2011 Outlook for Cape Coral / Fort Myers Real Estate

The information doesn’t look GREAT for 2011!  I attended an ecomomic forecast meeting last week in Fort Myers given by Dr. Ted Stevens the Chief Economist with Stewart Title.  This was the second year that I have attended his meetings and based on his knowledge and insight, I will be attending every year that Dr. Stevens is willing to speak on this subject.

Dr. Stephens pulls no punches and tells it like it is adding his own subjective touches based on his conservative beliefs.  He touched on the U.S. economy as a whole and then specifically on our market and how the global market will affect our market.

Oil prices are going UP and this is GOOD for Florida!  From the surface it doesn’t seem to be the case but when you consider that high oil prices will lead to more people fleeing from the North to Florida whether it is to bring their business down here, to purchase a second home or to retire in a state with no income tax.  It’s hard to understand on the surface that $5 oil will make our Real Estate more valuable.  This is not to say that ALL Florida Real Estate will be more valuable.  Pressure from higher oil prices motivates people to move closer to shopping, schools, entertainment, places of worship as well as their jobs.  This is why Fort Myers and Cape Coral will benefit greatly.  There is excess home inventory on the market as well as vacant land to build on that is very close to everything.  In addition, our home prices are so low that people will decide to move sooner than they had originally planned.  Waiting will only mean higher interest rates and rising prices.

Did you know that Florida is the 5^th Business Friendly Tax State in the nation?  Florida is better than Texas even though neither state has a state income tax.  Believe it or not, when you look at the property taxes, corporate income taxes, unemployment taxes and sales taxes, Florida is  much less than Texas and the other 44 states.  Florida has consistently ranked number 1 in the southern states for the past several years.  In fact, Florida ranked 1^st in individual income taxes, 15^th on corporate income taxes, 32^nd on sales taxes, 3^rd on unemployment insurance taxes and 22^nd in the nation on property taxes.

When can we expect a recovery in our housing market?  From the 2010 data, foreclosure rates are diminishing and home sales are up which is reducing our inventory.  If inventory is going down and demand is going up, home price increases will follow.  Our market will soon turn from a buyers market to a sellers market.  When this will occur will depend on the job market.  The job market will need to show sustained growth for several months before we can get a clear picture of what is happening.  Some economists are predicting a 18 to 24 month cycle, however, there are some economists that predict a shorter cycle.  I heard it once said that Economics was developed to put economists to work.  When have all economists ever been in agreement on anything?  My point exactly.

I use a more practical approach using both logic and statistics.  Both Fort Myers and Cape Coral have been actively recruiting businesses, that are not seasonal or tourist oriented, to move to their respective cities offering various tax incentives.  When you consider our climate, housing prices, available housing, our quality workforce and business friendly tax environment, it just makes sense for businesses to move to Florida.  Depending on how successful and how fast these cities are in recruiting such businesses, will affect how strong and how fast our recovery will be.  In addition, if interest rates remain below 5.5%, our home prices stabilize or drop slightly, our home affordability index will continue to improve making homes affordable for more Floridians. 

This being said, we also have to factor in rising oil prices and what this means to our pocketbooks.  When oil prices rise it affects every product that is shipped by air, rail or truck.  Higher shipping costs increase the cost of goods sold.  When you factor in increased cost of goods including gasoline, our home affordability index is affected negatively.  Based on how dramatic the increases are, I predict that housing prices will continue to drop in the second quarter, stabilize in the third quarter and show a slight increase in the fourth quarter of 2011.

One last comment to make.  Let’s not forget about Politics and the role that it plays in our overall recovery.  Government can be pro business or anti business and history has proven that Government policies and regulations can shorten or lengthen a recovery depending on the burden that it places on small businesses or the burden that is lifted from small businesses.  Let’s just hope that 2011 is the year of the small business recovery.


Check out my websites at www.livingincapecoralnow.com and www.dancraddock.com if you are interested in taking advantage of our great home prices, please email me atd_craddock@yahoo.com.

Florida Home Prices Down in 2010 and Rents Up

The U.S. economy in 2010 continued to take a downward trend as economic uncertainty and a growing number of people losing their homes to foreclosures drove home prices down and rents up.  Florida was no exception and in fact, the median for-sale home prices in the state fell 14.3% while rents rose 17%.  The economists are mixed as to when the trend will start inching upward whether it will be 2011 or 2012.  In fact, in the under $120,000  price range, we’ve seen multiple contracts leading to price wars and homes being sold for over the asking price.  This leads us to believe that the turnaround is right around the corner.

The internet property search site, Hotpads.com has produced a report rating home prices and rental values across the nation.  The Rent-Buy ratio indicates when it makes more sense to purchase a home than rent.  If the ratio is over 15 then it generally makes more financial sense to rent a comparable home than to purchase it.  The Rent-Buy ratio across the nation went from 15.66 to 12.64 at the end of 2010 which means it is generally better to buy than to rent.  In Florida, the Rent-Buy ratio went down from 16 at the beginning of 2010 to 12 at the end of the year.  The ratio is below the national average and indicates that Florida’s home values have dropped so much that buying is definitely the way to go.

