Denny Grimes and Company: MarketWatch Update

Residential markets will follow same road, but at different speeds.

Anyone who has ever driven a car knows what it feels like to be lost, men included, even if they won't admit it. People are feeling that same sense of panic today because they are finding themselves in unfamiliar economic territory. The surroundings look different to them because the changing real estate market is leading them down a road that most have never traveled. A handful of people vaguely remember being on this road before, but so long ago that even they have a worried look on their face.

Relax, there is no reason to be worried or panicked because there is a difference between being lost and not knowing where you are. You can only be lost if there is no one around to give you a road map or directions. We don't have that problem because there are plenty of helpful folks willing to give their opinion as to how to get back on the highway to recovery. In fact, there are too many helpful hands (and opinions) pointing and giving all kinds of different directions. Meanwhile, we sit idling, hoping we have enough fuel in our tank to make it to better days.

All real estate bubble markets and submarkets will follow the same road to recovery. However, not all markets will recover at the same speed. Real estate bubble markets are formed because there is an extended period of irrational growth. Irrational growth is defined as a growth rate that is not supported by the buyers who will actually use the property. It is important to remember that investors can fuel a market, but it takes users to sustain it.

ROAD MAP TO MARKET RECOVERY

Our market's binge buying spree, which was driven by heavy investor participation, happened in 2004 and the first half of 2005. Prices were driven up to foolish levels, which caused confidence to erode to a point that the market started reversing its direction during the second half of '05. At that point, irrational growth was replaced with irrational decline. This road needs no definition because we have been on this path for three years, and everyone is screaming to the driver "Are we there yet?!" Greed was driving the irrational growth market, now it is fear's turn behind the wheel. Fear drives too slow for my taste.

Ironically, everyone wants to know when the market is going to recover. That's like asking when a broken leg is going to heal. Technically, the leg begins to heal right after the trauma happens. However, the break will heal faster if the bone is set properly, but the setting process can add pain to an already painful event.

Likewise, our market began healing as soon as the bubble burst, and we experienced the trauma of watching prices plummet, back toward the real value line. The healing process has been slow, but it could have been accelerated if sellers would have endured the additional pain of setting their prices correctly a year or two ago. As it stands, we are beginning the fourth year of recovery, and the condo market is still in traction. The single-family market's recovery has progressed much faster, as some submarkets are actually getting around in a walking cast.

Full recovery cannot happen until buyer confidence returns. However, the buyers' confidence will not return until prices fall below the real value line. It's as if the buyers are going to penalize sellers for getting greedy back in '04. Buyers must feel confident that what they are buying represents a real value, a tall order in a market where perceived value changes as often as gas prices.

A few submarkets, such as closeout inventory from developers, bank-owned property and some of the short sales, are already below the real value line. In fact, it is safe to say that if you can buy anything for less than its replacement cost, that product is below the real value line, which means it's fairly close to meeting the buyer confidence point.

In addition, geographic submarkets, such as Sanibel, Fort Myers Beach and Bonita Springs are closer to reaching the bottom of the curve than others because they do not have as much excess inventory. Therefore, their price reductions will not be as severe, and they will see confidence enter the market well ahead of the oversupplied markets of Northwest Cape Coral and Lehigh Acres.

There is only one road to recovery, and like the Autobahn, there is no speed limit. All market segments will fully recover, eventually. But if you are a seller and are tired at moving at the same pace as your market segment, then speed up. All you have to do is drive your price down a little faster and you will find a buyer much sooner. After all, you now know that the buyers are located south of real value, near where confidence enters the recovery highway.

Keep the faith.

Denny Grimes, President Denny Grimes & Company

Resale Inventory still high

The number of single family homes for sale in Lee County has remained relatively unchanged while homes sold have exceed the number sold for all of 2007. Sales are strong yet inventory remains above 15,000 single family homes on the resale market. Almost 1/3 of these are listed as short sales.

I believe we are in a cycle of short sales moving to foreclosure as bank owned properties has risen 40% since the first of April. This cycle is likely to continue for at least the next 12 months as banks deal with foreclosing and disposing. The inefficient process of short sales looks to be failing. Good for buyers as these are most time sold for less than reproduction cost.

Anytime you can buy below what it would cost to build new, that is a deal. How long will these deals be available and how long will it take for our inventory to decline is anybody's guess. Historically other markets that have gone through a correction have not hit equalibrium until inventory is cut in half from the peak.

The good news of our market is building has slowed, demand is good, and we will hit a point where there is no more homes coming down the inventory conveyor belt.

Michael Polly, Vice President Denny Grimes and Company, Inc.

 

Inventory must fall for further recovery

Back in the dark ages when I was in elementary school, the letter grades on our report cards were S, N and U. The "S" stood for satisfactory, the "N" for needs improvement and the "U" was the dreaded unsatisfactory grade. Someone reminded me that the same grading system also included the letter "E," which stood for excellent. That troubled me because I didn't remember seeing an "E" on my report card, so I tore the attic apart until I found the shoebox that contained a few of my old report cards. Sure enough, the legend on the back of the card showed that the coveted "E" was the highest grade available. I then opened my report card and realized why I didn't remember seeing one. My report card may have been void of Es, but our market has racked up a bunch of them this decade. Most recently however, our Es stand for excruciating, exhausting and economically challenging. Although our market may not be getting straight Es like it used to, eventually it will because good grades follow disciplined behavior. Our marks will improve in direct relation to the discipline sellers exercise with their expectations and their asking price. Sellers are finally accepting the reality of the market, which means we will eventually work our way out of academic detention. The health of a market can be measured in many ways. For this midyear report I have selected three indicators and graded each on their performance so far this year. The indicators are as follows:

• Existing Home Sales: Grade S+ If our market needed a shot in the arm, we got the equivalent of a booster shot because the first six months of 2008 yielded almost the same number of home sales that were posted for all of 2007. According to the local MLS, 5,400 homes went pending in the first two quarters this year as compared with 5,290 for the entire year last year. We couldn't have scripted a better six months. Some agents, acting like a modern day Paul Revere on his midnight ride, have been riding around shouting "the buyers are coming." But this awesome turnaround in sales was not caused because homebuyers decided to return to our market. Buyers never left. We can thank sellers for the market's revival because an increasing number of them finally threw away their 2005 wall calendar and the unrealistic expectations that went along with it. The sales pace usually slows in the second half of the year, but even after adjusting for seasonality, we are on pace to sell more than 9,000 homes this year. That would be a 60 percent improvement over last year and would mirror the level of business we experienced in 2002.

