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Tag: Anna Maria Island real estate

Castles in the Sand

Zoom towns

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

They call them “Zoom towns” because so many of the new residents are working remotely and have given up their city and suburban lifestyles for a more relaxed environment in smaller communities. It’s no secret that this massive lifestyle change evolved because of COVID-19, but even now, when the danger of serious infection is substantially reduced, Zoom towns are still popular.

A recent National Association of Realtors survey reported that buyers who purchased homes in the year that ended in June moved a median of 50 miles from their previous residences. This is the highest distance on record, going back to 2005 when the median was a consistent 15 miles. This may not seem like a lot of mileage difference, but 15 miles from Boston, for instance, is still part of the city, but when you go 50 miles, you’re in real country. In New York City and other large metropolitan areas, however, you would need to go a little further than 50 miles to really be getting away from it all.

In the same survey, smaller communities were more popular, with buyers purchasing 48% of the homes. Again, this is a record and is up from 32% a year earlier. By comparison, traditional suburban home purchases dropped to 39% from 51% the previous year and only 10% of home purchases were in urban areas, down from 13% the year before. Naturally, the increased cost of homes and now the increased cost of financing has certainly influenced buyers.

Home buyers who are getting close to retirement are another influence on the popularity of small communities. Many who have the ability to work remotely chose to relocate now rather than after their retirement date. This gave them an edge before mortgage rates and prices went up further and set them up for easing into retirement.

Confirming further the demand for homes in smaller communities, The Wall Street Journal/Realtor.com Emerging Housing Markets Indexes came out at the end of October. It reports that the demand for homes in low-cost cities with strong local economies is, in their opinion, “robust.” This annual survey incorporates economic and lifestyle data, including real estate taxes, home appreciation, unemployment, wages and commute time in their 300 biggest metro area rankings.

This survey places the North Port, Sarasota and Bradenton region at number four in the top 10. Unfortunately, as we all know, North Port has taken a big hit from Hurricane Ian since this survey was completed, so in next year’s survey it will be interesting to see where that area is placed.

The other Emerging Housing Markets were in this order: Johnson City, Tennessee; Visalia-Porterville, California; Elkhart-Goshen, Indiana; Fort Wayne, Indiana; Lafayette-West Lafayette, Indiana; Columbia, South Carolina; Columbia, Missouri; Raleigh, North Carolina; and Yuma, Arizona.

Danielle Hale, chief economist at Realtor.com, said, “These more affordable markets continue to offer some opportunity. It doesn’t mean that they’re not seeing a slowdown in their housing markets, but they’re better positioned generally.” In other words, they had faster home sales and lower unemployment rates than the market as a whole, which is attracting buyers in an otherwise difficult housing market. Further, according to an economist at Nationwide Insurance, the trend toward less expensive housing markets looks like it will continue even if home prices start trending down.

I guess all of Florida needs to be considered a Zoom town based on the number of people who have relocated to our state in the past two years. We’re still a state with a lot of smaller, cozy communities, access to waterfront amenities and a friendly business environment. I believe our new diverse residents will only enhance those attributes. Time to pack your laptops and zoom your way to the Sunshine State!

Castles in the Sand

Is the Earth moving under homeownership?

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

As I’m reading that mortgage rates have topped 7% for the first time in 20 years, I can’t help wondering how all the events of the past two years will affect homeownership. As the affordability of purchasing a home deteriorates, will it take homeownership along with it?

I recently became aware of a book called “Crabgrass Frontier: The Suburbanization of the United States,” written by historian and Columbia University professor Kenneth Jackson in 1985. The book focuses on the history of single-family homeownership in the United States and goes all the way back prior to the Civil War. However, my interest and probably yours was what happened to American homeownership after World War II.

Although the book outlines the history of how the suburbs developed, it also explains the psychology of why people want to own their own home and the piece of ground under it. It’s all about the “American Dream” and how for generations, owning a home represented the fulfillment of that dream and the success that it symbolized. Immigrants who came through Ellis Island at the beginning of the 1900s couldn’t believe their children could actually own their own homes and appreciated how important that was to their lives.

The economics of owning a home for most would-be homeowners was less important than the desire to own a home, regardless of whether the future math made sense. Find the home you want in the area you want and find a way to get it without really considering its future worth. Fortunately, the future worth of real estate has consistently risen since the early 1950s when the suburbs outside of major cities grew and grew and grew.

All we have to do is look to the last couple of years when home values in the United States have risen 36% since 2020, which is twice as large as any other two-year increase on record. Even the real estate crash of 2007 hasn’t changed anyone’s minds about the value of homeownership. All the value that was lost has returned and most people and economists feel that what happened then was just a blip on the real estate radar, not a trend. There has consistently been a 60% homeownership rate since the early 1960s.

The COVID-19 epidemic has certainly changed where people live almost as much as the advent of affordable automobiles and highways did. It gave citizens the ability to live far from their job’s home offices and “commute” via their laptops, pushing up the value of homes in areas of the country no one ever considered moving to until retirement, like Florida. This has unfortunately widened the gap between the wealthy white-collar professionals and everyone else. That combined with the rise of inflation and mortgage rates has locked a lot of middle-class people out of the market.

