Condo Market after Ocean Reef Condo Auction

The Ocean Reef auction on October 18, 2008 concluded with a reported 35 sales.  Sounds good but they still have over 140 unsold units in their inventory.  The 2BR/2Ba units sold for $225,500, including the auction fee, which is about 20% less than recent sales of very similar Emerald Isle 2BR/2Ba units.  This tells us that there are a few buyers out there willing to buy at a 20% discount.  The Palazzo auction in August told us there were a few buyers out there willing to buy at a 10% discount.  The question is whether buyers will demand more than a 20% discount at the next auction.

We reported in July that there were over 1,300 unsold, high-quality developer units in beach-side buildings in Panama City Beach.  The Palazzo auction sold 50 units in August, the Ocean Reef auction sold 35 units in October, and Sterling Breeze closed 30 units in-house since July.  That still leaves around 1,200 unsold developer units that need to be sold.  1,200 unsold developer units most likely means more auctions and lower prices.

The local condo market continues to trend downward.  The chart later in this post indicates that sale prices as of October 2008 are down 15% compared to October 2007.  New lows are set almost every month in high quality beach-side buildings.  There are numerous examples of list prices that are below the lowest reported sale price of a particular model unit.  Foreclosure proceedings in high quality beach-side buildings have accelerated in every quarter over the past year.  The number of monthly, arms-length, market-rate sales from the 70 buildings within our database continues to decline.  The market dynamics at play in our local market and just the market inertia will most likely drag prices lower.

Is there any good news here?  If your basis for news is the year 2005, then market values have declined 50% and the world is coming to an end.  However, if your basis is the year 2002 then story is more upbeat.  Let’s look at the 744 square foot, 1BR/1Ba units in Long Beach Towers.  These units were selling in 2002 for around $175,000.  Currently, they are selling in the $215,000 range for a 23% increase since 2002.  The rate of inflation in constant dollars over the same period was 21%.  Not bad when you consider any other long lived item (vehicles, equipment, etc) you purchase almost always depreciates over time.

It is unreasonable to assume that residential property will always increase in value at a rate higher than the inflation rate.  If you extend price increases at a 2% to 3% rate above the inflation rate over a 30 year period, people will be spending more than 75% of their income on a place to live.  That is not a sustainable scenario.

Is this a good time to buy?  If price is your main consideration, the operative question becomes “is it a good time to buy today relative to what point in time”.  Certainly, today is a better time to buy than six months ago.  But is it a better time to buy today than six months from now?  The answer you will get depends on the agenda of whom you ask.  Speculation in this kind of market is not for the faint of heart.

The following is an update of our usual, no spin data from which we hope will help you in your investment decisions.  As always, if you lie to yourself about things concerning money, you lose.

We recently updated our Panama City Beach condo sales data through mid October 2008.  The graph below illustrates the number of monthly re-sales from the 70 Panama City Beach condo buildings in our database.  The 2008 monthly re-sales since July appear to be trending lower than past years.

The market trend line is illustrated below.  It is structured to show a sale price trend measured in terms of the percentage sale price as of a particular date.  The starting date used was May 1, 2007 so we could show the price trend for the preceding 19 months.  We chose units from a variety of buildings of different ages and sizes that had a sufficient number of sales as to be statistically significant.  The units used in the analysis were:

  • Boardwalk Beach; Opened in 2005; 1,380 SF;  2BR/2Ba
  • Calypso; Opened in 2006; 1,226 SF; 2BR/2Ba
  • Celadon; Opened in 2004; 846 SF; 1BR/2Ba
  • Grandview; Opened in 2005; 1,492 SF; 3BR/2Ba
  • Gulf Crest; Opened in 2003; 1,388 SF; 2BR/2Ba
  • Emerald Isle; Opened in 2005; 1,146 SF; 2BR/2Ba
  • Treasure Island; Opened in 2005; 1,370 SF; 2BR/2Ba
  • The Summit; Opened in 1983; 912 SF; 1BR/1.5Ba
  • Regency Towers; Opened in 1975; 1,114 SF; 2BR/2Ba
  • Sterling Reef; Opened in 2005; 1,076 SF; 2BR/2Ba
  • Splash: Opened in 2006; 1,074 SF; 2BR/2Ba
  • Seychelles; Opened in 2006; 883SF; 1BR/2Ba

The May 1, 2007 market value for each type of unit was determined by analyzing sales data from January 1, 2007 to June 19, 2007.  The sale price of each type of unit is only compared to the typical sale price of that particular type of unit as of May 1, 2007.  In other words, a unit type with a May 1, 2007 market value of $400,000 is represented as 1 or 100%.   An October 2007, $380,000 sale of that type of unit is depicted as .95 or 95% of the May 1, 2007 sale price.  The sale prices and sale dates were charted with a price trend line for each type of unit.  The chart contained in the price trend analysis is a trend line of the trend lines of the sale prices of each type of unit from the 12 buildings.  Foreclosure sale prices that were unrealistically low were not included.  There were 177 sales used in the chart.  The analysis does not try to skew the price trend in any direction.  The data is just the data.