• Existing Condo/Villa Sales: Grade N This market's grade last year was "U," so the "N" grade is an improvement. Through June 30 of this year there were 1,819 condo sales, which is a pace that would exceed last year's numbers by 20 percent. This is progress, but more improvement is needed because, as good as a 20 percent increase sounds, we still have more than 8,000 condos for sale, which equates to a 50-month supply. Oversupply is not the only hurdle that stands in the way of a full recovery for the condo market. The rising costs of taxes and insurance have increased monthly maintenance fees to a point where second-home buyers now consider renting instead of buying or, worse yet, find a less expensive place to winter. The condo market used to be an affordable alternative for the primary home buyer because condos were cheaper. That is no longer the case, because the oversupply of bank-owned homes has driven home prices down to a point where condos no longer have the cost advantage. Therefore, don't expect this market to graduate soon. In fact, it will be held back a year or two.

• Existing Home Inventory: Grade U If existing inventory were fat cells, our market would be in a circus side show tent supporting a sign that read "World's Fattest Market." Lee County still has more than 15,000 existing homes for sale. The increased sales pace has not made a dent in the number of homes that are for sale. Ironically, this month marks the third anniversary of the market's peak because July 2005 was the month where inventory was the lowest. Do you feel like celebrating? Excess inventory, like fat, puts pressure on your heart and is counterproductive to long-term health. (See http://www.marketwatchupdate.com/lee-county-inventory-single-family-home-update)

The heart of our local economy is new construction and as long as homes are being sold below the cost to replace them, our economy will suffer. Home prices will not rise until our inventory level deserves the grade of "E," which in this case stands for equilibrium. Therefore, the sooner we reach equilibrium, the sooner our economy recovers.

My teacher would always handwrite a few notes for my parents at the bottom of the report card. My notes on Lee County's report card would be as follows: "Lee's performance last year worried me, but he is doing much better this year. He still has a tendency to daydream a bit, as if he is living in the past. Lee is one of the most gifted children in the class and a bright future is in store for him, if he stays disciplined and focused on the task in front of him. There are still some tough assignments ahead, but I have every confidence that Lee will succeed if he will keep the faith."

Denny Grimes President Denny Grimes and Company, Inc.

http://www.dennygrimes.com

Long process saturates housing market

If something sounds too good to be true, it usually is. Such is the case with buying, selling or working with a short sale. Sellers have hopes of getting the equivalent of a "mortgage mulligan" as their lender erases tens or hundreds of thousands of dollars of their mortgage debt. Buyers expect to get the steal of the century and agents feel like lottery winners because they believe short sales are easier to sell than tickets to see Hannah Montana. However, these grand expectations are rarely fulfilled.

There is a lot of confusion about what a short sale is and the pros and pitfalls of attempting to buy or sell one. In simple terms, a short sale is when a lender allows a seller to sell his property "short" of what is owed. The lender either forgives the debt by writing off the loss or initiates the legal process of securing a deficiency judgment or promissory note from the seller. Sellers like the forgiveness part better.

For example, we have a seller who paid $380,000 for his home in 2005, placing a $340,000 first mortgage on it. Economic times now are forcing him to relocate, but the market value on his home is only $230,000. Therefore, if he sold it at market value, he would have to bring more than $125,000 to closing to satisfy the mortgage and closing costs. Most sellers, including this one, don't have a cookie jar with that much cash in it, so they are forced to make a tough choice. They can stay put, rent the home or quit paying the mortgage and allow the home to go into foreclosure. Their final choice and the one that has recently come into vogue, is to negotiate a short sale with the lender.

You can see by the growing number of short sales coming on the market that a large percentage of sellers are choosing the short sale route. The local Multiple Listing Service shows that approximately 5,000 short sales are currently listed, which represents 25 percent of the existing inventory. However, short sales only account for about 10 percent of the existing home sales. If buyers perceive short sales to be one of the better buying opportunities, wouldn't you expect the percentage of short sales to be much higher?

The lackluster performance of short sales can be explained by the fact that short sales over-promise and under-deliver. Whoever came up with the term "short sale" should be sued for false advertising. A more accurate name would be "long sales," because everyone involved in the process must be long on patience and the probability of a successful closing within the buyer's lifetime is a long shot.

When you examine the inefficiencies of the short sale process, it is easy to see why the luster has vanished from what was initially thought to be an opportunity, second only to the Louisiana Purchase. Assuming the seller is already delinquent in mortgage payments, and the lender will entertain the idea of a short sale, the first step in a short sale is for the seller to list the property at a price agreed to by the seller and the agent.

The first flaw in the process is that many sellers don't care when the property sells. Many short sales properties are owner occupied and since the owner has quit paying the mortgage payment, he is living in his home for free. Other properties are rentals and the owner is collecting rent payments, but not paying the monthly mortgage (cash-flowing these properties is becoming much easier). Even if the property is vacant, it isn't costing the seller anything, so he has little incentive for a quick sale.

The second flaw is that the listing price, realistic or not, may not even be close to what the lender will accept. In addition, what the lender decides to accept may not be anywhere close to a realistic market price. The lender is not even involved until after a buyer makes an offer and it is "accepted" by the seller. The deal is then forwarded to the lender for his review and the waiting game begins.

If you have ever wanted to learn a foreign language or two, now is your chance, because you will be trilingual by the time the lender responds. In the meantime, the buyers are getting ants in their pants because they are watching suitable alternatives being snatched up. Agents are pulling their hair out trying to keep the deal together, the seller is indifferent and the lender has a voice message that says "Multiple messages will be ignored, so don't bother calling again."