Nevertheless, history predicts that what we’re living through now will not be long-term and homes will continue to appreciate. Eventually, new buyers will find a way into the market. Florida has been one of the major beneficiaries of this unusual real estate trend and, although our market is going through a slight correction, don’t bet on it collapsing.

Since the Federal Reserve just passed another rate hike at a recent meeting, we can anticipate mortgage rates to continue going up. As the Earth keeps moving under the real estate market, the average buyer just doesn’t know what to do, so many are doing nothing. It’s a sad state of affairs for the country, but hopefully one that will not stick around for long.

Castles in the Sand

The death of old Florida

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Florida’s changed a lot in the over 20 years I’ve lived on the Gulf coast, and it’s changed even more as a result of COVID-19. But the biggest change to southwest Florida and the entire coastline south of Tampa may come as a result of Hurricane Ian.

Now that the flood waters are receding and everyone is assessing the damage from the storm, we’re starting to get a feel for the damage to real estate values. Feedback from brokers is that the investors and buyers are now out in force looking for properties to buy in as-is condition. One broker from Englewood predicts that home prices will increase for at least another 12 to 18 months because of the additional demand.

Buyers from out of state have not changed their minds and are motivated to buy before prices increase further because of the anticipated additional shortage of properties to buy in the aftermath of the storm. In addition, they have not been discouraged by the increased costs associated with fortifying homes against wind and flooding.

The fallout from the insurance companies is still unknown, but anyone purchasing a coastal home now is calculating that additional cost into their affordability factor.

Of course, Anna Maria Island and other barrier islands on the coast that did not have major damage will be looked at by buyers and seasonal renters. This could prove to be an even busier rental season for Anna Maria Island with higher price tags for rentals and purchases alike.

Assuming all of the above, where does that leave the average buyer who wants to live on the coast? Unfortunately, many will be forever priced out of coastal living because of a combination of building codes and the increased costs of flood and homeowners’ insurance.

The most recent update to Florida building codes from 2020 includes provisions to seal roof decks, as well as longer standing requirements to install impact-resistant windows or shutters and an update to stronger connections between the roof, walls and foundation.

As previously stated, homeowner’s insurance companies are requiring condos and single-family homes to install new roofs before they will provide an insurance policy. This is happening even if there are currently no leaks or damage to existing roofs, if they are over a certain age.

According to a recent report by CoreLogic, there are nearly 33 million homes at risk of hurricane-force wind damage along the Gulf and Atlantic coasts in Florida, so the amount of property updating required is substantial.

When Hurricane Michael hit the Panhandle town of Mexico Beach, it didn’t take long for the area to recover with high-end homes, gated communities and beachfront condos supplanting the original old Florida cottage nature of the area. This is certainly going to happen in parts of southwest Florida where many homeowners do not have flood and/or homeowner’s insurance and are planning not to return. Just to prove that “deep pocket” money isn’t afraid of storms, The Ritz Carlton Residences on Estero Bay, located just south of Fort Myers Beach, is breaking ground next year with units starting at $2.8 million.

I still have my crystal ball handy from Halloween and it’s telling me Florida’s real estate values are strong and may actually get stronger because of Hurricane Ian. The downside is will “old Florida” be gone forever? The crystal ball is saying, “Why are you asking that question? You know the answer.” Unfortunately, I do.

Castles in the Sand

Higher mortgage rates affect everything

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Think of an octopus – the head of the octopus is the housing market and the tentacles are all of the industries dependent on the housing market. Too much of a stretch? You get the idea.

Anyone who has ever purchased a home goes into it knowing that there will be a lot of out-of-pocket expenses, during the first year at least. New appliances, decorating, paint, furniture, lawn maintenance and a full litany of other homeownership necessities are just a few of the expenses homeowners can expect. Some of these projects are done by the new owners but many are performed by professionals who may see the demand for their services eroding if home sales slow down. Not to mention the effect slower home sales are having on the mortgage industry. Lenders and their employees, many of whom work on commission, are having their own personal recession.

Higher interest rates affect virtually every corner of the economy, but it affects the housing market the most. The higher the rates, the higher homebuyers’ monthly payments are, adding hundreds of dollars every month. This is exactly what our over-inflated economy doesn’t need right now. What it also doesn’t need are homeowners with low mortgage rates making the decision to stay in their homes with their ultra-low mortgage interest rates instead of moving up or out and taking on a loan rate double what they are currently carrying.

The higher the rates go, the less inventory there is or will be on the market. You don’t have to be a Harvard-educated economist to recognize that the supply and demand law is alive and well in the United States housing market. Some economists are calling this the golden handcuffs, tying homeowners to their low mortgages and just sitting on their property even if they want to move. A lot of homeowners are waiting for rates to go down before making their move, but is that really in the foreseeable future? Certainly, some people will still need to move because of personal life events, but those who have the option to not move probably won’t.

