Jason’s April 12, 2008 article titled “Have We Hit Bottom Yet?” implies that because there are no negative newspaper stories concerning the current real estate market, that we must be nearing the bottom. Jason quotes NAR chief economist, Lawrence Yum predicting “Notable Improvement” in 2008. I have been following Yum’s analyses and predictions from the months leading up to the top of the real estate bubble (mid to late 2005) up to his latest prediction. The thing that stands out about Yum’s analyses is that he has been 100% wrong on every prediction. We all want to believe that the bottom of this market cycle is near.
However, quoting a source that has been wrong 100% of the time for the past three years has a negative effect on our credibility as real estate professionals. As quoted before “If you get all of your information from a source whose career and income relies on a particular event happening, then you can be assured that that information will be skewed toward that event happening. Real estate investing is ruthless and it is heartless. If a real estate investor lies to himself about things concerning money, he always loses”.
Is the Panama City Beach condo market nearing the bottom? Here are some sobering statistics concerning the number of developer unsold units in buildings on the beach that were completed in 2007/2008 according to Bay County Clerk records as of 4/16/2008 .
Aqua: 61 unsold units out of 237 (26%)
Origin at Seahaven: 161 unsold units out of 285 (68%)
Shores of Panama: 401 unsold units out of 732 (55%)
Tidewater: 203 unsold units out of 571 (36%)
Emerald Beach (not counting the 200 units Wyndham purchased): 71 unsold units out of 327 (22%)
Grand Panama: 133 unsold units out of 300 (44%)
Sterling Breeze: 95 unsold units out of 145 (65%)
Magnolia Bay Condos: 170 unsold units out of 200 (85%)
Laketown Wharf: 760 unsold units out of 800 (95%)
Buildings to be completed in 2008—-
Palazzo – 136 units
Ocean Reef – 161 units
To be fair, Tidewater is still closing with an average of 50 units per month since November 2007. Sterling Breeze is also still closing but only four units closed so far in April. Ocean Reef starting closing last week.
If we believe the historical evidence from the buildings that were completed in the last two years, 40 to 50 percent of the Palazzo and Ocean Reef units will not close at completion. There are 2,055 unsold units in the completed buildings above. Add a possible 150 unsold units from the two buildings yet to be completed and you have 2,200 or so unsold units lurking in the background.
The holding costs for the average beach front condo unit (HOA dues, insurance, taxes, utilities, etc.) typically range from $700 to $900 per month before debt service. A developer with say 150 unsold units pays $120,000 per month ($1,440,000 per year) in holding costs before debt service. The financial pressure for the developer to sell these units in enormous
Is the bottom here yet? Based on the evidence, probably not. This is not all good news and would be what Jason calls a “negative story”. However, it is my opinion that in order make money in the real estate business, you must know the facts of the market no matter how negative they are.