Now that it makes more sense to buy than to rent, we need to look at another factor that could have a bearing on this index.  This other component is Interest Rates.  Interest rates are the lowest in history but this is not sustainable.  Inflation is just around the corner which means interest rates will be rising.  You can already see the affects at the gas pump and at the grocery store.  You can purchase a more expensive home at the current interest rate than you can when interest rates rise a point or two.  Even if home prices drop another 5%, the affect of an interest rate rise of 1 point will still produce a higher monthly payment.

So, in conclusion, if you are in the market to purchase a primary residence, second home or investment home, now is the right time to buy.  Don’t get caught waiting to buy at the bottom since as we all know, the bottom will have come and gone by the time you realize it.

Check out my websites at www.livingincapecoralnow.com and www.dancraddock.com if you are interested in taking advantage of our great home prices, please email me atd_craddock@yahoo.com.

Have a Prosperous Day!

Dan Craddock

Real Estate Consultant

Zivkovic & Associates Real Estate Services, LLC

949 Chiquita Blvd S.

Cape Coral, Fl 33991

239-210-1356

Which home improvements add the most to your home's value?

Based on the 2010-2011 Remodeling Cost vs. Value Report, exterior replacement projects were among the most cost effectivehome improvements projects.  This just shows that curb appeal is still one of the most important aspects of valuing a home at resale time.  Exactly how much each home improvement project will yield towards the value of your home is determined by region so it’s wise to check with your local Realtor to determine whether a particular project will yield the results that you are expecting.  Obviously, the addition of hurricane roll down screens will not add much value to a home in Denver, Colorado whereas it will in Cape Coral, Florida.

Actually, 9 out of the 10 most effective projects nationally when you consider value recouped are exterior replacement projects.  For example, steel entry door replacement remained the project that had the biggest return on your dollar spent with an estimated 102.1% of the cost recouped upon resale of the home.  Furthermore, it is the only exterior project that is expected to return more than the cost to purchase and install the item.

Replacement of a midrange garage door is estimated to recoup about 83.9%.  In the hurricane regions of Florida, a garage door replacement has to meet local hurricane codes.  You can get garage doors in all types of styles, colors and designs and depending on the style of your house, changing out the garage door with an upscale design could recoup more than 83.9% of the cost.

Measuring exterior projects for 35 midrange and upscale projects including home additions, remodels and replacements in 80 markets all across the US, it is estimated that homeowners will recoup an average of 60% of their investment.  This figure is down from the previous estimate of 63.8%.  Because of our overall weak economy, the value of higher cost upscale improvement projects have lost resale value in recent years.

Here is a list of some projects and their estimated cost recoupment percentage.

• Various types of siding and window replacements – 70% of costs
• Upscale fiber-cement siding replacement – 80% of costs
• Upscale Vinyl window replacements – 72.6% of costs
• A Wood deck addition along with a minor kitchen remodel – 72.8% of costs

When you look at the nation as a whole, researchers found that a few states including Florida consistently returned a higher percentage of remodeling costs upon resale.  This might be due in part to our hot summers and possibility of mold and extensive hurricane damage.

There are many factors to consider when determining cost recoupment of these types of projects namely the home’s overall condition, availability and condition of surrounding properties, location and regional economic climate.  This is why it is imperative that you work with a licensed Realtor who can provide the insight and guidance into your local market so that you get the best bang for your buck.

For everything Cape Coral Real Estate, visit my websites at www.livingincapecoralnow.comand www.dancraddock.com.  Contact me at 239-210-1356 and email d_craddock@yahoo.com

Dan Craddock

Realtor

Zivkovic & Associates Real Estate Services, LLC

Cape Coral, Florida 33991

Is it Time to Buy Real Estate NOW?

December 2010

Have we hit the bottom? Will I do better waiting? These are questions that potential buyers like yourselves are dealing with everyday. I’ve heard these people say that prices may go lower so they are waiting on the bottom to get the very best deal possible. I’ve heard others say that now is the time to buy because prices have fallen so much.

It is definitely a personal decision that everyone needs to make on their own because it’s one of the biggest, if not the biggest, financial decision that people make in their lifetime. The media might say that it’s the worst housing market ever and now isn’t the time to buy. Your realtor might say that now is the best time to buy. The average consumer needs to know the facts and decide for themselves based on their own financial situation. To make a blanket statement that “now is the best time to buy” is not true for everyone. If you just lost your job, now isn’t the time to buy. Conversely, if you just came into a windfall of money, now is the best time to buy.

With any decision, you need to know all the facts. I’m going to provide you with the facts so you can make an informed decision based upon your own financial situation.

There are 2 factors to consider when determining the best time to purchase real estate – the price of the home and the monthly payment. If you’ve ever purchased an automobile, the salesman always wants to know how much you can make in monthly payments not how much you want to pay for the car. In real estate, it’s important to know both. The monthly payments affect your current financial situation and the price that you pay for the home affects the long term outcome of your decision.