Because rates haven’t climbed this rapidly in decades, it’s almost impossible to predict how much the increase in mortgage rates could reduce home listings. Mortgage rates rose for five consecutive weeks in September, reaching the highest level since the financial crisis. Per Lawrence Yun, The National Association of Realtor’s chief economist, “I really don’t see inventory rising.” That’s a really scary open-ended statement. Does he mean the inventory will never improve?

Back to the law of supply and demand, the lack of inventory is one of the major reasons home prices have remained near record highs. Sales are declining, inventory is being suppressed and interest rates going up make for the perfect storm for selling prices to also keep going up.

As far as Florida is concerned, here’s one little tidbit that the Census Bureau reported in 2019, “Florida had the most domestic in movers, with 566,476 people moving from another state within the past year.” That was almost three years ago. I would love to know that number now but, based on the fact that over 321,000 people moved to Florida from the beginning of this year, it will likely be enormous. This could explain why you can’t get a doctor’s appointment lately.

The poor octopus has been called a sea monster but they’re not to blame, especially when the economists don’t really know anything either. The housing market is also a monster in many ways and how the housing market goes, so goes the economy. Buckle up, things aren’t changing anytime soon.

Castles in the Sand

Credit scores can spoil deals

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

You finally found the house, negotiated a price and the contract is signed. What can go wrong from this point? Plenty.

You may have read about a little glitch involving credit scores back in August. At that time, it was reported that Equifax, one of the three agencies that monitor credit scores, reported inaccurate credit scores for millions of would-be borrowers over a three-week period from March 17 to April 6. The problem was reported to lenders in May.

Equifax reported that some people who may have been applying for mortgages, auto loans and credit cards may have had their scores lowered or increased by 20 points or more. A 20-point error in a credit score could easily lead to mortgage applications being rejected. This is one of those unfortunate errors that affect borrowers who may have done their homework prior to making an offer on a home and who are sure what their credit score is and their ability to go forward with a real estate transaction.

Mortgage lenders typically pull credit reports from all three agencies: Experian, TransUnion and Equifax. The lenders take a look at all three scores and from there create a combined score, according to the executive chairman of Inside Mortgage Finance. This is when the lender is able to determine whether or not to approve the mortgage application and what interest rate to offer. Since only Equifax was affected, the impact may not have resulted in a lot of people being turned down for mortgages. However, it could have influenced the interest rate offered on a loan, resulting in higher mortgage payments.

If you think a recent loan may have been affected by this error in credit score reporting, the first thing is to contact the lender. They need to review the application process and determine if an Equifax credit score was used in the underwriting process and if the Equifax score was lower than the others used. From there, your lender will determine what exactly this means to the outcome of your loan.

This is a great lesson for anyone planning on applying for a loan in the coming months. It would be beneficial to set up alerts with each of the three credit reporting companies, so you know quickly if there is something unusual on your credit report. Ultimately it is your responsibility to pull credit reports on a regular basis and go over them with a fine point, looking for postings that do not apply to you. You always have the ability to challenge anything that looks like an error.

Equifax’s position is that there was no shift in the vast majority of scores during the three-week time frame. For those consumers who did experience a score shift, their initial analysis indicates that only a small number of them may have received a different credit decision. If you feel you need to make a correction on a credit report or score, contact the Consumer Financial Protection Bureau, which can provide you with a list of instructions and a sample letter that will assist you in filing a claim.

I can’t say enough times that the process of purchasing a home, frequently the biggest investment of a lifetime, has a lot of moving parts. It is up to you as the borrower to
be proactive every step along the way. As we’ve seen too many times, large financial institutions make mistakes, so keep checking your credit reports and scores, especially if you’re looking for a home.

It’s not over ‘til it’s over, and heaps can go wrong before it is.

Castles in the Sand

Crashing real estate waves

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

We don’t have a lot of serious wave activity here on the Gulf coast; most of the big rollers are on the Atlantic Ocean side, especially north of Florida. However, if you’re talking real estate wave activity, we certainly have those, but not nearly as erratic as other states are experiencing.

According to the Core-Logic Case-Shiller National Home Price index for the year ending in June, prices rose 18%, down from 19.9% for the prior month. Most economists are saying the housing market has cooled in recent months and nationally, existing home sales have fallen for six straight months through July.

The blame here rests with higher mortgage interest rates, which is adding additional pressure on buyers when they attempt to qualify for mortgage loans. As of this writing, the fixed-rate mortgage average was 5.99%, looking like it will likely go over 6%. This is pushing 3% more than it was a year earlier, accounting for many buyers to be hitting the pause button on home purchases.

Keep in mind that 6% is not a terrible interest rate and should not in and of itself keep buyers from purchasing a home if they can qualify. Nevertheless, sellers are starting to think they may have missed their best opportunity to sell by waiting too long. The reality is that there is a slight downward movement in sale prices and the days of bidding wars and sellers getting over asking price are likely over. This doesn’t mean that sellers are still not making a lot of profit on homes they have owned for even three years, it’s just a little more competitive and adjustments to their marketing plan need to be addressed.