It's not uncommon for lenders to take in excess of 30 days to even acknowledge an offer and another month or two to respond. Kevin Jursinski, a local real estate attorney, says "The short sale process could be condensed to a matter of days instead of months if the lenders would get involved in the valuation process before a property is listed. That way, everyone wins. Agents can advertise a price with confidence and buyers know what price will be honored by the lender."

Buyers and agents are learning that bank-owned properties are a better alternative than short sales, because banks usually price properties to sell and give quick answers. This is swell, but our market will not fully recover until the growing inventory of short sales are sold. Therefore, it's in everyone's best interest to streamline the process.

What's the solution? I have a few ideas that I would like to share with the lenders. I called several, but got their voice mail, so I left a message. I know better than to leave another one.

Keep the faith.

Current market has buyers in control

Do you remember the song "When You Wish Upon A Star" from the Disney movie "Pinocchio"? Many sellers hum that tune to themselves as they lie in bed each night, wishing a buyer would come along and unshackle the chains that hold them to their property. They dream about freedom.

Be careful what you wish for, because it may come true. Sellers, if you are wishing for a buyer, you might find one and the chains that bind you will be replaced with something worse - strings. You will then be treated to a puppet show, but it won't be fun, because you will be the puppet.

We all know it's a buyer's market, which means that in many cases, the buyer is the puppeteer and the seller becomes Pinocchio. The buyer pulls the string and the seller reacts. Sellers have little control or voice because they fear they will jeopardize a sale they have waited months or even years for. Sellers can soon discover, like Pinocchio did, that sitting on the workbench (market) beats being turned into a jackass and spending the night in a whale.

Sellers, there is a better path to freedom that doesn't involve a fairy's intervention. All you have to do is look for two buyers instead of one. Some may think finding one buyer in today's market is hard enough, so finding two could only happen in a fairy tale. But it happens more often than you think. In fact, finding two buyers can be easier than locating one and the result will be a lot easier on your bank account.

Finding more than one buyer takes a proper mindset. The traditional lexicon of "sellers speak" needs to be shelved and saved for when a rational market returns. Sellers are puppet-show bound when they use terms like "We need to leave some wiggle room," "If they like the property, they can always make an offer," or my favorite, "I'm not going to give my home away." These sellers believe that a higher asking price will put more money in their pockets, when the reverse is true. It is a paradox, but lowering your asking price can sometimes allow you to net more.

There are predictable outcomes when pricing a property. Common sense tells us that if a property is priced ridiculously high, it will not attract lookers. Price it way too low and a line of buyers form in the driveway and down the street. Those prices are easy to identify. The challenge is to find the pricing sweet spot, which is a price that creates both interest and urgency.

The pricing sweet spot can be guesstimated, but it usually requires fine tuning once the property is exposed to the market. How do you know if you are close to the sweet spot? It's easier to tell when you're off. For example, if you have not had a showing since John McCain was a POW, then you're off a bit. On the other hand, if you are getting several showings a week, you may be close.

Buyers are predictable, too. When they feel they are the only one on earth interested in a property they become the seller's puppeteer. With little effort they can make sellers nod their head, crawl on their hands and knees and even bend over. The sellers don't like it, but short of something magical, they can do little about it. But if another buyer becomes interested in the same property, all of a sudden, like magic, the strings are cut and the seller becomes a person, one who is on equal footing with the buyers.

The existence of, or even the real threat of a second offer will always improve the seller's negotiating strength. Generally, the second offer is stronger because buyer No. 2 is aware of the first buyer. Buyer one will often counter-offer after learning that he/she is not the only one on the planet interested in that particular property. The presence of the second offer can mean the difference of tens of thousands of dollars for the seller.

There is no magic if the price is too high. Smart buyers realize that a good offer, from their point of view, is one that the seller is not happy with, but one that the seller is afraid to say no to. This is a flawless strategy. The only thing that can mess it up is the existence of another buyer.

Buyers will not pay more than market value, but they will pay less. I believe many buyers are paying less than market value because they are the only ones interested in it. But if sellers can find the pricing sweet spot and get a second buyer interested, chances are they will sell it at, or much closer to, market value.

It will take more than wishing on a star to sell a property now for what you could have sold it for several years ago. But with proper pricing you can do the next best thing, which is get an offer with no strings attached.

Keep the faith.

Romance missing in buying process

I have a confession to make. I went to see the newly released movie "Sex and the City," but I didn't go there to watch the movie. I went to do research for this article ... really.

Fearing I might run into one of my workout buddies' wives, or anyone else I knew, I decided to go to a matinee. My plan didn't work because I was spotted by several people I know. I might have been less conspicuous if I wasn't the only guy in the theater and the only one chomping on a jumbo tub of double-buttered popcorn.

I'm sure that this hit HBO series has a fan base, but not one big enough to result in a $55 million opening weekend. Its box office receipts even topped the latest "Indiana Jones" adventure. Something is causing this movie to be the talk of the town. Sure, sex sells, and one successful weekend doesn't mean it is destined to become the next "Gone with the Wind." But, after watching it, I believe this movie delivers what many people are missing, and that is romance.

My wife will be the first one to disqualify me from lecturing anyone on romance. I have, however, been known to surprise her by splashing on a little Old Spice and opening a vintage bottle of wine. My romance gene may be underdeveloped, but I know romance when I see it. And I don't see it nearly as often as I used to in the real estate process.

Buyers don't seem to fall in love with a home anymore. How romantic does this marriage proposal sound to you? "Will you marry me? Oh, by the way, I need an answer fast because I have several others I want to propose to if you don't say yes and agree to my terms." Allow me to put this proposal into a real estate context. "Mr. Seller, I want to buy your home, so here is my proposal. Don't think about making any changes to it because there are several other homes that I like just as well, and I am prepared to propose to them next."

This attitude is prevalent in today's market. Buyers are making offers without an emotional connection to the property or its owners. This is understandable when dealing with a bank-owned property, but the buyer's ambivalent attitude exists with owner-occupied properties, too. Many times sellers are making reasonable counteroffers, but the buyers walk away and move on to "bride" number two or three.

In a normal market, the buyer makes an offer to start the negotiation process. The buyer would be thrilled if the seller accepted the first offer, but in reality, the buyer is expecting the seller to make a counter-offer. Once the seller makes the counteroffer, 80 percent of the time the buyer will stay in negotiation by accepting the seller's terms or sending a revised proposal back to the seller. If the buyer and seller are rational people with realistic expectations, a win-win meeting of the minds will occur.

