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Posts Tagged ‘House price statistics’
Florida has spent most of the past 10 years near the top of many Irish & British buyers list of places to purchase holiday homes and property investments.
According to a recent survey carried out by the National Association of Realtors (NAR) and our own anecdotal evidence from the ground, the international buyer has never been more important in Florida but they are being led not by the British and Irish, but by the Canadians.
Torcana has never had a bigger variety of international clients than we have now. For example, we sold 25 properties to 7 different nationalities in October this year in Sabal Point alone, which included Americans, Canadians, Spaniards, Swedes, Germans and of course, British and Irish.
According to the NAR survey, 36% of international buyers in Florida were Canadian, followed by 16% in Latin America, 15% in the UK and 14% from the rest of Europe.
Setting aside Florida´s natural strengths as a holiday, retirement and investment destination, the combination of a huge drop in property prices (up to 70% from 2007 prices) and a weak US dollar are attracting huge numbers of international clients whose pounds, dollars and euro have never stretched so far.
Another key trend we´ve noticed among our key overseas buyers is the disappearance of the new property purchase and the dominance of the cash buyer. Agents and developers who are depending on sales of brand new properties and/or sales to buyers who need mortgages are in for a very tough time on both counts. There simply isn´t a demand for it.
The statistics bear this out: 81% of all international buyers and 73% of UK buyers in Florida paid for their properties with cash (i.e. no mortgage financing) while 89% of all international buyers and 81% of UK buyers purchased a second hand rather than a new home. These are both enormous changes from just 3 years ago.
The typical two bed apartment we are selling now for $65,000 to cash buyers would have been previously sold for $195,000 to buyers availing of cheap finance. These are prime properties in great locations which can be sold either vacant or with a tenant already in place, depending on whether the buyer is a pure investor or somebody seeking a holiday home.
So it would seem that the buying opportunities are still there for those with the means and ends to get them.
Just don´t be surprised to see keen eyed Canadians and Latin Americans joining you in the taxi queue at Orlando International Airport next time you pay the Sunshine State a visit…
Regards
Colin
Ireland isn´t quite as deluded as Spain (at least the statistics are reliable), but properties are still overvalued. An “off market” bulk deal that landed in my inbox a couple of weeks ago serves as a prime example. It was 40+ tenanted apartments in a central Dublin location with an asking price of more than €20 million. The gross rental yield was 2.6% - which I can get in a bank. I wouldn´t have bought those apartments for €10 million, never mind €20 million.
Spain is a very beautiful country and it had one of the biggest real estate booms ever seen. I get asked about it all the time by investors who like the idea of purchasing a great value property there.
I tell them all the exact same thing - if you want a pure holiday home there are some acceptable deals, but if you want to make any money continue waiting because prices have not fallen enough and rental yields are still way too low and unpredictable.
Nobody in Spain (including the Central Bank) trusts official goverment estimates of an 11% decline in property prices over the past two years. The ministry of housing also refuses to release data on actual sales prices rather than the asking prices, which, as you can imagine, would be quite useful to people considering an investment there.
In contrast to the deluded government numbers, privately held property portals like idealista.com publish much more reliable estimates of a peak to trough decline in the real estate market of 24%.
My problem with Spain is that it should be a 60% decline considering the rampant speculation and house building that went on, not 24% and certainly not 11%.
Most importantly, the Spanish banks are still not telling us how many bad loans they have. The Bank of Spain estimates that there are potentially €181 billion in “problematic” real estate loans. In other words, loans worth 10% of GDP could be bad but this isn´t reflected in their accounts and they´d rather not talk about it.
Regards
Unlike a 3 year old, when an investor thinks about bubbles, the first thing that comes to mind is probably the real estate bubbles that have been bursting over the past 2-3 years. As a description of something which can grab everyone’s attention, and yet is unstable, fragile and difficult to control, a bubble is quite a nice metaphor to use when discussing real estate markets from 2003-2006.
Funnily enough, even though we´ve had the most dramatic and painful changes to the global real estate market in living memory, my gut feeling is that there are still way too many real estate bubbles that should have burst a couple of years ago and others that are actually getting bigger. These are by definition much more risky places to invest, as something other than the natural order of things is keeping prices artificially high. In economic jargon (if that´s your thing), the prices in too many markets are still considerably at variance with intrinsic values.
Regards
Colin
A revealing global survey was published by The Economist on Oct 21st, 2010.
The report stated “America’s housing market, almost alone among those which experienced a big bubble, is more or less fairly valued at this point, at least according to price-to-rent ratios”.
