Panama City Beach Condo Market 2006
From
January 2006
The Panama City Beach Condo market has experienced a significant correction over the past 18 months after several years of exceptional price increases. The run-up in prices was fueled almost entirely by speculative buying. Buyers were speculating that another buyer would come along and purchase their unit or units at a higher price than their original investment. Fifty percent, sixty percent or even 100 percent yearly appreciation was not uncommon. However, this kind of “irrational exuberance” was not sustainable. As of mid-2005, the speculators left the local market.
There are two different types of value, Market Value and Speculative Value. Market value is what appraisers and lenders typically use. When the definition of market value is boiled down to its essence, it is the highest price that will attract a buyer over a defined marketing period. Implicit in this definition, is that there is always a buyer at market value. Say you have given yourself six months to sell your unit. After six months it has not sold and your Realtor tells you that there are just no buyers out there. What he is really telling you is that there are no buyers out there willing to purchase at above the current market value. If your unit has not sold in six months, it is priced too high to sell. There are always buyers at market value. Buyers don’t care what you paid or what you think your unit is worth. Buyers pay market value 99 percent of the time.
If the current market value of your unit is $350,000 but you think it would sell for $400,000 next year, the $400,000 is a speculative value. Speculative value is a valid concept that investors use all the time in evaluating their investments. Should I sell today at $350,000 or is it advantageous for me to wait until next year and try to sell at $400,000. As a general rule you can never sell a condo unit today at a price equal to next year’s speculative value.
Median or average statistics based on all of the area sales don’t really give you much useful information when evaluating the current market You need information on the sales of similar units, say 2BR/2Ba units in one complex in order to accurately compare yesterday’s market to today’s market. The chart below graphs the sales of 1,368 SF, 2BR/2Ba units in the Long Beach Towers complex from 1/1/2004 to 12/31/2006. These condo units are currently selling at early 2004 prices.
There are currently five of these 2BR/2Ba units listed for sale under $490,000. The previous purchase price for all of these units was under $315,000.
The chart below depicts sales over at The Summit Condos and illustrates a more startling portrayal of the current market.
There are 2,000 plus new condo units along Thomas Drive and Front Beach Road scheduled to be completed in 2007. Many of these new units will be offered for re-sale. There are many pre-construction investors and owners of completed units and units to be completed in 2007 that have a substantial equity position at current market values. Take a furnished unit listed for sale in Majestic Beach Tower I at $428,000. According to public records and the estimated cost to furnish, the owner has a total investment around $290,000. If he sells at $390,000 (which is below the last two sales of similar units) for a $100,000 profit, he still looks like a genius. It is not unreasonable to assume that many investor/owners, after evaluating the declining market will sell at current market value and take their $100,000 or $50,000 or $25,000 profit and be happy.
What’s the prediction? There are 2,000 plus new units that will be completed in 2007. A significant number of these units will be offered for resale and compete with existing units that are listed for sale for a limited number of potential buyers. In other words, the supply will outpace the demand. The chart below illustrates the number of condo sales within the 70 buildings contained in our data base over the past three years.
Many investor/owners will sell at current market value and take their profits. These factors tend to increase the downward pressure on current market values. We don’t expect the bottom to fall out, but an additional 10% below current market value is not unreasonable. We believe that it will be another two to three years before investor profit-taking and supply stabilizes. Baby boomers love the sun and love the coast and will continue to purchase local real estate. If you are in for the five year plus investment term, Panama City Beach condos are a good investment. If you purchased or signed a pre-construction contract after 2004 your purchase price will most likely be above market value for the next several years.
If you want to know more about the sale prices of units in 70 Panama City Beach condo buildings along Thomas Drive and Front Beach Road, visit our web site at www.condosaletrends.com.