That is not true today. The probability that the buyer will respond to a seller's counter-offer, even if it is reasonable, has dropped to below 50 percent. Even if a seller's mind changes a few hours later, it is usually too late. Carrie and "Big" may have given each other a second chance, but many sellers in this market aren't as lucky.

Buying a home to live in used to be thought of as the fulfillment of the American Dream. Today, it seems like it has been turned into the purchase of an everyday commodity, like buying a pound of ground beef. Where is the passion? What happened to falling in love with a home? Does winning have to be measured by who has the bigger hammer? The sellers hammered buyers for five or six years, and, for the past three years, sellers have been getting hammered by buyers.

It is true that inventory is at record levels, and there are many homes to choose from. But that doesn't mean you can't fall in love. Ladies, you didn't marry the only guy in your county. You had choices (and far more than your husband had), but you fell in love anyway.

I am not a softie, and I am not suggesting we hold hands around a fire sale and sing "Kumbaya." I believe in buying and selling smart. You can love a home and still drive a hard bargain. Being smart is not strictly about using a hammer; it's also using your head and an appropriate amount of heart.

Indifference is a powerful negotiating tactic, but so is rapport building. Many sellers love their home and giving it up is like giving up the family dog. They want to believe that someone will enjoy it and care for it the same way they did. I have seen sellers accept something less than they normally would because they felt the buyers loved their home as they did.

You may think that today's real estate market is a struggle between good and evil, kind of like an "Indiana Jones" movie. You know what you are looking for, and when you find it others are trying to take it from you.

But it doesn't have to be that way. As in "Sex and the City," everyone can have a happy ending. Relax and pour yourself a Cosmo, because you don't have to be beautiful, skinny and live in New York City to find romance. It may be waiting for you just inside a seller's front door.

Keep the passion.

Denny Grimes
President

Denny Grimes and Company

Sellers can minimize discomfort by selling sooner

“Denny, you have had our home listed for two months and it’s still not sold. Don’t you think we need to come up with some creative marketing ideas?” These were the words from one of my sellers this week.

Being a curious cuss, I asked them what they meant by “creative.” They quickly shot me a couple of ideas like providing owner financing or being willing to lease-purchase the home. They even offered to vacate themselves, their kids and pets from the home, leaving their furniture and accessories behind. My puzzled look quickly prompted the explanation that they would be willing to move to a furnished rental so they (she) could have their life back. Cleaning the grout with a toothbrush every morning before work was cutting into the joy of home ownership. These sellers are not having fun. They are not alone.

Selling isn’t for sissies, especially in this market. On the fun scale, putting the home you live in on the market ranks somewhere between being forced to attend a wedding (even your own) on any weekend day that happens to be sunny and a root canal without Novocain. It would stand to reason that if something caused that much distress a person would want to be put out of their misery as fast as possible.

Too many sellers make the choice to prolong the pain caused by the inconvenience of selling in order to avoid the greater pain of accepting the fact that the market value of their home is less then what they want or need. That’s what prompts them to look for any alternative, other than a price change, that will shorten the sales time. There is no miracle cure, although I have heard that the maker of Night Diet, the diet pill you take at night that causes you to wake up skinny, is coming out with Night Sale. If you’re lucky, they will throw in a set of steak knives with your order.

During the first quarter of 2008, there were approximately 2,500 pending home sales and 40 percent of those sellers were able to sell their home without changing their initial listing price. That does not mean the home sold for the asking price, because it probably didn’t. It does mean that the listing agent gave good advice, and the sellers listened.

There is no such thing as painless selling in this market. The goal for sellers should be to minimize the pain. The successful sellers mentioned above had to deal with pain too, but they bit the bitter pricing pill at the beginning of the listing period, instead of months later. Their pain was short-lived because 60 percent of these sellers’ property sold in the first 30 days. That is a manageable length of time to keep your home looking like nobody lives there.  

Statistics also show that the faster you sell, the closer to the asking price you will get. For example, homes that sold in less than 30 days sold for 98 percent of the original asking price. But that percentage dropped to 94 percent, 89 percent, 86 percent and 79 percent for homes that were on the market 30, 60, 90 and 120 days respectively.

Another interesting fact is that if the property is not sold during the first 30 days the probability that it will sell without lowering the asking price drops by 66 percent. Of the 16,000 homes for sale it is alarming to see how many have been on the market for months at the same asking price. The real estate definition of insanity is to keep your property listed at the same asking price and expect different results.

Another benefit of selling fast is that you are eliminating market risk. Prices are declining, therefore the sooner you sell, the higher your selling price is going to be. I know a lot of sellers who wished they were realistic with their asking price 12 or even six months ago. The irony is that some of these sellers are still price resistant. I guess one can get used to driving a car by looking in the rear view mirror.

Success in this market is a team effort. The agent is responsible for an accurate representation, an appealing photo presentation and dissemination of the information to agents and prospective buyers. The seller controls the asking price, therefore the seller is the only one who can control the speed of the sale.

If your home hasn’t sold yet, then you are facing one of two pricing scenarios. The first is that you have very little showing activity. This means that your home is priced so far out of the market that it is not even coming up on the buyer’s radar screen. Your only course of action is a significant price reduction. The second scenario is that you have regular showings, but haven’t received an offer. The good news for you is that your asking price is closer to market value, but you will have to tweak it a little in order to motivate a buyer to act.

I wish there was a magic potion, but that’s it; there are no other answers, no painless quick fixes. I can come up with some creative marketing ideas such as hiring the Blue Angels to do delta rolls over the seller’s home, but that won’t cause it to sell. It will just make the day-sleeping neighbor mad.

Keep the Faith.

Denny Grimes

http://www.dennygrimes.com

 

First Quarter posts double-digit improvement over '07

My voice mail message light was blinking when I arrived at my office one Monday morning four weeks ago. Believing optimism trumps pessimism, I envisioned the message would lead to new business; it would be a great beginning to a new week.

