Panama City Beach Condo Market 2007
From
January 2008
Panama City Beach Condo Prices Decline in 2007
Panama City Beach condo sale prices declined 10-12 percent in 2007 after a 10-15 percent decline in 2006 (see chart below). New issues have entered the markets that will exert downward pressure on existing condo sale prices during 2008.
Many speculators purchased properties from mid 2004 to mid 2006 at prices that were as much as 40 percent above current market values. The majority of these properties have adjustable rate mortgages for 80 percent to 90 percent of the purchase. According to the Wall Street Journal, there will be 85% more adjustable rate mortgages resetting in 2008 than in 2007. The current mortgage market makes it much more difficult for an owner to refinance into a 30 year conventional mortgage. It is reasonable to assume that there will be more foreclosures in 2008 than there were in 2007 which will contribute to declining condo sale prices.
Stricter qualifications for borrowers in obtaining mortgages for second homes will keep many willing buyers out of the market. Current national economic conditions appear to be trending downward which may influence buyers to put off purchases of second homes. These factors will have the effect of reducing the number of buyers willing and able to purchase condo properties.
There are owners in several of the newer beach-front buildings that closed in 2005 and 2006 who have a preconstruction purchase price that is still below current market values. Those owners who are contemplating selling may reduce their asking price in order to facilitate a quick sale before the market deteriorates further. This will have the effect of additional downward pressure on current prices.
There are several thousand units nearing completion or waiting to close along the beach that will add to the supply of units available for sale. It appears that the number of condo units available for sale will exceed the demand for purchases during 2008.
2007 Market Trend:
In order to have an intelligent discussion about market value, market trends, and the data used to evaluate the market, we have to agree on the definition of market value.
There are two relevant types of value, Current Market Value and Speculative Value. Current market value is what lenders and the banking system have agreed to use. When the definition of current 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 current 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.
Do foreclosures have an effect on current market value? Absolutely. As of March 15, 2008 over at the Celadon (built in 2004) there are nine 1BR/2Ba units listed for sale. The five lowest priced units ($201,900 to $229,000) are in some form of foreclosure. The lowest priced unit that is not in foreclosure is listed at $284,000 (seller paid $339,000 in June 2004). The two most recent sales of this type of unit were at $240,000 and $245,000 in November and December of 2007. The five foreclosure units, four of which are very nice, will certainly have a negative effect on the current market value of the units that are not in foreclosure. The ugly reality is that if you want to sell your 1BR/2Ba, 846 SF unit in the Celadon within a reasonable marketing period, the price will have to be lower than the $240,000 November 2007 sale. If you believe that your unit will sell for more next year after the foreclosures have cleared the market, then that is speculative value and not current market value as defined above.
2007 Market Trend Chart
The following chart illustrates the Panama City Beach condo sale price trend from January 1, 2007 to March 15, 2008. The chart depicts 117 condo sales from nine buildings ranging from 912 square feet to 1,492 square feet with one, two, and three bedrooms. It is structured to show a sale price trend measured in terms of the percentage sale price as of a particular date. The starting date used was January 1, 2007 so we could show the price trend from January 1, 2007 to March 15, 2008. We chose units from a variety of buildings of different ages and sizes that had a sufficient number of sales as to be statistically significant. The units used in the analysis were:
Boardwalk Beach; Opened in 2005; 1,380 SF; 2BR/2Ba
Calypso; Opened in 2006; 1,226 SF; 2BR/2Ba
Celadon; Opened in 2004; 846 SF; 1BR/2Ba
Grandview East; Opened in 2005; 1,492 SF; 3BR/2Ba
Gulf Crest; Opened in 2003; 1,388 SF; 2BR/2Ba
Emerald Isle; Opened in 2005; 1,146 SF; 2BR/2Ba
Treasure Island; Opened in 2005; 1,370 SF; 2BR/2Ba
The Summit; Opened in 1983; 912 SF; 1BR/1.5Ba
Regency Towers; Opened in 1975; 1,114 SF; 2BR/2Ba
The January 1, 2007 market value for each type of unit was determined by analyzing sales data from January 1, 2006 to December 31, 2006. The sale price of each type of unit is only compared to the typical sale price of that particular type of unit as of January 1, 2007. In other words, a unit type with a January 1, 2007 market value of $400,000 is represented as 1 or 100%. A July 2007, $380,000 sale of that type of unit is depicted as .95 or 95% of the January 1, 2007 sale price. The sale prices and sale dates were charted with a price trend line for each type of unit. The chart is a trend line of the trend lines of the sale prices of each type of unit from the nine buildings. Foreclosure sale prices that were unrealistically low were not included. The analysis does not try to skew the price trend in any direction. The data is just the data.
The chart indicates an overall 10% to 12% decline in Panama City Beach condo sale prices since January 1, 2007.
Resales by Month of Panama City Beach condo units within the condosaletrends.com database:
The following chart depicts the number of resales over the past four years of condo units within the 70 buildings in our Panama City Beach condo database.
The chart illustrates that the number of condo resales has remained mostly steady over the past two years. Based on current market factors, we anticipate fewer Panama City Beach condo resales for 2008 when compared to 2007 or 2006.
Expect More Price Declines for 2008
There are several factors that will put additional downward pressure on Panama City Beach condo prices during 2008 including the following:
1. Adjustable Rate Mortgages that are due to reset in 2008.
2. Difficulty in refinancing adjustable rate mortgages.
3. An increased number of foreclosures.
4. Stricter buyer financial qualifications in obtaining mortgages for new purchases.
5. A perception of a declining national economy may keep buyers away.
6. An oversupply of available units for sale.
7. Profit-taking by existing owners before further market deterioration.
It may take several years before the downward sale price momentum trends upward again. It is not unreasonable to assume an additional five to ten percent decline in Panama City Beach condo prices during 2008.
However, if you are anticipating holding your property for more than five years, now is a good time to buy. The opportunities are especially good for cash buyers that can close quickly.
Sam Portman, www.condosaletrends.com