Naples, FL Market Evaluation

March, 2007

Tom Doyle: Where is Naples real estate headed in 2007?

The normal seasonal buy­ing lift for real estate has begun. So what is in store for 2007?

In 2006, the Naples area had 4,500 homes sales (resells). This level is very consistent with historical trends when compared to total available housing.

Inconsistent with historical trends, were the 2004 and 2005 investor driven years; when home sales were nearly double historical levels. If home sales follow histor­ical trends in 2007, then the area should expect approxi­mately 4,700 resells in 2007, more or less. This number of home sales would be consistent with the traditional level of end-user buyers. Buying levels largely above 4,700 resells, would indicate a lift in second home buying, and/or the return of inves­tors.

With more than 12,000 homes listed for sale in the area, there is nearly a three year supply of homes avail­able. This compares to less than a one year supply in a more balanced real estate market.

While Naples might have a three-year supply of homes for sale, clearly the better priced homes will be sold in the coming months or year, and the worst priced homes will be selling three or more years out.

Sales trends for most of the Naples area, show many homes selling 20 percent less than peak prices, or at early 2005 resell prices. Values for much of the early 2005 preconstruction or apartment conversion pur­chases have returned to the, original purchase price or in some cases less. On the other hand, recent reductions in existing pre-construction opportunities from builders, often beat pricing for comparable re­sells. The majority of homes list­ed for sale in the area are not priced to current selling values. Most homes are priced substantially above the better values within the same community. When you look at the list of recently sold homes, the overwhelming majority were priced well below their com­petition.

So why are there so many overpriced sellers? Part of the overpriced seller group is made up of flippers that bought in 2005. Without a high asking price, many face losses. There is another group of sellers that "mentally banked" artificial gains from 2005, and do not accept or are not aware that prices are much lower for most homes. "I'm not going to give it away," is a common mantra that can be heard in coffee shops, on golf courses and at mahjong tables, spas and list­ing appointments.

Where are Prices Headed?

Prices are set by value leader sellers. Most commu­nities have a best priced home, competing for that next buyer, or standing alone as the very best value. This is the group of sellers setting price points. Interestingly, it's the group of overpriced sellers that will play a major role in the fate of pricing going forward.

If overpriced sellers decide in large numbers to cut prices to competitive levels, it will encourage the current group of competitive priced sellers to be even more price aggres­sive.In other words, an over­priced seller needs to leap­frog their asking price below the very best value, or they are just chasing a carrot on a stick.
So far there has been little evidence that high priced sellers are interested in chasing the competitive group. They seem mostly content so far, to let the best priced homes get the next buyer.

There's emerging trends showing high price sellers are getting the message, as the number of terminated, with­drawn and expired listings continues to grow. This is the trend that most likely result in any signifi­cant reduction in the number of homes for sale. Others believe the reduc­tion will result from bus loads of incremental buyers arriving in the area soon.

Advice to Buyers

Currently there is a great selection of best priced homes or in the ballpark priced homes. Unlike recent years, buyers can now find properties meeting very specific goals on location, views, amenities, and much more. And within that criterion, a buyer can find a great Naples home, at a very good negotiated price. Buyers on the sidelines waiting to time market prices perfectly could very well end up like the many current overpriced sellers looking to get peak prices a year past the peak.

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Email Micky Enright for more information about Naples, FL real estate