I was right, sort of. I could tell by the tone of the man’s voice in the message that he was actually giving me the business because he did not like what he read in my latest article. I’ve learned that any message that begins with the words “Mr. Grimes” wouldn’t be one I’d want to build my week on.  

He basically accused me of lying in my article that came out in Sunday’s paper, just a day earlier. I reported that pending sales for the first two months of the year were up 16 percent over the previous year. He was then kind enough to read from The News-Press that was tossed on his driveway early that morning. He gleefully read that “existing home sales have fallen since the beginning of 2007.” I couldn’t help but wonder why he chose to believe the more pessimistic of the two stories. He must be a potential buyer.

I’m a glutton for punishment, because I stand by my comment. In fact, let me update my report by saying pending home sales for the first quarter of this year are up 29 percent from the same period last year. Don’t worry; there is plenty of room in my voice mail box, so if you feel you need to call and ball me out, be my guest.  

Before you do, let me explain the reason for the discrepancy in the sales numbers. Notice, I use the word “pending sales,” which means contracts that have been written but have not closed. The News-Press receives their monthly sales reports from the Florida Association of Realtors, and those reports use closed sales, although the word “closed” is omitted. I am trying to encourage them to add the word “closed,” so it will be less confusing for the public.

Solid arguments can be made for both methods of measurements. Those that use the closed sales approach rightly state that a sale shouldn’t be counted until it closes. Therefore, they only count closed sales. The disadvantage of that method is that closed sales measure what happened 30 or 60 days ago, not what is happening now.

The closed sales for January and February were lackluster because they reflected the market’s velocity from last November and December, which are typically slower months. You will soon hear that sales (closed) are showing improvement. Why, because pending sales have been increasing, therefore there will be an increase in closed sales. It’s not rocket science.

Your reporting method of choice will depend on when you like to receive your information. If you would rather watch The Masters via your TiVo over the Labor Day weekend, then you will prefer the closed sales approach. My preference would be to watch it live. Therefore, I prefer tracking pending sales because they reflect more of a real-time picture of the market’s temperature. Sure, some of the sales will fall out and not close, but that percentage is as predictable as expecting Tiger Woods to be in the hunt during the final round. The bottom line is that sales are increasing, so why not talk about it now instead of two months from now?

The news today that foreclosures may have peaked spawned the headlines "Lee's housing market bottoms out."

Working in the industry and studying the market intently I often sit back and wonder what this means. Correctly put I believe that it should say Lee's housing market may have hit the TOP of the foreclosures. (Maybe)

We are really looking for different signs that point to recovery. At the end of the article there is a mention that baby boomers may in a couple of years come back into our market and revitialize it. I would argue that they already are!

The reason they left or stopped buying in the first place was our market became overpriced and was seen as overvalued. Our cost of ownership put many out of the market with insurance and tax costs. Now as our market corrects we are seeing the buyers come out and buy. Many are baby boomers from all over the country. Evidence of this was seen in the recent liquidation sale at Coral Lakes.

We may be seeing the top of the foreclosure market only time will tell. We need to see the top of the inventory growth and we have not yet seen that as our inventory grew again in March to just over 16,150 for single family resale homes. Sales were good but no enough to create a drain on the inventory.

We are feeling and seeing the bottom of the builder market as they are building and selling as low as we will see. As fuel and transportation costs rise so will builders costs and so will the cost to the buyer. If there is a builder with inventory or putting footers in the ground today, it may be the bottom for this sub-market.

We still have to work through the bank sales and short sales and this process is like trying to suck peanut butter through a straw.

Sellers are still hurting adjusting to what the market will offer for their home. This is hard as these foreclosures are really putting pressure on prices.

These tops and bottoms are all good signs just like watching a wound heal. Our market is healing and buyers are starting to realize that the deals are here and now.

Michael Polly - Vice President Denny Grimes and Company

Eighty sales in four days sparks hope for all

Something phenomenal happened last Wednesday morning.

That was the morning a short, rather benign article on the front page of The News-Press announced that O. J. Buigas closed on 116 homes at Coral Lakes. The article went on to say that Buigas bought 82 houses and 34 townhouses from Miami-based Tousa Homes Florida LP, Engle's parent company, which filed for Chapter 11 bankruptcy reorganization. More importantly, he was going to offer them at fire sale prices. The story continued on the following page and announced that I was going to handle the sales and also gave a Web site for readers to learn more.

Coincidentally, it was also the morning that the calendar function on my Apple iPhone went haywire. When I left my office to open the sales office at Coral Lakes, my phone correctly registered the date as March 19, 2008. But as I drove to Coral Lakes, I noticed something startling. The calendar on my phone started moving backwards, as if moving back in time. It stopped on March 19, 2005. I dreaded the thought of being on hold for an hour with Apple's technical support.

Then I noticed what appeared to be a traffic jam when I was within eyesight of Coral Lakes' sales center. It looked like the parking lot of Outback Steakhouse at 6 p.m. on Saturday night. Cars were everywhere, and dozens of anxious customers were waiting outside the locked sales office.

My iPhone wasn't broken after all. It was 2008 everywhere in the world, but on that particular morning, in that particular place, time had rolled back to 2005. Buyers were lining up to buy and excitement filled the air. The sun was shining on the real estate market once again.

For the next four days there was never enough space in the parking lot, the sales center or the model homes. Homebuyers had come out of the woodwork in search of a good deal. They didn't ask about the market's bottom or complain about needing to sell before buying. In fact, only a few tried (without success) to submit an offer below the asking price. Buyers recognized value and they bought.

It was just like 2005, with one exception. The majority of Coral Lakes' buyers were users, not speculators. People rushed into the sales center straight from work, uniform and all. At one point we had a letter carrier, two hospital workers still in their scrubs, and one police officer in the office at the same time.

Something special was taking place at Coral Lakes - something that may last beyond the availability of 116 homes. Hope had returned to the market. You can understand the excitement from home purchasers, the sales team or even O.J. himself. However, the enthusiasm was not only shared by those that had a direct benefit in the success, but by almost everyone in Lee County and beyond.

