Last Update: 3/6/2010

During the last 12 months we have seen a meltdown of the financial markets, the stock market tanked, and the housing market continued a steep decline. The Feds invested a significant amount of money to stop the free fall. The question on everyone's mind is "have we begun to crawl out of the hole".

The answer to that question depends on your perspective. From a national standpoint, large banks have begun to stabilize but smaller regional banks continue to be at risk due to their exposure to the mortgage backed securities in their portfolio. The stock market has regained approximately 50% of its' loses. The overall national housing market appears to be stabilizing. However, we are more concerned about the Panama City Beach condo market than the national indicators.

First, the good news. The following chart indicates that the number of sales of condo units from the 70 buildings in our data base is up 7% during the first seven months of 2009 when compared to the same period last year. That is a positive sign. Before we extrapolate that increase for the entire year, we need to look at the history. For the first seven months in 2008, the number of sales was slightly ahead of the number of sales in 2007. However, for the entire year there were 3% fewer sales in 2008 than 2007. Statistically speaking, there is no empirical evidence that the number of sales for 2009 will be substantially different than the past three years.

The graph below illustrates the number of monthly re-sales from the 70 Panama City Beach condo buildings in our database. The 2009 monthly re-sales through July appear to be trending somewhat higher than the past three years.

The number of bank related sales, foreclosures and short sales, continues to put downward pressure on current market values. Bank related sales accounted for an average of 43% of all sales within our data base during the first six months of 2009. 42% of the July sales were bank related. There does not appear to be any moderating to the number of bank related sales during the short term.

The market trend line is illustrated below. 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 May 1, 2008 so we could show the price trend for the preceding 15 months. 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; 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
• Sterling Reef; Opened in 2005; 1,076 SF; 2BR/2Ba
• Splash: Opened in 2006; 1,074 SF; 2BR/2Ba
• Seychelles; Opened in 2006; 883SF; 1BR/2Ba

The May 1, 2008 market value for each type of unit was determined by analyzing sales data from January 1, 2008 to June 1, 2008. The sale price of each type of unit is only compared to the typical sale price of that particular type of unit as of May 1, 2008. In other words, a unit type with a May 1, 2008 market value of $400,000 is represented as 1 or 100%. An October 2008, $380,000 sale of that type of unit is depicted as .95 or 95% of the May 1, 2008 sale price. The sale prices and sale dates were charted with a price trend line for each type of unit. The chart contained in the price trend analysis is a trend line of the trend lines of the sale prices of each type of unit from the 12 buildings. Foreclosure sale prices that were unrealistically low (mold problems for example) were not included. There were 143 sales used in the chart. The analysis does not try to skew the price trend in any direction. The data is just the data.

The data indicates that the current market values of Panama City Beach condos have declined approximately 17% over the past 12 months. The rate of decline is similar to the 15% decline from August 1, 2007 to August 1, 2008. The trend line shows a moderating of the rate of decline over the past three months. This is a positive sign, however over the past three years the steepest rate of decline was in the September to February months.

There are several factors at play that will continue to put downward pressure on current market values.

1. During the market run up the vast majority of buyers were speculators lured by the prospect of easy money. These buyers are no longer in the market. Current buyers are those that actually want a beachside condo in Panama City Beach. Fewer buyers coupled with a supply that far outpaces demand will tend to drive prices downward over the next couple of years.
2. Financing a condo continues to be extremely difficult for the average buyer. Fannie Mae and Freddie Mac designated most area condo buildings as "condo-tells". Fannie Mae and Freddie Mac will not buy mortgages backed by "condo-tells". Financially qualifying for a loan has become much more strenuous. The difficulty financing a Panama City Beach condo means fewer buyers. Fewer buyers mean decreased demand while the supply remains high. The difficulty in financing will put downward pressure on current market values.
3. There are still a very large number of owners who have a mortgage in excess of $100,000 more than the current market value of their condo. Bank related short sales now outnumber foreclosure sales. A Short Sale is the sale of a condo in which the proceeds from the sale are short of the balance owed on the condo. Typically, banks do not record their intention of accepting a short sale. Public records may indicate a moderating in the rate of foreclosures while the number of foreclosure and short sales combined is not declining. There is no evidence that the number of foreclosure and short sales will decline in the near term. Forty percent of the sales within our data base over the past seven months have been foreclosure or short sale bank related sales. Bank related sales do not appear to be moderating and will continue to have a negative effect on sale prices over at least the short term.
4. The supply of developer owned units that have not been sold far exceeds the demand. The following chart shows the number of unsold developer units from ten high profile beach side buildings as of 7/24/2009 according to Bay County Assessor and Clerk & Recorder records. There are over 1,000 unsold developer units that will need to be transferred to private ownership at some point. These 1,000 units don't include the 1,500 plus unsold units at off-beach buildings such as Laketown Wharf. These unsold developer units inflate the supply of available condos and will continue to put downward pressure on current market values.