The full table is below, with further commentary available here.
In my previous blog, I listed some examples of how respected organisations like the BBC, Irish Times and Business Week can give US housing a big thumbs up in one month and a big thumbs down just a few short weeks later.
The reason, as I mentioned, was because the looked at housing trends over a period of weeks rather than months or years. In addition to that, those particular weeks (between June-July 2010) were particuraly volitile because homebuyers were rushing to meet a government imposed deadline.
The well publicised first time homebuyers credit expired on June 30 and so a property sale must be completed by that date if the new owner wanted to get his or her tax credit. As any economist would easily have predicted, the average for June and July was normal, but sales that would have naturally closed in July were pushed forward to June.
And so, June sales were higher than they should have been “Sharp jump!” and July sales were lower than they should have been “Record low!“
Let´s take Tampa Florida as an example (which is near our stunning Waterside at Coquina Key development).
If you look at the June (2155) and July (1486) sales for 2010, they average 1820 sales per month. Sales in June and July 2009 were 1876 and 1885 each. Sales in June and July 2008 were 1481 and 1431 each.
Nothing too exciting there - this year was same as last year and much better than 2008. The expiry of the tax credit simply meant that June and July this year are particularly bad months to examine housing trends.
The six monthly figures for Tampa are a little more useful
Feb-July 2008: 9,497 sales
Feb-July 2009: 9,651 sales
Feb-July 2010: 10,731 sales
Doesn´t exactly lend itself to dramatic headlines does it?
The national figures are even more illustrative. There were 4.58 million properties available for sale in July 2008. In July 2010 there was 3.98 million. In other words, even with record foreclosures in the past two years, there were so many people buying properties that housing inventory levels had fallen by 600,000.
Let´s look at an even longer timeframe (and I´ll stop boring you with stats after this!). Even allowing for a poor July, Annual housing sales in the USA should be approx 5 million in 2010. To place in perspective, annual sales averaged 4.9 million in the past 20 years, and 4.4 million over the past 30 years.
The point I´m trying to make is that comparisons always need to be put into perspective and useful ones are always over a longer time frame.
You don´t have to be Warren Buffett to realise that reacting to monthly movements in activity and price levels makes for exciting headlines but it is unlikely to make you rich. You´d be better off researching a few things very well, making a medium to long term plan, and then sticking with it.
That´s what Torcana do in Florida, and investors have very kindly started to thank us for it online.
Kind Regards
Colin
August is usually a quiet time of the year for newspapers and magazines and so the latest housing figures in the USA received wider attention than they usually do. Judging by the way the headlines were complied however, it would seem summer silliness isn´t quite over yet.
Consider the headlines from last week:- “US Home Sales Dropped to a 10 year low” (BBC)
- “US Homes drop to their lowest pace in 15 years” (Irish Times)
- “Sales of US Homes drop to record low” (Businessweek)
Hmmm, well no, it´s never that simple with these numbers unfortunately. If you looked for similar stories within these same reputable news organizations 4 weeks ago, you would have noticed an interesting contrast…
- “Sharp jump in US housing sales” (BBC)
- “Positive US Housing data lifts investor confidence” (Irish Times)
- “Sales of foreclosed homes are up nationwide” (Businessweek)
The above headlines might seem nonsensical when put beside each other, but the reason these respected organizations are giving US housing a big thumbs up in one month and a big thumbs down just a few short weeks later is easy to explain. They are looking at housing trends over a period of weeks rather than months or years. In addition to that, the last few weeks have been particuraly volitile because homebuyers were rushing to meet a government imposed deadline.
View our next blog if you´d like to read more on this subject.
Regards
Colin
A very positive article on the Florida Tampa Bay coast was published earlier this afternoon in the USA Today. Please see main extract below.
Florida is a huge second-home destination. It seems to have something for everyone: secluded beaches and urban buzz, golf communities and marinas, high-rises and bungalows at prices from ultra-luxury to shockingly affordable. It’s also diverse. The mansions of Palm Beach are far removed from the beach towns of the Panhandle and theme parks of Orlando.
But if everything that Florida offers came together in one place, it would be on the coast of Pinellas County. This includes Clearwater and St. Petersburg, just outside Tampa. It’s known by other names, including the Tampa Bay Area.
“We call it the ‘Nature Coast,’ ” says Debra Nobile of Innisbrook Real Estate Services. “The east coast (of Florida) is all big buildings and parking lots. Here, everything is nestled among the trees. There’s more beach. It’s more laid-back.”