All of this said, Florida so far seems to be inoculated from any serious price reductions. There is a slight downturn in median selling price, but not as much as other areas of the country. Tampa was ranked ninth overall in July based on data received from Florida Atlantic University. The average home selling in Tampa was 58.5% more than the expected price. Fort Myers came in third and Lakeland was seventh. In addition, every city in Florida increased slightly from June to July.

However, Lei Wedge, a professor of finance at the University of South Florida College of Business, said she believes Tampa real estate prices have already peaked. She points out that statistical models often lag behind what is actually happening in the market. Not every financial guru agrees with this, and points to the large influx of buyers from out of state who will prevent prices from dropping as radically as we’re seeing in other parts of the country.

The other potential problem for buyers looking for mortgages in a changing market are where the appraisals will come in. The appraisers and the lenders who hire them are very careful with their final appraisal, which the mortgage amount may be based on. In an escalating market, it is sometimes hard for appraisers to project what the value of the house is without sales comps to support their numbers. In a declining market, it could work to the buyer’s advantage, depending on how the appraisers view and project the market. Either way, appraising is an art, not a science, and appraisers almost always stand by their appraisal numbers, particularly for buyers who are putting down the minimum amount of cash.

Missing the wave isn’t always a bad thing. It gives you a chance to reposition yourself and get ready for the next one. It’s impossible to predict mother nature or the real estate waves.

Castles in the Sand

Real estate websites changing our lives

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

In the good old days of the late 1980s when the state of New York told me I was now capable of selling residential real estate, I knew they had no clue. Of course, I also had no clue, but that was part of the challenge.

That was before the internet and cell phones when every real estate office had a receptionist at the front desk who took messages and buyers and sellers had the good manners to wait until you returned their call. In that era, real estate was mostly confined to print advertising and labor-intense manual systems. Picture this: Listings were collected in three-ring binders for potential buyers to look through. Once they found the perfect home at the perfect asking price in the perfect area, it was out to the realtor’s car for an in-person tour of the home.

Once the multiple listing services were created, realtors could access available properties on the computer, assuming the computer was up and running and the little blue-haired lady who was selling real estate for 100 years could learn the process. And then of course, only licensed realtors could access multiple listing services.

That was then and this is now. In the real estate world of today, every available property for sale is at everyone’s fingertips, controlled by websites all competing for your eyeballs. Here’s a breakdown of the top sites:

The number one site and by far the largest real estate website in the country is Zillow. Zillow or “Zillow Surfing” is without a doubt addictive and provides listings from both the multiple listing services and for sale by owner. The site is free to buyers and sellers and at last count averaged 68 million monthly visitors.

The next most popular site is realtor.com (my personal favorite). The app allows you to search for homes, view pictures and video tours, compare neighborhood criteria like noise levels and provides information on flood zones. Listings are in real time and generally reflect all multiple listing properties.

Next up is Trulia, which focuses on local information and allows for personalized alerts with links to pre-qualified financing and financial calculators. Trulia may be a little too technical for the average property surfer but good to use when you have narrowed down your favorite location.

These are the most well-known and the most popular, but there are plenty more like apartments.com, FSBO.com and Homes for Heroes. There are also several home-buying websites that come and go on a regular basis. Zillow tried their hand at this, but their timing was off, starting when home prices were on a sharp rise. They have since dropped out but there are two others who are active – Flyhomes.com and Homelight.com.

Something that just came to my attention is a website called Roofstock.com, which provides listings and data for investors interested in rental properties to buy. Small investors are actively purchasing properties frequently out of state and are becoming “Laptop Landlords.” They claim they’re the number one platform for small and large remote investors looking to purchase rental properties.

The National Association of Realtors reports that approximately 51% of buyers found the home they purchased on the internet, only 28% found their home through their realtor and 4% from yard signs.

The good thing about the 1980s was the pace was considerably slower than today, which made it a lot easier to learn and bluff your way through situations you haven’t yet had the time to learn. Every day was a challenge and a learning experience, and so much more fun. Our lives may be different now, but I still miss those binders.

Castles in the Sand

Is Florida the new New York?

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

What’s happened in the last two years with the rise of COVID-19 has changed our culture, our housing and our geography so much that it’s hard to wrap your brain around it.

Everything we do has the cloud of the pandemic over it in small and big ways. But eventually, those changes will fade and some of the cultural changes will also start to fade. What then?

The way I view it through my real estate-soaked brain is that remote work has been the number one factor in the shifting real estate market. The fortunate people who had jobs that could be performed remotely were encouraged, and in some cases mandated, by their employers to leave the office. Many of these white-collar workers moved out of major metropolitan hubs and into small towns or small cities, increasing the population substantially. According to an economist at the Federal Reserve Bank, people migrating from high-cost, large metro areas to small cities, towns and rural areas was about 15% higher during the four quarters ending in March compared with the average for the three-year period preceding the pandemic.

