not had an election year, Southwest Florida would have gotten out of the jam in one year."
Some real estate experts are counting on the government to restore order in the foreclosure market. "You'll see the market turn real quick if they do something," says Darmanin. "That's the key."
Prices have fallen so much that as many as a quarter of the buyers in Cape Coral are investors, though they're not angling for a quick resale like they did in 2005. "They're not flippers," says Watt.
Most investors are individuals who pay cash for two to five homes. They intend to rent the homes and then sell in two to three years, when they hope the market is healthier.
In Lehigh Acres, investors represent as many as half of the buyers. Williamson says one buyer bought a home for $72,000 that would cost $150,000 to build, without the lot included in the price. "It was a new home, never lived in," Williamson says.
In some cases, investors have pulled money out of the declining stock market and invested the proceeds in real estate. "The investors who are buying are in it for the long term," says Gunkelman.
Europeans are among the investors, brokers say. Despite the spread of financial turmoil to Europe, their currencies are still relatively strong. "There's worldwide interest in Florida real estate," says Gunkelman, whose company's Web site got hits from 115 different countries in September.
Auctions of foreclosed homes appear to be particularly enticing for investors. "It appeals to the greed in people," says Timothy Kistel, a broker with auctioneer Tranzon Driggers. "The silver lining that keeps me optimistic is that there's a tremendous amount of cash on the sidelines. All that cash is constantly looking for a place to earn a return."
For those who are buying homes to live in themselves, financing hasn't been an obstacle despite reports of tightening credit, brokers say. While the easy loans of the boom aren't available anymore, buyers with good credit and a down payment have no trouble getting loans.
Supply may increase
The big question now preoccupying real estate experts is how many more homes will come onto the market. That's important because an increase in supply could push prices down further, complicating the recovery.
More than 2,000 homes every month have entered the foreclosure process in Lee County since April, according to the Southwest Florida Real Estate Investors Association. Although lenders will not acquire every home in the legal process, those figures exceed the monthly existing home sales that have hovered in the 700-range since the spring.
Until recently, banks have been careful about selling the real estate they've acquired through foreclosure. "Some lenders are holding back putting their properties on the market," says Darmanin. "I know one lender that's sitting on 500 units and will sit on them for four or five years."
But Tabor says larger banks are going to be more aggressive selling foreclosed homes because they are now getting capital from the government in the recently enacted bailout plan. "Now those banks are getting the capital to dump those things. They don't want them in their inventory anymore," he says. That's one reason why Tabor believes prices will decline.
Still, Watt, of Century 21, says bidding wars are becoming more common with properties that banks are pricing below market value for quick sales. "I honestly think the prices are ready to scoot up a little," she says. "When you start seeing multiple offers on properties, there's going to be a shift in the winds."
If the federal government approves a plan to help people in distress change the terms of their loans, the supply of new homes may be constrained. Already, new-home construction has come to a virtual halt, with just 32 permits in Lee County for new single-family homes in September.
And if demand holds up or even improves during the busy winter season, the supply could shrink and prices could rise again.
Based on the current level of sales, there's a one-year supply of homes in Lehigh Acres. That's down from a three-year supply one year ago, Williamson says. And in Cape Coral, Gunkelman says the supply of homes is 11 months, down from 36 months at the same time last year. "There isn't much difference in the amount of inventory, it's just an increase in sales," Gunkelman says.
Brokers say equilibrium between supply and demand, a necessary ingredient for price stability and recovery, may be coming in 2009. "We will not adjust downward anymore," Watt says. "In the next six months things will balance out."
BY THE NUMBERS
Lee County Bargain hunting
The median price of a single-family home in Lee County in September fell 42% to $126,250 from the same month a year ago. That price is also 17% below the median price of a home in Lee County in 2003. Brokers say low prices are bringing out bargain hunters, who are snapping up homes in the lower price ranges. Here is the breakdown of sales by home prices.
Price range # of sales 9/2007 # of sales 9/2008 %Change
Under $49,990 0 41
$50,000-$99,999 8 228 2,750%
$100,000-$199,999 107 330 208%
$200,000-$299,999 77 108 40%
$300,000-$499,999 49 62 27%
$500,000-$749,999 8 21 163%
$750,000-$999,999 8 6 ‑25%
$1 million-plus 5 8 60%
Total 268 804 200%
Source: Realtor Association of Greater Fort Myers and the Beach Inc.
Industry. Residential real estate
Trend. Lee County existing-home sales rose substantially in September and could be a harbinger of a good winter selling season.
Key. What happens to foreclosures will determine where prices are headed next year.