I must have received a hundred calls or e-mails from real estate agents, builders and local business people throughout the county who shared from a distance the excitement they felt. Twenty nine different news stories ran in the following days, eight of which were in other states and as far away Vancouver, British Columbia. Good news about our real estate market was finally being broadcast.

As phenomenal as selling 80 homes in four days sounds, what happened at Coral Lakes last week transcends the mere number of sales made. Time will tell. But at the risk of sounding over dramatic, we may have witnessed an important psychological turning point in our market.

I will ask you to forgive me in advance, because my writing skills may not properly convey the importance and significance of what happened at Coral Lakes. That's what I get for skipping so many English classes in high school.

Imagine we were all working at a once lucrative gold mine but no gold had been found in almost three years. We might show up for work everyday, but there wouldn't be much enthusiasm as we swung the heavy pickax into the rock. We might be mining for gold, but not really expecting to find any.

But, on one particular day, in one particular location, we heard that gold was found once again. I believe we would pause long enough to congratulate the miner who found it. But when we returned to our pickax, we would find it much lighter. And for the first time in a long time, we would add a little spit to the palms of our hands and watch the sparks fly as we started swinging the ax with a renewed intensity and hope. We have been reminded that there is still gold in this mine.

Yes, the first four days at Coral Lakes brought happiness to a handful of new homeowners. But more importantly, it may have sparked hope for an entire community.

Keep the Faith.

Where are the buyers?

That question has been asked a lot over the last 2 years. Well, the answer is in and the buyers really did not go anywhere. The market and pricing left the buyers but the buyers didn't leave the market. Last Wednesday Coral Lakes, a gated community with nice ammenities, went up for liquidation sale. Priced at levels that rolled back pricing to 3-4 years ago. The response has been overwhelming!

Buyers flocked to scoop up these tremendous deals. There were 116 homes and townhomes to be sold. The townhomes starting at $86,000 were the first to sell out. As of this post there are less than 30 homes remaining. These homes were priced at a 50-75% discount to what the builder was selling these homes at.

The response says volumes to the interest that is out there for people wanting to own a home in SW Florida. Cape Coral, Fort Myers and surrounding areas are full of deals like this and the news of this interest as it reaches the national level will be a great boost to our area.

Recent statistics show that our population continues to lead the state in growth. While our inventory levels remain high and many submarkets have a ways to go to be competitive in price, there are buying opportunities out there. Smart buyers are finding them and buying them.

Almost 1,000 people have expressed interest in Coral Lakes and that speaks volumes to the notion that buyers went away. Buyers are here and when the price is right they will act. Those that do not will look back and wish they had.

Michael Polly - Vice President Denny Grimes and Company

WHY CHASE BANK SALES AND FORECLOSURES?

In the next couple of weeks we will be releasing a gated community that will be sold at 50-75% discounts to what the developer was selling these homes at. They range in size from 1300 to over 3000 square feet. Loaded with upgrades that are basically free at these prices! These homes have never been lived in and are ready to move in. Close quickly and start calling it home. Prices will range from the low $100,000s to just over $200,000.

Ammenities include a spectacular club house, resort style swimming pool, lakes, tennis courts and more. These are the deals you have been waiting for. Information will be sent to those who have registered at http://www.dennyspicks.com

Robust sales leave market in dangerous territory

I have good news and bad news. Which do you want first?

Let's start with the good news.

Last month, more than 900 existing homes went under contract, thus making February the best sales month in Lee County since March of 2006. In fact, February's pending sales were up more than 60 percent from the same month in '07.

We are on a 60-day winning streak. The first two months of '08 show that single-family home sales are 36 percent ahead of '07, and condominium sales are up 16 percent for the same period. Notice, I am talking about "pending" sales, which are contracts written and accepted, but not yet closed. Even though there will be sales that fail to close, we will still post a significant sales increase. So, for those that thought our market was flat-lining, put the body bag away, because it appears it has a pulse.

Before you roll the market out of ICU, let me give you the bad news: Many people will misinterpret, dismiss or ignore this positive news.

Sellers and agents may misinterpret this surge in sales and believe it signals the return of the glory days. If they do, they will react in a way that would be contrary to further recovery. This is my biggest fear.

Skeptics and nay-sayers may dismiss this information and file it in the folder titled "Propaganda to Trick Fence-sitting Buyers." Many will even wonder how this tidbit of positive news made it past the good news censors, who seem to be working at every media outlet.

The die-hard wait-for-the-bottom buyers will chalk up this two-month trend as a seasonal blip. They believe sales will tank about the time the last snowbird's taillights cross Lee County's northern border.

The continuation of the market's recovery beyond the winter season is directly related to the correct interpretation of this long-awaited surge in sales. Does it mean the market is fully recovered or that the market has bottomed? No. Does it mean that prices have stabilized? No. Does it mean agents can finally eat something other than peanut butter? That depends ... do you like Spam?

The surge in sales was not caused by an influx of European or Canadian buyers. It wasn't caused by sunburned snowbirds from Sheboygan, Baby Boomers or ball players looking for a spring training home. In fact, buyers did not cause it at all.

Sales are picking up because sellers are getting closer to where the buyers are. After 30 months behind the wheel, sellers are finally driving their prices into the outskirts of buyer's territory. This is dangerous territory for our market because some sellers will be tempted to slow down, stop or put the car in reverse and drive their prices back up, thinking that the buyers will follow them. All of these reactions will stall our recovery, and heaven knows we don't need any stalling going on.

Our market began its recovery 2.5 years ago, when prices started falling back toward real values. It's been a long journey, but we are finally beginning to see evidence that we are getting closer to our destination. We are now faced with the most important and difficult question since the recovery started, and that is "Will we have the fortitude to finish the trip?" We must press on to the final destination, the tipping point, which is the epicenter of the buyer's territory.

Would you like to see our market fully recovered and prices stabilized? That will not happen until prices in each sub-market reach the point that makes that market tip back toward equilibrium.

So, it really isn't a question if prices reach the tipping point, it's a questions of when. For some market segments, like developer homes that can be bought below replacement cost, that's just around the corner. Other markets should start counting cows or Burma-Shave signs, because there's still a lot of road ahead.

