Scraping the Bottom?

I know this is a bit off topic, especially for this blog, but tonight's story affects us all in one way or another. Tonight we are going in depth about our real estate market.

When I first arrived in Southwest Florida (2002) our market was hot! Almost everywhere I turned we were reporting about growth, condos rising downtown, middle of nowhere lots in Lehigh tripling value, and homes in Cape Coral increasing by tens of thousand of dollars a month. We had to know this couldn't go on forever... and yet I even bought into it!

Today the market is the opposite. There is record inventory and in many places you couldn't sell your home if you wanted. Instead of increasing by tens of thousands, home values are dropping each month. Realtors will tell you this price correction was coming... that we're paying for our inflated mistakes of the past.

Some people have said "there are no buyers." That's not entirely true. What has happened is the investors have left residential real estate and moved onto commercial real estate (which is extremely hot right now). Homes are still selling in Southwest Florida... at a 2002 pace. The problem is all these investors (myself included) jumped on the real estate gravy train... we created an unrealistic buildup on inventory. Unloading this record inventory is going to take awhile to do.

Developers understand this and are slowing down their residential construction to do their part. After all, the longer it takes to unload the homes currently on the market... the more the price of a home in Southwest Florida is going to drop. The lower the price of a home, the lower the profit for the builder/seller.

So when will it turn around? When will we be "scraping the bottom" of the market? There are mixed answers to this. One expert estimated we have about two years of inventory built up right now. Meaning if we didn't build any more houses and no one else decided to sell their home, it would take two years to unload all this inventory. So two years. But wait, then there are economists saying the our economy is strong and everything is in place right now for a buying splurge. Economist believe that buyers are waiting/holding off for some signal that the bottom has arrived.

During our investigation I received plenty of advice... here's what I took away:

If you're an end user (a buyer who plans to live in a home) you can't lose right now. You should consider this purchase a commitment to live in a home for 5-10 years. You're home will appreciate... you will make money.

If you're not an end user, stay out. The days of buying and flipping in 30 days are gone. (unless you're going to flip foreclosures... but even that isn't guaranteed)

If you're a seller who's living in their home and you don't need to move... get your house off the market. Selling on a declining market is just plain dumb. Unless you absolutely need out, you should wait this decline out. People are still moving to Florida, the economy is strong... and this market will change, again. Tomorrow may be worse... but can you really say next year will be?

Broker Denny Grimes said it best: Think of the bottom of the market as a window of time... not a point. If you wait for the bottom you will miss it... much like those investors who waited a day too late to unload their property.