All of this increase in population based on remote work also reshuffled the housing markets. Home values went up, new businesses were started, school enrollments increased and workers who said they would never leave major cities suddenly found themselves filling the bird feeders in the morning instead of waiting in line for their coffee.

We all know that Florida has been one of the major beneficiaries of this reshuffling, with real estate values increasing to unprecedented levels. According to the U.S. Census Bureau, the population of Florida increased by over 200,000 new residents between July 2020 to July 2021 and, of course, this does not include what the increase has been since July of last year.

Unincorporated Manatee County, Bradenton and the three towns on Anna Maria Island were always considered small towns. There is no doubt that right in our own backyards we can see the benefit of remote work and how it has impacted our real estate market.

Now it’s time to look at the July Manatee County real estate statistics recorded by the Realtor Association of Sarasota and Manatee. I’m sorry I’m a little late with this report, which came out while I was away.

The median sale price for single-family homes was $521,000, up 21.2% from last year. The average sale price was $689,490, up 21.7%. New listings were up 49.8% and closed sales were down 22.2%.

The condo median sale price was $354,500, up 41.8% from last year, and the average sale price was $409,848, up 32.3%. New listings were up 11.3% and closed sales were down 20.9%

Both single-family and condos had a median time to contract of nine days.

We’re still seeing double-digit increases in sale prices with condos jumping ahead of single-family homes. But the real story is the increase in inventory and the decrease in sales. The supply and demand ratios are shifting, so watch those sale prices eventually take a hit.

Being someone who was born and worked most of my adult life in New York City, I can’t believe that the major cities are dead. Cities offer culture and energy that is hard to find outside of that environment. They don’t, however, offer beaches, mountains or small-town life.

How long will this new lifestyle last – who knows? I can’t help thinking that eventually, you start thinking there’s more to life than filling the bird feeder.

Castles in the Sand

Waterfront home buyers have lots to learn

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

To say that waterfront living is not for the faint of heart would not do justice to fainting. It’s more like a daily swoon, especially in storms or high tides. But even just plain old daily living can be daring.

Do you think you’re ready?

As soon as you walk through the front door of a Gulf-front home, your first instinct is to get out your checkbook. But buying on the water is not as conventional as buying inland. You need to do a lot of research about the expenses and consequences of water intrusion when you live in a flood zone.

Also, don’t think just because your home isn’t direct waterfront that you’re safe; chances are if you’re living along the west coast of Florida, you’re still in a flood zone. Remember that all of Anna Maria Island and the waterfront areas of Cortez are considered at high risk of flooding, as well as riverfront properties in Manatee County. Waterfront properties in flood zones will have required elevation regulations put in place by the county, state and FEMA for new construction and major renovations.

Finally, flood insurance and homeowner’s insurance are seriously impacted by living in a flood zone. FEMA’s flood insurance is capped at $250,000, which requires most homeowners in a flood zone, and certainly on Anna Maria Island, to purchase additional private flood insurance.

Buyers need to be especially vigilant when buying waterfront properties because of everything from minor corrosion to seriously impaired bulkheads on canal front properties. The average cost to replace seawalls in Florida runs between $500 to $1,200 a linear foot. Even if your seawall is only 60 linear feet, assuming an average price of $800 a linear foot, you’re looking at somewhere in the range of $40,000 to $50,000. There are federal loans available to repair seawalls, which may be the only ray of sunshine if your bulkhead fails.

The point here is that if you’re buying waterfront, you don’t just need a home inspection, you also need a structural engineer experienced with bulkhead and possibly dock inspections and pilings. In addition to the structure, the dock area needs to be inspected for mold, termites and other wood-boring insects.

Just to make life on the water more interesting, you can expect your appliances as well as air conditioning systems to have a reduced life due to salty air and wind exposure, even getting into the interior of your home. The best way to stay on top of this is to set up a schedule to inspect your home regularly for evidence of corrosion, rust, mold and little buggers. This is where hiring a manager for rental properties becomes important and worth the price.

If you live in a waterfront condo, most of the inspection process and replacement of association-owned infrastructure are taken care of. That doesn’t mean you won’t pay for it, but it does take the responsibility off your shoulders and the cost is spread around.

Notice I haven’t said one word about the threat of hurricanes. It goes without saying that hurricanes can be the biggest test to waterfront living and require organization and preparedness.

Living on the water is both a challenge and a blessing. Would you trade the cool evening breeze for a suffocating landlocked property and just a little peace of mind? Or do you want to be one of those people who walk outside every day and marvel at the view and can’t believe how lucky they are? Not even close.

Castles in the Sand

Renovations, teardowns rampant on Island

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

I challenge you to take a ride around Anna Maria Island and find a street where there are no properties either being currently or recently renovated or torn down. I can’t guarantee you won’t find any and I won’t take that bet, but all of us who either live on the Island or visit it often know what I’m talking about.

