The Daytona Beach Homes Market – The Elevator Version

Let’s say you know I am a Realtor. We are in an elevator and you ask me what’s happening in the Daytona Beach condos and homes market, here’s my quick elevator version:

“Our prices have dropped to where people are buying homes and condos in the lower price ranges, particularly under $200,000. Distressed properties from short sales and foreclosures will continue for another 2-3 years keeping prices from showing a significant rise. When distressed properties in big numbers are gone, our prices will rise. First, a short spike while people try to buy at the lowest prices and then more gradually. Much of the money to buy local homes and condos comes from outside the area from buyers of second and vacation homes. That makes the national economy more important to home and condo sales than the local economy. Any time in the next few years is a good time to get a great value. Interest rates are super low, making now probably the best time if you will be financing. Thanks for asking.”

That’s the elevator version, here’s why:

1. Distressed properties are driving prices
2. Different Price = Different Market
3. The Daytona Beach area is, Well it’s Different

Distressed Properties Drive Prices

No one has argued that foreclosures and short sales in Daytona Beach are driving home prices. Over the past several years, prices have dropped in half. While we don’t see prices dropping dramatically in the next two years, we do see short sales and foreclosures continuing through next year and into 2012. The reason is that adjustable rate mortgage loans with balloon payments or significant adjustments to monthly payments will continue to come due well into 2011. Many people will not be able to make the balloon payments or pay the higher rates. Refinancing for many of these people will be impossible. A good number will default.

Different Price = Different Market

The Daytona Beach real estate market is a fantasy. There is no one market. The biggest driver of creating different markets is price and in our area it creates many different markets. For simplicity, we are going to draw a line in the sand and create two vastly different markets.

The line is $300,000. The market under that price includes about 90% of all sales over the past several years. There are 9 sales in that price range for every sale above $300,000. In May, 80.5% of all sales were under $200,000 while 91.5% of all sales were under $300,000. So even though we drew the line at $300,000, most sales are under $200,000. The point is that the lower prices segment of the market is hot while the higher priced market is not. This is very important to understand when looking at the big picture.

The Daytona Beach Market is Different

Our market is different from other areas of Florida. We do not have a large industrial or commercial base in our economy. We are primarily a resort community. Many our owners do not receive their income in the area. They use their homes and condos as vacation or second homes. Some use them as investment properties. While almost 60% of sales in other areas were from first time home buyers, we don’t anywhere near that percentage here.

What I’ve seen is that because many of our buyers are from out of town, we were hit hard when the bubble burst in 2006. Our market also started to come back last year for exactly the same reason. Our real estate markets are out of sync with the national numbers because, well, we’re different.

As the national economy improves we will benefit more indirectly from outside buyers becoming more comfortable in buying a second or vacation home. The direct benefit from local residents buying will be much less than in Miami, Orlando, Tampa and many other cities with diversified economies.

That’s it. Leave a comment if you agree or not. If you want to discuss the market and your options, please give me a call at 386-566-7503. I sell condos and homes in Ormond Beach, Port Orange, Ponce Inlet, Palm Coast and all other Daytona Beach area communities.

What is the Future of the Daytona Beach Real Estate Market?

The future of the Daytona Beach real estate is uncertain for the short-term. In the long-term the market will become more stable. There are many factors at work but here are the top issues affecting the market:

• Tight Credit
• Economic Confidence
• Deflating Home Prices
• Demograhic Changes
• More Defaults and Foreclosures
• Renting Saves Money for a lot of people

Tight Credit

Banks are not lending much money these days. It doesn’t matter whether you’re a small business, home buyer, or even another bank, money is tight. Most bank balance sheets are a mess and they are in the process of cleaning them up. We suspect that most banks will write down their losses this year and they will be in a better position to make good loans early next year.

Economic Confidence

Yes, real estate is local, but economies rely on each other on a local, regional, national and international level. The national economy is struggling according to a lot of well publicized reports. Gas prices and food prices have increased to the point that people are changing their driving patterns and consuming patterns. Medical costs and educational costs have long been increasing at a rate higher than inflation. We are in an a period of economic adjustment, but that will change as well. We are not as confident that economic confidence will improve until next year.

Deflating Home Prices

Let’s face it, buyers are most concerned with the value of their new home purchase declining. This is the greatest risk to buying a home. Sellers are still attempting to get as much as possible for their homes. This is the disconnect and the reason that we have almost 6,000 homes and condos on the market. Of those homes on the market, a small number are agressively prices to sell fast. Homes prices will stabilize, but our best estimate is that credit and economic confidence must improve for prices to stop their decline.

Demographic Changes

There are indications that retirement trends are changing. Baby boomers are not following in their parent’s footsteps to retire to Florida or Arizona. They are chossing more and varied locations. They are seeking adventure and challenges. Our view is that Daytona Beach and the surrounding areas are lagging behind in addressing few needs other than tourism. Our infrastructure for business development is not at the same level as many growing dynamic communities in the country. The sun and ocean and beach are wonderful, but if they are to be the basis of our future growth, that growth will be limited. The question is, where will new residents come from? One option that won’t be explored here is legalized gambling. Regardless, if we compete for new residents with the current model, we will be very limited in our growth.

More Defaults and Foreclosures

June foreclosure numbers were 53% above last year. We are by no means finished with this problem. Adjustable Rate Mortgages (ARMs) will continue to come due through 2010. The rate will probably fall, but we are not done.

Renting is Cheap

Rental costs in Daytona Beach are falling because more homes and condos are available for rent. During the boom, people were buying homes because of the belief in every rising home values. Rents, meanwhile, did not rise. Since the bubble burst, more homes are available for rent. Home builders are even renting their spec homes that they can’t sell. It is just cheaper to rent than to buy and the gap hasn’t closed enough for many people to change their minds about buying. The market will adjust, but we believe rents will stay relatively low for a few years.

Conclusion

The Daytona Beach homes market is in a period of adjustment. What is uncertain is how long the adjustment will take. The combination of a tight credit, deflating home values, an uncertain economy and a weak economic base in Daytona Beach means that we will not see fast improvement. It appears that the worst is past for our area, with home sales up 36% in the second quarter over the first quarter, but we are still well below the sales level of the boom days.

Prices in our area went up because of speculation, not because of underlying market and economic values. We are adjusting to the level where we should be based on those factors. Where that level is and when we hit it is simply a matter of time.