All indications are that there is more pain ahead for the local market. How far do we have to go before the bottom? It is not unreasonable to assume that sale prices will decline another 10% or more over the next 12 months and that may not be the bottom.
As always, if you lie to yourself about things concerning money, you lose.

Sam Portman
www.condosaletrends.com

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The Palazzo condo building had a successful auction Saturday, August 2, 2008, with around 50 units selling. Some have heralded the event as an indication that the bottom of the condo real estate market is finally here. However, a closer analysis may have a much more sinister conclusion.

Let's analyze the current market value of the Palazzo 2BR/2Ba units the day before the auction. The current market value defined as the highest price that would attract a buyer, given a defined marketing period.

The 2BR/2Ba Palazzo units have 1,345 SF with beach-front master bedrooms. Similar, large 2BR/2Ba units with beach-front master bedrooms over at the Calypso and Splash buildings have had recent re-sales in the high $300,000s, say around $380,000 furnished. Calypso and Splash have overall superior buyer appeal because they are established and have superior amenities.

A Majestic Beach Towers II 2BR/2Ba 1,180 SF unit with beach-front master bedroom sold recently at $340,000 furnished.

Let's look at an inferior development, the Emerald Isle building. Emerald Isle has overall inferior appeal. The 2BR/2Ba units are smaller at 1,146 SF and have somewhat inferior interior quality. These units have been selling around $300,000 furnished.

Ignoring typical appraisal style adjustments, it is reasonable to assume that a buyer of a superior Splash/Calypso unit would pay something less than $380,000 for a Palazzo unit. It is reasonable to assume that a buyer of an inferior Emerald Isle unit would pay more than $300,000 for a Palazzo unit. That leaves us with a roughly estimated current market value for a Palazzo 2BR/2Ba unit the day before the auction somewhere between $300,000 and $380,000, say $330,000 (just a rough estimate to establish the trend).

The Palazzo 2BR/2Ba units sold at auction for $295,000 (including the 10% auctioneer’s commission). That is fully 10% less than the current market value on the day before the auction. For those who say the bottom has been established, the current market value for every Panama City Beach condo just decreased by 10%. That is not an unreasonable conclusion. However, that was the bottom as of Saturday, August 2, 2008.

Is there are large, pent-up demand by buyers that are willing and financially able and just waiting to jump into the market? The Palazzo auction indicated that there were at least 50 buyers willing to buy at a 10% discount. However, there is no evidence that there are enough qualified buyers out there willing to buy to turn the market around.

As of July 29, 2008, Bay County public records indicated 1,203 unsold developer units at Aqua, Seahaven, Shores of Panama, Tidewater, Emerald Beach, Grand Panama, Sterling Breeze, and Ocean Reef. Add the 17 remaining developer units at Palazzo for a total of 1,220 unsold developer condo units along Thomas Drive and Front Beach Road. That is not counting the 2,000 or so unsold units at new, off-beach developments (Laketown Wharf, Marina Landing, etc.).

Some have said that the developers will just keep their remaining units until the market turns around. Let’s look at the Sterling Breeze building. Sterling Breeze has a total of 145 units of which 83 remain unsold (four closings since 6/1/2008). Sterling Breeze paid off half of their $55,000,000 construction loan and extended the remaining $27,000,000 until September 30, 2008. That’s somewhere around $325,000 per remaining unit. Interest only at 7% is around $1,900 per month per unit. HOA, taxes, insurance, and utilities add another $1,000 per month per unit. The total cost to hold is around $34,800 per year per unit. That is 10% of the value of each unit. In a declining market, the sale price may go down another 10% over the next year. If the developer holds his units hoping the market will turn around, he risks losing 20% of the current market value over the next year. That’s a lot of money. The pressure to sell sooner rather than later is enormous. And that does not count the pressure from the bank (see September 30th above).