Finding the right home in the right location is everyone’s dream. Unfortunately, in spite of increased interest rates and a slight downtick in demand, the housing market is still a three-alarm fire. So, what do buyers with cash in their pockets do when what they’re looking for just isn’t available? They buy location and plan a major renovation or a complete teardown.

However, if you’re planning on taking on this kind of project, you need not only professional help but also the ability to stay focused. It’s important not to overbuild even on an island where properties are selling at what seems to be extraordinary prices. There is a broad calculation when remodeling a home or deciding on a complete teardown. The finished home should be worth no more than three to five times whatever you paid to acquire the original property per Ken H. Johnson, Ph.D., a real estate economist at Florida Atlantic University in Boca Raton. To quote him, “…otherwise you might develop way too much home for the neighborhood.”

Of course, building on waterfront property in the state of Florida opens up a Pandora’s box of regulations and requirements. First of all, in most of Florida and certainly here, if the cost of the improvements you’re making exceeds 50% of the market value of the existing structure preconstruction, you will be required to bring everything up to code.

Therefore, if you purchase a cottage on the beach on Anna Maria Island for $2 million and you plan on renovating it at a cost of $1.5 million, you will be required to bring it up to current codes. That means current hurricane codes for doors, windows and height as well as building materials and techniques for the roof structure like roof tie downs. All of this could make the cost of the renovation prohibitive and result in a complete teardown being more cost-effective. In addition, properties in a flood zone – all of Anna Maria Island – will need to meet FEMA’s requirements requiring that elevations have pilings of a certain depth, concrete walls and more.

Another factor supporting teardown as opposed to renovations are the hazardous materials you’re likely to find in older homes. Asbestos and lead paint were used with abandon in construction for many years and were great products until they were found to be lethal, especially to children. Getting rid of hazardous materials can be an expensive proposition since they need to be disposed of in a very specific way. I’ve been in a lot of older homes where all of the plumbing and heating systems were wrapped in asbestos; it was a nightmare to remediate and not unusual for the homeowners not to have any idea there was a problem.

Clever real estate agents are marketing properties not just in coastal areas but around the country as ripe for teardown in view of the shortage of available inventory. As in any real estate transaction, if you’re thinking of this type of purchase, doing your research and getting the correct advice is paramount.

Just for fun, pick a non-beach day and take a ride around the Island and count the number of renovations and teardowns you encounter; I doubt you’ll be surprised.

Castles in the Sand

Is the country in a housing affordability crisis?

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

This pains me to say, but I’m glad I‘m not in my 30s anymore. Not because I didn’t think it was the best decade of my life, but because I would hate being in the real estate market now shopping for my first home.

Housing affordability is hitting first-time buyers the hardest. They’re getting it from all sides, high prices, low inventory, tremendous levels of inflation and interest rates that keep inching up. Back in 2020 and 2021, buying a home was more affordable due to record-low interest rates in spite of the fact that inventory was also extremely low. The big question is, will this ever happen again?

Now, however, interest rates and prices are still going up, and although there is some movement in the amount of inventory available, it is still historically low. Now that the Federal Reserve has raised rates again at the end of July to another 0.75%, everyone is watching the mortgage rates to see what happens. As of this writing, the rates went up slightly and were standing last week at an average of 5.55% for a 30-year fixed mortgage per Forbes.

Since the rates have increased, many of the first-time buyers who were doing pretty well on the affordability scale are dropping out of the market. Not only are the monthly mortgage carrying charges going up with the rates, but likely their rent is also climbing too, creating a situation where nothing is being added to their down payment nest egg.

The result of this is the share of first-time buyers is dropping every month. A year ago, their market share was about 31% per The National Association of Realtors, but this year that percentage is dropping into the mid-20% range. In addition, millennials who are between 25 and 40 years old, the age when most adults are starting to own a home and build equity in that home, are being denied that opportunity.

In addition, the favorable tax position that homeowners have is also eating into their wealth. Many of these first-time buyers also live with the fear of overpaying for a home in the real estate frenzy that’s been going on, stretching to buy that home and worrying that it could come crashing down on them. Everyone remembers the financial crisis that was largely fueled by an overheated real estate market and way too careless lending practices.

The National Association of Realtors’ housing affordability index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data. The last time this was updated was in May of this year when the index fell to 102.5. This was the lowest level of affordability since the index fell to 100.5 in July 2006. Also, this was very close to the lowest level recorded in July 1990 when the index stood at 100.2.

The decline in affordability makes it especially difficult for first-time home buyers to find their way into the real estate market. There are economists who say we may never see the level of affordability we experienced in the past year or two again. This perfect storm of COVID-19, inflation, interest rates and housing shortages has put an enormous burden on this generation, and it will affect the country’s economy for many years to come. The answer is yes, we are in a housing affordability crisis right now, ask a 30-year-old.

Castles in the Sand

Are we starting to turn a corner?

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

It’s a fact – the number of real estate sales around the country appears to be slowing, but the sale prices aren’t. There is no way to spin this. It’s a fact. The question is, what does it mean and where will it lead?