Regardless, every market segment must meet buyers where they are. Therefore, the more downward pressure sellers keep on the gas pedal and prices, the sooner their journey will be over. Sorry, there aren't any shortcuts.

Sellers, I know you are tired of driving, but don't slow down now. There's a lot of open road ahead because the traffic jam is behind you in seller's territory. Over 900 sellers entered buyer's territory last month and picked up a buyer. If you keep pressing forward, you will begin to see buyers thumbing for a ride. When that happens, stop and give them one.

Keep the faith.

Denny Grimes Special to news-press.com

Sellers are discovering that buyers never left

Having been married for almost 30 years, it should be no surprise to me that what I thought I said may not be what was actually heard. That prompts the most common phrase used by married men, which is: "What did I say now?"

The same is true when you give a speech. A professional speaker once told me that there is the speech he planned, the one he delivered, the one that he wished he would have delivered and the one the audience heard.

Last Tuesday evening I presented the residential outlook at The News-Press Market Watch program. I don't know what the audience heard, but I will try to summarize what I was trying to get across.

I love sports analogies, so I began by drawing a comparison of our residential market and the Miami Dolphins. The Dolphins experienced a perfect season in 1972 and an almost winless one last year.

Residentially speaking, our perfect seasons were in '04 and '05. Our 1-15 season was last year, just like the Dolphins. Our existing home sales were down 34 percent last year, the lowest they have been since the late '90s.

Therefore, this will be a rebuilding year, for both the Dolphins and our market. Rebuilding is a lengthy and delicate process. One of the challenges in the rebuilding process is building positive momentum. If we continue to compare our current situation with what happened during our perfect seasons, we will always fall short. Falling short is negative, and it will foster negative news stories, and you cannot build positive momentum on negative energy.

For our own sanity and for the health of our market, we need to leave our perfect years in the record book. Instead, we should focus on improving on what happened last year. That improvement can be reported as good news, and good news will lead to more progress. That cycle will produce the positive momentum we need.

The first sign of improvement is that existing home sales for the first six weeks of this year are running about 15 percent ahead of last year. I know that's like saying the home team is winning halfway through the first quarter of the game. Being ahead is an improvement for us, because based on our performance the past two years, we would normally be behind 30 to 0 at this point in the game.

The second point I wanted to get across is that our market is recovering, but that does not mean prices are rising. It means the exact opposite.

From 2000 to 2003, our market experienced rational growth. But 2004 and 2005 were years of irrational growth, driven by greed. That's when prices rose above rational value (real values) as investors bought homes like they were Krispy Kreme donuts. That was the beginning of our market's ills, although we did not feel sick. Rolling in dough is a great pain reliever.

Irrational declines in prices, driven by fear, began in 2006 and is continuing today. Prices are falling back toward the rational demand line, but the market will not return back to normalcy until another ingredient is added. That is buyer's confidence.

A surprising number of agents have e-mailed me to tell me the buyers are back, and they are busy again. These agents are wrong. The buyers are not back because they never left. The buyers are right where the sellers left them three years ago, sitting at the point where irrational demand left real demand.

Our market started healing the day prices began to fall. Prices have fallen 25 to 80 percent since the peak, so sellers are getting much closer to buyer territory. Agents, developers and sellers are seeing activity because prices are getting much closer to where the buyers have been patiently waiting. So, maybe we should say "Welcome back, sellers."

Does this mean we are at the bottom? No, it just means we are 21Ú2 years closer to it. We should welcome falling prices because that increases demand and speeds the recovery process. The sooner prices fall, the better for everyone, including sellers.

Don't despair; prices have fallen further than they have yet to fall. Some markets, such as the developer homes you can buy below replacement cost, have already fallen below the real value line. That will be the first market to hit bottom, and it may happen sooner than you think.

The year 2007 may be the low watermark for us. We are on the mend, prices have fallen, buyers are shopping, and we are getting the "Pending" signs out of mothballs. I know there are agents and sellers that are ready to spike the football and start moon-walking across the end zone. But if you wait until the fourth quarter, I'll join in.

Denny Grimes, President Denny Grimes and Company

This article appeared in The News-Press

 

Your perspective may be shared at MarketWatch presentation

 

Are you tired of the same political rhetoric? Are you ready for some straight talk from our politicians about the real problems our country faces?

 

What if the president of the United States invited you to meet with him (or her), and he gave you 10 minutes to share your opinion of what this country needs. Lets say he was so moved by your insight and candor that he asked your permission to include your point of view in the State of the Union speech. Would you take advantage of the opportunity?

 

Are you tired of all the contradictory real estate gibberish that you are hearing? Are you hungry for a common-sense analysis of the issues facing our real estate market? Do you have an opinion that you feel the market needs to hear? If you could express your opinion to the movers and shakers of Lee County, would you take advantage of it?

 

If you would, then I have an opportunity for you on Feb. 26. That is the date for The News-Press Market Watch, which is the

Floridians will have the opportunity Tuesday to give themselves a tax break.

Amendment 1 increases the amount of the homestead exemption and initiates portability. A few other goodies were thrown into the proposal as well that will cause us to pay less in taxes. On the surface, it seems like a no-brainer, but anytime government is giving, versus taking, a "Proceed With Caution" sign should pop up in our brain.

 

I have scanned the editorial pages and the Mailbag of the local paper, as well as the online forums, so I have a basic idea of what certain groups think about Amendment 1. Ironically, there are more opinions than the number of dollars the average homeowner will receive in tax savings. That's surprising; because it's not often we get to vote to put money back in our pockets. One would think everyone would be in favor of that.

 

Based on what I have read, opinions seem to fall into one of four categories. They are: 1) yes, 2) yes ... but, 3) no and 4) no... but. Sounds like the vote could be split 50/50, doesn't it? But it won't be split. Let me tell you why.

 

Most of the "yes" voters are in favor of this proposal for two reasons. The first is that it returns dollars to the property owner, and the second is that this reduction in taxes will stimulate our sluggish real estate economy. This group is half right.

 

Property owners will save money, and that is a good thing. However, you couldn't buy enough Die Hard batteries with the tax savings to jumpstart a neighborhood, let alone the entire real estate market. That does not mean that a small savings isn't a step in the right direction.