As you know, home prices have dropped significantly in Southwest Florida. Interest rates have also dropped and the government is willing to give you free money if you are a first time home buyer (defined as a person that has not owned a primary residence in the last 3 years). The drop in home prices follows several years of artificial increases in prices. In other words, home prices were inflated and were destined to fall. This is what happens in our roller coaster like real estate market.

Historically, the average yearly increase in real estate values is estimated to be about 2 to 3% nationwide. In parts of Lee County, we’ve experienced an increase of over 40% in one year and a decrease of over 28% in another year. Both of these are artifical and not sustainable on a long term basis.

Another factor to consider is replacement value. As you know, builders have stopped building homes. Why is this? The reason is that the prices that people are willing to pay for homes now is less than the builders can build them for. Builders would be jumping into the market if they could make a profit but the reality is they can’t. This is also not sustainable. We can’t go for long periods of time without new construction especially in Lee County where we have so much vacant land. Builders will once again start to build and when they do, prices will have risen from today’s levels. Those that buy today will see their investment grow in value once builders begin building again.

Having said all this, what does it mean to me and how can I see how this affects home prices and monthly mortgage payments? I’ve put together the chart below that details home prices and the associated monthly payments at various fixed interest rates. The current average fixed interest rate is at 5.2% and rising. This is for “A” borrowers or those with credit scores of at least 780 and enough income to support the payments. It’s hard to remember that in August 2008, the average fixed interest rate was at 7%.



Effects of Inflation on Monthly House Payments
Home Price 4% 5% 6% 7% 8% 9%
$80,000 $381.93 $429.46 $479.64 $532.24 $587.01 $643.70
$85,000 $405.80 $456.30 $509.62 $565.51 $623.70 $683.93
$90,000 $429.67 $483.14 $539.60 $598.77 $660.39 $724.16
$95,000 $453.54 $509.98 $569.57 $632.04 $697.08 $764.39
$100,000 $477.42 $536.82 $599.55 $665.30 $733.76 $804.62
$105,000 $501.29 $563.66 $629.53 $698.57 $770.45 $844.85
$110,000 $525.16 $590.50 $659.51 $731.83 $807.14 $885.08
$115,000 $549.03 $617.34 $689.48 $765.10 $843.83 $925.32
$120,000 $572.90 $644.19 $719.46 $798.36 $880.52 $965.55
$125,000 $596.77 $671.03 $749.44 $831.63 $917.21 $1,005.78
$150,000 $716.12 $805.23 $899.33 $997.95 $1,100.65 $1,206.93
$200,000 $954.83 $1,073.64 $1,199.10 $1,330.60 $1,467.53 $1,609.25


Let’s just take an one example in the chart of a home that sells for $100,000 today. Let’s also say that we can finance 100% of the purchase which we all know is not true but easy for illustration purposes. If we can secure a 5% fixed rate mortgage, the monthly payment is $536.82. These figures are just for the mortgage only and don’t include taxes and insurance. Let’s say that a builder could build that same house on the same lot for $125,000. This would mean that when they start building again, people that purchase a new home in your area will be paying $671.03 for the same house. That’s $134.21 more than you are paying. Your house has also increased in value and you now have an increase of roughly $25,000 in equity. I hope this all makes sense because now we’re going to add another twist.

Most of you know that our current interest rates are among the lowest in history. The lower the interest rate, the more house you can afford. Now that prices have gone down so much and interest rates are very low, it’s a great time to buy if you’re in a position financially to do so.

Everyone has heard about inflation before. The last bad bout of inflation the US had was in the 80’s when mortgage interest rates were up over 17%. Imagine paying that today! Well, low interest rates are also artifical and can’t be sustainable. They will be going up. Some experts feel that we will see rising long term interest rates as soon as 3 months from now.

Let’s look at how this affects you. If you could afford a $100,000 home today at 5% interest rate with a monthly payment of $536.82, how much home could you afford if interest rates were to rise to 7%? Well, the answer is about $80,000. WOW! You’ve just lost $20,000 of buying power just because interest rates went up 2 points.

They say timing is everything. If prices were to go down an additional 10% but interest rates went up 2 points, would this help or hurt you? Take the $100,000 home today and at a 10% decrease in price that home is now worth $90,000. If you buy it at $90,000 and the interest rates have gone up from 5% to 7%, your monthly payment is now $598.77. That’s an increase of $61.95 monthly. Yes, you still paid less for your home but the question is: can you afford to purchase that same home with the increased payments? You might have priced yourself out of buying because you waited.

The facts are that prices are artifically low now. Interest rates are artifically low now. More people can afford to purchase a home now in Southwest Florida than in the past 5 years. Prices will go up! Interest rates are going up! Now that you know the facts, “How are you going to take advantage of this artifical situation?”

Ask me about never lived in homes with fixed interest rates of 5% in Cape Coral and Lehigh Acres.