Anthony Jaquinto, a longtime Realtor with Re/Max Realtec Group, says the area has great appeal to part-timers.
“The second-home market is big, about half my business,” he says. “It’s because of the beaches and the country clubs and all the other amenities.
“The Tampa Bay Area has an enormous amount to offer. There’s a really terrific airport, and within 35 minutes, you can be at towns up and down the coast or in premier golf communities. We have professional football, baseball, hockey, a big downtown and lots of cultural happenings.
“It’s much more cosmopolitan than Jacksonville or the Panhandle but much more affordable than Naples or Palm Beach, and a lot more natural than the entire East Coast. There are so many choices and amenities, and it’s all very user-friendly.”
It even has major theme parks: Busch Gardens and Adventure Island.
In much of Florida, only the deepest pockets can afford waterfront. But Pinellas County — the strip of coast from St. Petersburg north to Clearwater and beyond — invites a wide range of buyers.
“There are more or less luxurious communities, gated or non-gated, condos, single-family homes and townhomes,” Jaquinto says. “The price range allows almost anyone access to the Gulf. I can show you a smaller two-bedroom condo right across the street from the water for $150,000 or penthouse apartments on Sand Key for $2 million. Whatever your purchase price, we can probably accommodate you.”
That’s more apparent since the BP oil spill in April caused jitters on Florida’s west coast, and prices for some listings dropped 5%.
Condos along the water begin around $150,000, and single-family houses, even those with boat docks, can be found in the low to mid-$300,000s. Inland property is even less. Condos in the area’s premier golf communities begin at just $100,000, Nobile says.
The combination of low prices, beaches and urban amenities attracts buyers largely from the Northeast and Midwest. Jaquinto says many properties are used just for spring break and winter holidays. Thanks in part to affordability, they are often rented out at other times.
For people that purchased property in the USA between 2003-2007 it´s been a pretty disastrous 3 years. Don´t think anybody will disagree with that.
What about the people that bought in 1980 or 1990 or 2000? As the chart below illustrates, they are looking just fine. The red line is property prices adjusted for inflation every year and the blue line is average property prices in each of those years.
What about the people purchasing today at the 2001 prices? Where will they be in 10, 20 or 30 years?
Buying at historical lows means the rental yields will be high and once financing becomes available the supply of buyers (and property prices) will increase dramatically. If you purchase in 2010 at 2001 prices and sell in 2015 at 2005 prices, you´ve more than doubled your money.
However, the longer term view will depend a lot on interest rates and inflation too.
Unlike the Greeks, the US government can inflate its way out of trouble. Whatever your opinion is of the US debt (53% of GDP by the way), it´s ability to borrow is greater than any other country on the planet thanks to the unique status of the dollar.
Borrowing levels will have to stabilise though, and although there are lots of ways of doing that (some painful, others problematic) inflation is going to be a side effect.
If inflation does take hold in the US, that means interest rates will go up, which means higher mortgage payments for people. That´s not good if you have a mortgage.
Historically, that has also lead to higher rents.
It has also led to higher property prices.
So where will that leave the proud owners of distressed Florida properties with no mortgages in solid locations with steady renters?
Laughing probably, all the way to the bank.
Kind Regards
Colin Murphy
Harsh as it may sound, there are several ways those who are still liquid can profitably take advantage of a global downturn which is still causing much suffering to others 3 years after the credit crunch began.
One of these ways, which Torcana identified more than two years ago, is to purchase highly discounted and undervalued properties from distressed sellers. To maximise the return and minimise the risk of these types of properties, they must be purchased
- in wealthy, democratic economies
- with a history of renewal and recovery from recessions
- in fundamentally sound cities and neighbourhoods
- where locals rent long term
- where locals have and are currently purchasing these properties
Apart from that, the properties must be fully completed, cashflow positive and in well located and well run buildings or communities.
I´m sure there are plenty of other types of properties that can make you a healthy profit, but these are the ones we´ve identified with the best risk/reward ratio. It´s difficult to see how these kinds of properties will give any serious problems over the next 5 years and the potential benefits are huge.
So our criteria is very strict, but we´ve found plenty of properties that tick all these boxes and the latest is Arbor Lakes in Orlando. Here you can buy for 30 cents on the dollar in a beautiful and pre tenanted condo with 7-9% net rental yields.
If you haven´t received an information pack, please send an email to investments@torcana.com and request one.
Kind Regards
Colin Murphy