 

The fact that Florida is taking a proactive step to lower the cost of ownership is great news, which is something in short supply these days. In fact, if good news is water, then we are in the middle of the Sierra Desert. A thimble full of water may not quench our thirst, but as parched as we are, would we be foolish to turn down anything to drink?

 

The "no" voters fall into two groups. The first seem to be associated with unions that represent firefighters, police, education and other public service entities. Their mantra is that they won't have the money to provide adequate services as our area expands. They may not have to worry, because if we don't rein in the cost of ownership and government spending, we won't have to worry about urban sprawl. If you used to think growth was a problem, wait until you see the problems a lack of growth causes.

 

The second "no" group believes that any proposal that does not abolish Save Our Homes (SOH) will get an automatic no vote from them. They believe that longtime residents are not paying their share of the tax burden; therefore newcomers and part-time owners have to pay more than their share of taxes. They want to even out the tax burden by raising taxes on homestead property and lowering it on non-homestead property. I bet most of these folks live somewhere else most of the year.

 

The reason their idea will never pass is that someone will come out and call this proposal what it really is. It should be called "Adopt a Snowbird Program." The way this program would work is that SOH would be intact, but each SOH beneficiary would agree to pay part of the tax bill of a non-homestead owner. If I have to pay part of a snowbird's tax bill then I get dibs on one that owns a lot in Lehigh Acres.

 

The "yes...but" and the "no...but" voters are not as opposite as you would think. Both groups recognize that Amendment 1 falls short of being the miracle cure for all that ails us. The "yes-buters" are optimists. They will take what they can get now, hoping our legislators will give us something better next year. This group also believes the Miami Dolphins will be in the Super Bowl next year.

 

The "no-buters" aren't as optimistic. They keenly understand the need for tax reform, however they don't subscribe to the theory of a little now and more later. They believe a thimble full of water now will do little good, or worse yet, do more harm than good. For them, it's a Big Gulp to drink or nothing. The no-buters will be the deciding factor in this election. If this Amendment fails, it will be because the proponents failed to reach this group.

 

What message will we send to the world Wednesday morning? Will our headlines read "Florida Votes To Cut Taxes" or "Florida Defeats Tax Cut"? Neither will change our market dramatically, but I wonder which headline has a better chance of inching our market forward?

 

Keep the faith.

 

Now is your chance to play a new game I've started called "Bottom's Up."

It's not a drinking game; it's a game where you try to guess the bottom of our real estate market.

My game resembles the game played in many offices, particularly this time of year because of the upcoming Super Bowl. In that game, players pick a random square on a matrix, and the winner is determined by how many points are scored during the game. Participants don't have to fret about studying the tendencies of the competing teams, the player's statistics or even the game-day weather forecast. In fact, you don't even have to understand football. Winning is pure luck.

In Bottom's Up all you have to do is pick a month on a calendar, one that you feel will mark the bottom of the market. As with the Super Bowl version, my game doesn't require understanding the tendencies of the real estate market, meaningful statistics or even the economic forecast. You may be playing against some very well respected experts, but don't worry, you won't be at a disadvantage. There is no skill in this game either. The winner will win by pure luck.

If you are interested in playing you had better pick your dates soon, because the calendar is filling up fast. So far, every month in 2008 has been taken. Most of those takers predicted that the market would bottom last year. Obviously they were wrong, but hey, it's not easy to be lucky.

The common denominator for a player's guessing strategy seems to be wishful thinking or a dwindling bank account. The closer the guesser is to working in the real estate industry, the more optimistic the guess. One such guesser said that he believes "we're finally hitting the long-anticipated bottom of the market." Of course, he said that last November, so he has since revised his pick by picking August of this year. You have to love the tenacity.

Another well-seasoned guesser hedged his chance of winning by saying "you are going to see a leveling out period of eight months to maybe 15 months, and then prices are going to come back up." I called him and asked him how he knew that. He said he "just had a feeling." Great answer. After all, when luck is involved, any system of picking is as good as another.

It was recently published that a well-respected real estate expert predicted our market will be soft for three or four more years. So, the months for 2010 and 2011 have just been gobbled up. Can you tell by his guess that he is not a Realtor? He makes his money as a professional guesser.

The popularity of this game has forced me to rethink my rules. As you have just read, guessers are getting smarter because they are selecting multiple months or even years. The first person who guesses that the market will bottom between now and when the cows come home would automatically win. Therefore, a tie-breaker system will need to be in place, because there are multiple guesses for a particular month. From now on, each guesser must specify the day of the month and time of day. Then, should there be multiple correct guesses, the winner will be determined by who is closest to the exact day and time.

Does this sound ridiculous? You bet it does. But it is no more ridiculous than people trying to predict something that cannot be defined, let alone predicted.

What does the bottom of the market mean? Is it when property values and the number of sales are at their lowest? Or does it mean when inventory levels have peaked and start moving downward? If we could agree how to measure it, what market are we talking about? Is it the new home market or the existing home market? Is it the condo market or the market for vacant land?

Let's suppose that we agree on what to measure and how to measure it, now we have the problem of geography. Lee County has many sub-markets, and these markets do not act in unison. Values on waterfront property in Fort Myers will bottom before they will in Cape Coral. Condos on Fort Myers Beach will rebound before the high-rises downtown. Is the market bottom supposed to be the end result of throwing all of the sub-markets in a blender?

My real estate friends need to realize that forecasting a recovery before the market is ready will do more harm than good. Agents have to acknowledge that their message will be totally disregarded by buyers. It's like the jailbird saying "I didn't do it." Optimistic messages from anyone close to the real estate industry will be seen as self-serving, even if they are correct.

The real problem is that sellers will listen to you because you preach a message that is music to their ears. And when sellers falsely hear that better days are just ahead, they will be more resistant to pricing pressure. Falling prices will speed up our recovery. Entrenched sellers will prolong it.

You may want to know what square I selected. I don't have one. However, I will make a prediction. And that is those over-optimistic guessers that guessed a month in '08, will end up guessing again.

Keep the faith.

- Denny Grimes is president of Denny Grimes & Company, Inc. and specializes in residential real estate. He can be reached at 239-689-7600.