What the housing turnaround will look like
Cape Coral, Fla., not long ago one of the foreclosure capitals of America, is now seeing a rebound as home prices hit once-in-a-generation lows.
(Page 5 of 5)
The severity of the slump certainly carries an element of déjà vu. Few places have experienced more dramatic boom-and-bust cycles than Florida. This, after all, was the place where the first real estate rush began in the 1920s with an enterprising developer who posted a sign in New York’s Times Square during a particular harsh winter that said: “It’s June in Miami.” Almost overnight, builders touted developments in cities that didn’t exist, and some sold lots that were under water.Skip to next paragraph
Subscribe Today to the Monitor
The land rush ended just as abruptly as it began – with a massive hurricane in 1926. “It was a catastrophe for the real estate market,” says Jack McCabe of McCabe Research & Consulting in Deerfield Beach, Fla.
If the past is any guide, it might take as long as a decade for parts of the state to recover from the current slump. “Some people may never live long enough to see their homes return to the upside,” says Mr. McCabe.
Still, the presence of discountbuying by firms such as Sandbill, sophisticated investors who have a lot of cash and know how to rehab a home, is one of the first signposts that an area is climbing out of the abyss. So is the return of the bidding wars, which the house at 711 in Cape Coral benefited from. The winning bid on the $65,000 house came in at $80,000.
Six signs of a housing bottom
• Affordability improves. Prices stop declining and begin to stabilize at a level that buyers can’t resist. Currently, the median price of an existing home has dropped 26 percent since the 2006 peak, pushing affordability to an 18-year high. In Lee County, the median price has dropped from $322,300 in 2006 to $88,500 in May 2009, down 73.5 percent.
• Foreclosures slow. For now, they continue to rise nationally. RealtyTrac Inc. reports that foreclosure filings in May were up 18 percent from a year ago, though they dropped 6 percent from April. Filings exceeded 300,000 for the third straight month, a record. But in Lee County, they have dropped 28.2 percent since peaking in October 2008.
• Banks unload bad loans. Last March the National Association of Realtors (NAR) estimated 18 percent of homes were bank-owned. In May, it was 33 percent, down from a peak of 49 percent in March. In Lee County, 66 percent of all single-family homes sold were bank-owned.
• Professionals start buying. In a national survey, the NAR found 21 percent of purchases were by investors. In Lee County, 42.2 percent of homes sold in May were sold for cash, usually a sign of investor purchasing. Savvy buyers often start a turnaround.
• First-time buyers enter the market in significant numbers. NAR estimates that first-time buyers represented about 41 percent of sales in 2008 and 50 percent in the first half of 2009. No statistics exist for Lee County, but real estate agents believe it is about 30 percent.
• Home sales increase year over year. This has not started to happen yet nationally. Pending sales in May were 6.7 percent higher than last year but actual closed sales were down 3.6 percent. But in Lee County, sales were up 101 percent in May over the same month in 2008. They have been rising since October.