The auction process appears to be a good way to sell unsold units if a developer and his bank are willing to sell at what ever the current market value is as of the day of the auction. However, it is reasonable to assume that the current market value established by an auction will be something less than the current market value established by the previous auction. That sounds good for potential buyers but would be disastrous for would-be sellers of existing condos. The auctions would suck up most of the financially able and willing buyers that may have purchased re-sale condos.

An individual condo owner who needs to sell would be well advised to sell sooner rather than later. The caveat is that if there is a stampede to sell it will tend to accelerate the rate of price decline.

The Panama City Beach condo market will not hit bottom until most if not all of the unsold developer units are transferred to private ownership. The condo market will not hit bottom until most of the condo units whose owners are significantly upside down, with high “loan-to-purchase price” mortgages and who do not have the financial horsepower to hang on are sold at current market values.

There is no logical scenario that will stop this runaway train in the near term. That is the bad news. The good news is that most of South Florida is in worse shape than Panama City Beach.

Sam Portman
Condosaletrends.com

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We recently updated our Panama City Beach condo sales data through mid June 2008. The graph below illustrates the number of monthly re-sales from the 70 Panama City Beach condo buildings in our database. The 2008 monthly re-sales through May mirror the number of re-sales from the same period in 2007 even though there has been a substantial number of new units come on line.

The market trend line is illustrated below. 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 May 1, 2007 so we could show the price trend for the 13 months. 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 May 1, 2007 market value for each type of unit was determined by analyzing sales data from January 1, 2007 to June 19, 2007. The sale price of each type of unit is only compared to the typical sale price of that particular type of unit as of May 1, 2007. In other words, a unit type with a May 1, 2007 market value of $400,000 is represented as 1 or 100%. An October 2007, $380,000 sale of that type of unit is depicted as .95 or 95% of the May 1, 2007 sale price. The sale prices and sale dates were charted with a price trend line for each type of unit. The chart contained in the price trend analysis 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. There were 112 sales used in the chart. The analysis does not try to skew the price trend in any direction. The data is just the data.

The data indicates that the rate of price decline has been mostly steady over the past 13 months with a total price decline of around 15%.

There is still no empirical evidence that the market has stabilized. However, there is significant evidence that the pain is not over yet. According to the Wall Street Journal more adjustable rate mortgages will reset to higher rates this summer than reset last summer. The number of sales for 2008 has been very similar to the same period in 2007. Mortgages for second homes continue to require extensive income verification and a significant down payment. Rental income to the owner from a property that is on a rental program typically just barely covers the holding costs while any mortgage payments come directly out of the owner’s pocket. As of 6/6/2008, county records indicate there are over 1,300 unsold developer units in Aqua, Origin of Seahaven, Shores of Panama, Tidewater, Emerald Beach, Grand Panama, Sterling Breeze, Palazzo, and Ocean Reef. That’s not counting the 1,400 or so unsold units in Laketown Wharf, Magnolia Bay, and Marina Landing. Fuel and food costs continue to increase.

Is the bottom in sight? Not yet. I expect sale prices for Panama City Beach condos to decline another five to ten percent over the next 12 months.

Sam Portman
Condosaletrends.com

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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 price with the interest rates resetting during 2008. 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:

The following chart illustrates the Panama City Beach condo sale price trend from January 1, 2007 to January 1, 2008. The chart depicts 103 condo sales from nine buildings ranging from 912 square feet to 1,492 square feet with one, two, and three bedrooms. This cross section of Panama City Beach condo units were chosen because there was a sufficient number of sales of each type of unit to be statistically significant in the analysis. 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, $380,000 sale of that type of unit is depicted as .95 or 95% of the January 1, 2007 sale price.

The chart indicates an overall 10% to 12% decline in Panama City Beach condo sale prices in 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.

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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.

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