The June median national sales price was $416,000, according to the National Association of Realtors. However, sales activity continued to slow under pressure from higher mortgage costs and higher asking prices.

Locally, as we saw last week, Manatee County is also seeing a slowdown in sales, but no significant change in selling price – the median single-family home was $550,000 for the second month. June’s percentage of increase for Manatee County was 35.7% from last year, compared to the national average of 13.4%.

The demand for homes continues to exceed the unusually low levels of supply, pushing prices higher all over. High interest rates and record home prices are eliminating buyers from the market every day… not a good position for the real estate market since first-time buyers and move-up buyers are the engine of the market and the single thing that keeps it moving.

And as usual, the economists are all over the place in their opinions about the future. Some expect higher rates to slow the home price growth this year and others expect the home prices to keep rising around 5% this year per the chief economist for Fannie Mae.

I started noticing something interesting as I perused realtor.com for listing and selling prices. I took a sampling of the most recent sales as of this writing in the three cities on Anna Maria Island and Cortez. Out of the sampling of 10 closing in Anna Maria, only three properties sold at full price. Out of my sampling of 10 properties in the combined cities of Holmes Beach and Bradenton Beach, only one sold at full price. And in Cortez, I was only able to use five property sales, but even for those sales, only one sold at full price.

This analysis is, of course, totally random and not very scientific, but it does speak to me that there may be a slight shift. I was frankly surprised – what happened to all those full price and over offers that were going on for so long? Well, maybe what happened is that the market is starting to run out of steam just a little. It would appear there is still plenty of activity and the buyers are out there and being aggressive, but with a little more of a level approach. But what about the sellers? Are they starting to think that negotiating may not be a bad thing?

At the Federal Reserve’s meeting last week, the basis point was raised 0.75% as expected. Generally, every time the Feds raise the rate, it does result in mortgage interest rates increasing. That’s not written in stone, so we’ll see what happens over the next few weeks. I’ve said this many times, but mortgage rates between 5.5% and 6.5% may be a shock to the new generation of buyers, however, those of us who have bought and sold properties or have been in the real estate business for years have lived through much higher rates.

So, are we starting to see a chink in the real estate armor or is it just a little scratch? Is even the mighty Anna Maria Island showing signs of battle fatigue? Or maybe it’s just a normal readjustment of the market to where it should be – you make an offer, the seller counter offers and you meet somewhere in the middle. Those were the days.

Castles in the Sand

Cash is king in today’s real estate market

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Are we starting to see an adjustment in the real estate market, maybe, or are only some parts of it changing? One thing that is still very strong relative to the country as a whole are the cash offers being made.

No matter how you spin the sales statistics, which we’ll get to shortly, when it comes to having the edge, buyers with all-cash offers are still the top of the heap. There is a slight downturn in cash offers both nationally and locally, however, the percentage of cash sales is still staggering.

Because of this, buyers are teaming up with family members to consolidate funds for cash offers. Many of these sales are converted to mortgages or home equity loans after closing. Of course, you need to find the cash first and there are suddenly a number of companies that are funding the cash on behalf of the buyers and then taking a fee in the form of a percentage of the cash fronted at a later time when a loan can be put on the property. Some cash offer companies buy the house on behalf of the buyer and then sell it to the buyer. Others give buyers cash to make the purchase themselves.

About 25% of home sales in June were paid in cash according to the National Association of Realtors, near the highest level since 2014. Comparing the national to the local market, the Realtor Association of Sarasota and Manatee for June reported cash sales for single-family properties were about 39%, significantly higher than the national average. Cash condo sales for June in Manatee County were just about 55%, however, I don’t have a national “paid in cash” figure for condos.

So, let’s move on to the overall June sales statistics recorded by the Realtor Association of Sarasota and Manatee.

Single-family homes closed 22.3% fewer properties, the median sale price was $550,000, the same as last month, the percentage was up 37.5% from last year, and the average sale price was $690,524, up 19.8% from last year. The median time to contract is six days and a month’s supply of available properties is up 200% from last year, at 1.8 months. This is because there are 31.5% more new listings this June compared to last, adding to the available inventory.

Condo sales closed 23.6% fewer properties, the median sale price was $356,500, up 27.3%, and the average sale price was $441,868, up 33.2%. The median time to contract is seven days and a month’s supply of inventory is 1.5 months, up 200% from last year. In addition, there are 8.4% more new listings this month compared to June of last year, accounting for an increased monthly supply of condo inventory.

The Realtor Association of Sarasota and Manatee indicates that both Sarasota and Manatee counties are beginning to see more and more homes available for sale compared to last year. This trend will likely continue considering the record high prices and rising mortgage rates. Sellers will get serious about selling and buyers who can qualify for the higher rates will want to buy before the rates start going up again. Nevertheless, even a two-month supply of available properties is still far from the six-month inventory that was always considered a balanced market.

Cash trumps everything in real estate in every market – always has and always will. Keep an eye on the future and the possibility of a sea change to a more level real estate market.

