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Sunny home forecast
Surge in prices to push into 2014
Median home prices rose again in 2013, continuing a two-year trend that is good for homeowners and investors, and makes for an agreeable 2014 forecast.
The annual median sales price of Charlotte County, single-family homes surged to $140,000 in 2013. That’s a 17 percent gain over the previous year’s median of $119,900.
Charlotte County home prices hit bottom in 2011. The median sales price that year was $110,000. Since then, the median sales price has risen from $110,000 to $140,000 for a twoyear gain of 27 percent. The median price is where half the homes sold for more; half for less.
These statistics, compiled from public records, are significant because they represent all sales made during the year. This eliminates the often wild fluctuations resulting from low sales volumes in month-to-month statistics.
Since 1980, the only two years exceeding 2013’s 17 percent price gain were the boom years of 2004 and 2005 when prices soared 21 and 40 percent respectively. Home prices then began a six-year decline, finally hitting bottom in 2011.
The two-year, 27 percent increase in home prices marks the second year of Charlotte County’s robust housing recovery.
What’s driving the market?
Historically low interest rates continue to drive the market. At 4.63 percent, a monthly mortgage payment buys about 25 percent more home than a mortgage closer to the historic norm of 7 percent. And while rates are still near their historic low, they have crept up nearly 1.5 percent from their 3.25 percent bottom.
According to Bankrate. com, new federal regulations slated for implementation in 2014 and a reduction in quantitative easing are expected to keep upward pressure on mortgage rates in 2014. Bankrate.com analysts expect the rate increase to accelerate in 2015.
The low interest rates, the expectation they will continue to rise, and rising home prices have created an urgency to buy that has some long-term fence sitters panicked as they have seen rates edge up, prices leap up, and inventories of homes for sale plummet to normal levels.
Our market has also been bolstered by lower unemployment, increased consumer spending, increased consumer confidence, increased exposure from increased tourism, and a steady stream of “Best of” media accolades.
One lesson learned from our most recent boom/ bust cycle is that the health of Florida’s economy and its real estate markets are highly dependent on each other. They rise and they fall together.
Fewer distressed sales
In 2013, 25 percent of Charlotte County’s single-family home sales were distressed sales, meaning they were either short sales or foreclosures. This is a significant drop from 36 percent in 2012 and 47 percent in 2011. Rising home prices continue to reduce the number of homeowners who are underwater, thereby reducing the number of owners forced into distressed sales.
The median sales price of Charlotte County single-family vacant lots sold in 2006 was $47,500. On a year-over-year basis, lot prices hit bottom in 2012 when the median sales price fell to $5,450.
In 2013, the median sales price of SF lots rose to $7,700, a year-overyear gain of 41 percent. Previous real estate cycles in Charlotte County have demonstrated that vacant lot price are much more volatile than home prices. They generally move in the same direction as home prices, but the gains and losses tend to be much more extreme.
The big unknown moving forward into 2014 is whether or not the public or private sectors will provide affordable alternatives to flood insurance policies underwritten by FEMA.
A total of 19 percent of Charlotte County’s developed properties are “pre-firm,” meaning they were built prior to 1975. Many pre-firm property owners in low-lying flood plains have seen their flood insurance premiums spike as much as 10-fold due to the implementation of the Biggert-Waters Act.
According to Kevin Feuser, owner of Brightway Insurance in Englewood, progress is being made in locating alternatives to FEMA flood insurance.
“Both the international and domestic markets have been working to provide primary flood policies outside FEMA,” Feuser reports. “These providers generally charge about half the premium of FEMA for a pre-1975 home located below the base flood elevation. And while they do not yet have the backing of the State Guarantee Fund, we are using one provider that is a very large, well-established, A-rated company.”
Feuser cites the importance of these alternatives since “most pre-firm homes in our area are below the base flood elevation.”
There remains many unanswered questions as the flood insurance saga unfolds. For example, will underwriters such as Freddie Mac, Fannie Mae, and the FHA allow borrowers to acquire mandatory flood insurance from providers outside FEMA?
The Florida Association of Realtors recently modified its purchase contracts to make home purchases contingent on securing affordable flood insurance. And even when buyers agree to pay the high premiums, Realtors are seeing some deals fall apart because the premiums increase the debt-to-income ratio to levels unacceptable to lenders.
An increasingly short supply of rental properties continues to put upward pressure on the price to rent. The great recession and housing bust created a wave of homeowners displaced from their homes by unemployment and distressed sales. Their only option is to rent. The FHA recently announced plans to reduce the waiting period to one year for qualified buyers who have been involved in distressed sales.
Glenda McDoran, broker and co-owner of Pineapple Gulf Property Management in Englewood, cites a large influx of workers coming from outside the area as another reason for the rental shortage. “Our summer months have traditionally been quiet,” she reports. “But things never slowed down this year. Many of our rentals are booked before the current tenants have moved out. Three- and four-bedroom homes are especially hard to find.”
What to expect in 2014
The big wildcard in 2014 will be the effect of soaring flood insurance premiums on property values in Charlotte County.
Overall, however, there is much room for optimism. We have had two years of stellar appreciation in home prices. Improving economic indicators suggest this will continue into the foreseeable future.
And after years to the contrary, newly constructed homes are being appraised at or above the price to construct them. This has unleashed a flurry of new building as construction loans have become much more attainable.
Driving this home, a few years ago I ran into an official who lamented that only one home was under construction in our community. I ran into him again this week. He excitedly reported that today there are 33 homes under construction.
Looks like it’s going to be a Happy New Year!
Brett Slattery is Broker/ Owner of Brett Slattery Realty in Rotonda West and a real estate analyst for Suncoast Media. Reach him via 941-468-1430, Brett@ BrettSlattery.com, or www.BrettSlattery.com.
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Note: Brett Slattery is owner/broker of Brett Slattery Realty llc.
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