The data indicates that the rate of price decline has been mostly steady over the past 19 months. Compared to October 2007, it appears that typical prices have declined approximately 15% over the past 12 months.  Price stabilization is not indicated.

Sam Portman

35 Condos Sold at Ocean Reef Auction

Expectations were high, and so was the attendance.  After the wildly successful Palazzo auction, many came interested in seeing “where the market was”, and many more came to have an opportunity at getting a good deal.  At the end, many agreed that the market was at the bottom and that prices wouldn’t come down much more, if any, from this number.  On the other hand, many more still agreed that the market still has some room for correction.

There was an estimated 400 in attendance with 126 registered bidders from 17 states and 2 countries.  When asked at the beginning who was from Panama City Beach, few raised their hands indicating this type of selling forum definitely attracts out-of-towners.

“I was wanting to move back to the states in 2006, but the prices were way too high, this may be my chance to come back, ” said Jerry from the Dominican Republic before the auction hoping to get a good deal.

“I’m hoping to get in at around $140,000 to $150,000 on a two bedroom,” said one local agent, who was also a registered bidder, “I won’t go much higher than $150,000.”

Before the auction began, the energy was great.  There were people everywhere with not one empty seat and many people standing anywhere they could find an unoccupied piece of concrete.  Bidder packets were being shuffled, pads were being prepared for note taking, and calculators were at the ready.

“You have to factor in the 10% buyers premium in all price per square foot calculations,” said one bidder, “the final auction price, is not the final sold price.”

The auction started with the 4 bedroom configuration on the block at an ambitious $500,000 that was quickly corrected to $300,000.  The first bid came in at $310,000.  The first 4 bedroom condo sold for $340,000, $374,000 after the buyer’s premium, or $233.75 per square foot.

“That number has got to come down, there’s no way all of them will sell at that price,” said the guy sitting next to me.

The very next condo was started at $310,000.  After no bids, a member in the audience yelled “$305,000.”  Two minutes later, the feeding frenzy started.  $305,000 was the magic number, with 8 four-bedroom 1,600 square foot condos selling at that price.  After the 10% buyer’s premium, the final price was $335,500, or $209.69 per square foot.

The two bedroom, 1,146 square foot condos were next.  Talking around, this was the most desirable size.  The majority of the buyers were price-point buyers, wanting to get in for as little as possible.

The two bedroom auction started at $300,000, was brought down to $225,000, then $210,000, then $205,000 – SOLD!  The magic number for the two bedroom configuration was $205,000, $225,500 after the buyer’s premium or $196.77 per square foot. 16 two bedroom condos were sold for $205,000.

Including the pre-sold condos, all-in-all, 35 condos were sold generating an estimated $8.839 million.  Initially, the developer offered 31 condos for sale.

After the price was set at $205,000 for the two bedroom, the auctioneers said the developer wouldn’t sell for less than that.  At this announcement, approximately half the audience rose from their seat to exit.  The line for those wanting their deposit checks back crossed the entire length of the pavement.  Many were disappointed that not all of the condos were sold like a true auction, many didn’t want to pay more than their targeted $140k-$150k price range, and still others understood, but were still looking for a sweeter deal.

The real question here is whether we are at bottom.  The sold price at Ocean Reef was less than Palazzo, but many agreed that Palazzo was nicer and justified the higher price.

One thing is for sure, if you are a developer and you want to dump some condos, auction seems to be a good choice.  “Panama City has turned out to be an incredible market for condos. This clearly demonstrates the pent-up demand and shows that there’s no reason for condo developers to sit on unsold inventory when they can be sold efficiently and quickly by auction,” said William Bone, President of National Auction Group.

Condo Auction Today at Ocean Reef

Get your checkbooks ready, because there is sure to be some good deals to be had today.

At 11 am, Ocean Reef Condominiums will be putting 31 beachfront condos on the auction block.  National Auction Group, the same auction company that sold 50 condos at Palazzo August 2nd of this year, will be putting on the show onsite.

With over 63 to choose from, 31 will sell regardless of price.  The sizes up for auction are either 2 or 4 bedroom configurations ranging in square feet from 1,100 to 1,600.

Registration will start at 9 am with the auction to begin at 11 am.

Get Live Auction Updates

I will be in attendance, and for those of you that can’t make it, I will be sending live updates to all of you that are “following” pcbdaily on Twitter.  The way it will work is that I’ll be “texting” my Twitter account from my cell phone updates on prices sold per square foot and any other exciting information happening at the auction.  When I do this, everyone that is “following” pcbdaily on Twitter will be notified of the updates.  When you sign up on Twitter, you can set up a cell phone on your account to be notified automatically whenever I submit any updates to my Twitter page (you can turn this feature on and off at will, actually), or you can set up to be notified by email.  You can also see pcbdaily’s Twitter updates in the sidebar of the website under the heading “Twitter”.

Click here for a full list of auction terms, etc.