Castles in the Sand

Adjustable rate mortgages right for some

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Less than a month ago, around the middle of July, I reported that the 30-year fixed rate mortgage loan interest rate was nearing 6%. It never went over 6%, but instead started dropping back down. As of July 15, the average 30-year fixed rate according to Forbes was 5.86% and the average 15-year fixed rate was 4.97%. It may not appear to be a big difference in interest rates, but when you convert it into actual money at the elevated prices of homes, it makes a difference.

The typical U.S. family will spend an additional $400 on their mortgage payment each month than they would have in January, according to the Federal Reserve Bank. It could be the difference between qualifying for a mortgage, not qualifying or looking for a less expensive property, either way, the average prospective homeowner is affected by the rate fluctuation and is likely watching the daily activity closely.

To help fill the gap for some borrowers, the interest rates of adjustable rate mortgages (ARMs) are increasing. The Mortgage Bankers Association indicated there was a 3% increase in people applying for ARMs since January.

The popularity of the adjustable rate mortgage peaked in 2009, helping to create the financial crisis. This was because ARMs carry a lower interest rate than fixed-rate mortgages at the beginning of the loan, then they adjust at regular intervals based on one of several indexes. This allowed lenders to make loans with ultralow teaser rates to subprime borrowers who, when the rates went up, could not afford the new payment and ultimately let their houses be foreclosed.

Although ARMs certainly have their place in the real estate world, we don’t want to go back to those years. It can be a good option as fixed rates increase to help buyers qualify for a mortgage with the hope of being able to refinance at a later time if the rates go down. The risk in this is the temptation to buy too much house that will end up being too expensive down the road. This was part of the fallout of the financial crisis.

It’s also a good option for buyers who may not plan on owning the property long-term or who are confident their income will increase enough to keep up with mortgage rates as they adjust. The calculation is whether the monthly payment savings with an adjustable-rate mortgage is worth the risk of increased rates.

Don’t let someone talk you into this just because you are crazy anxious to get into a home. Understand the complications and risks associated with an ARM, do the math and avoid being enticed by pricey upgrades just because you realize you will actually qualify for them.

On July 26, the Federal Reserve has its next meeting and it is rumored that the prime rate will increase by 0.75% again this month. My guess is a couple of months from now, buyers may be wishing they can get a 6% rate.

So, we’ll wait and see what effect, if any, that has on the daily rates.

Castles in the Sand

Homeowners consider renting in tight market

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

The majority of people in my generation and even those decades younger couldn’t wait to stop paying rent. It was drummed into our brains by our parents and grandparents that paying rent was a waste of money and you need to buy, buy, buy. Like so many other norms in real estate, that philosophy has also been somewhat upended.

An increasing number of professionals around the country who can more than afford to purchase a home and young retirees who may have just sold their family homes are reluctant to buy another one and have decided to rent instead. To make their decision just a little bit more confusing is the shortage of rentals, creating a similar market for rentals that we have been experiencing with sales, including bidding wars and offering more than the asking rental price.

They point out the increase in mortgage rates, the astronomical asking prices and the shortage of inventory to justify their decision. Instead, they are considering renting high-end rentals, way above the $2,000-a-month median national rent, with a lot of amenities, not caring about the cost-versus-owning calculation. Those calculations may have changed, and there are online calculators you can use to determine what the real cost of owning versus renting is over a period of years.

For most property owners, just the straight math of owning versus renting is in favor of renting. This is including the cost of mortgage, taxes, insurance, maintenance and many other homeownership-related expenses. Of course, property appreciation is not included in this calculation, but many new renters have already cashed out their equity in their previous homes and may be looking for just an easier and less expensive lifestyle and/or are willing to wait for a more normal real estate market.

Renting, of course, will give you more flexibility and freedom to make life decisions. There are no maintenance responsibilities and the burden of doing those repairs is someone else’s problem. Of course, your landlord can increase the rent at the end of your lease, there are no tax benefits to renting, you can’t make changes, pets could be a no-no and rules must be followed.

We all know the pros of owning a home, starting with the appreciation. Becoming a homeowner is the best way for average middle-class people to accrue wealth; over time, it’s a good investment and probably beats the stock market. But what really appeals to buyers about ownership is, of course, the freedom to modify your property, have a tax benefit during the years you will live in the home, have a big deduction on your equity when you sell and privacy.

Owning a home can be inconvenient. There is nothing liquid about a home if you need to sell, and there is a process, even in this favorable market. Monthly expenses can dramatically change in the face of a major repair bill or an increase in property taxes. And even though home ownership traditionally has been a good solid investment, we all saw during the financial crisis that property values can go down.

Renting has been frowned upon in the past by previous generations, but it’s getting another look from a large segment of the population, including young people who can’t afford the real estate environment we’re in and older people and professionals who can afford a home but choose not to buy at this time. Whoever you are, renting is not what it once was, so leaving the housing market and going into the rental market may not be as easy as it sounds.