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Peter C. King Tel: 850-261-3938 pking@resortquest.com www.perdidopete.com

CONDITIONS™ Dec 2009

By Peter King, Local Real Estate Expert

Perdido Key Market Report and Sales Analysis First eleven months of 2009 sales volume was the best since 2006. We are way up over last year and approaching 2006 numbers. During the same period last year we had 102 total closed sales compared to 151 in so far in 2009. (Several WCI condos have sold but do not appear in the MLS due to WCI policy.) We have 8 additional properties contingent or pending. Very important is the decline in inventory to our current 263 units for sale. Although we had a modest bump this month it is the lowest inventory since 2005 which was deeply affected by post hurricane issues. The proof of demand is the number of sales so with a drop in supply we can expect price increases over the next 12 months. The sales volume is outstripping the property coming into the market…in economic terms we are seeing a faster absorption rate. Continued market improvement. Extrapolating the first quarter over historical norms should put us on a line to 159 sales and an inventory number in the 255 range by year end. Compare this projection to results of the previous two years. It is stunning, good news. The data is from the Multiple Listing Service data banks and will allow us to consistently compare “apples to apples”. (Tax records can distort our analysis and lag in time.) Category - Residential / Perdido Key 2007 Month

Year’s Sales

Avg ListPrice

Avg Sale Price

% Diff Sell/list

Avg DOM Curr Inventory

Total

96

$675,004

$618,268

91.59%

Month

Year’s Sales

Avg ListPrice

Avg Sale Price

% Diff Sell/list

Avg DOM

Curr Inventory

Total

108

$658,023

$601,276

91.38%

292.0

346

245.1

420

Category - Residential / Perdido Key 2008

Category - Residential / Perdido Key Jan-June 2009 January February March April May June July August September October November Total/Averages

2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009

6 10 7 13 14 24 17 26 17 9 8 151

$403,817 $315,960 $459,343 $405,885 $405,979 $386,236 $444,100 $468,938 $514,543 $304,664 $504,750 $416,662

$397,233 $293,650 $427,271 $363,938 $377,429 $350,161 $416,578 $392,126 $461,643 $278,521 $455,812 $381,531

98.37% 92.94% 93.02% 89.67% 92.97% 90.66% 93.21% 83.62% 89.72% 91.42% 90.30% 91.57%

166.0 287.0 193.0 207.0 225.0 237.0 246.0 276.0 189.0 296.0 176.0 224.3

355 357 357 356 325 301 313 294 265 256 263


Here is additional detail: The noticeable spread on sales prices shows the much broader demand. The buyers’ demographic is much wider. In 2009 we have sold an expansive range of units from a one bedroom Grand Caribbean to a four bedroom, 4300 square foot La Riva condo. We are seeing entry level folks, younger families, investors, baby boomers, and cash buyers in the mix, giving an indication that at these price points there is something for everybody. Cash buyers have been in the majority. The dream or the investment in real estate seems to make more sense in today’s dollars. Ask agents across the board and they will tell you that nearly every sale resulted from an offer for the lowest or near the lowest priced comparable unit in the complex. The sales were consistently realized in units priced to sell. Developer units, mostly in La Riva and Capri, sold at deeper discounts as they chased a smaller demographic that finally opened up with the summer season. Resales were much closer to list price. Resellers learned that leaving room to negotiate has been counter-productive to units that won’t get noticed and so won’t entice an offer unless priced in the bottom 3 in the comparable properties. The price per square foot for the majority of condos on the Gulf in this market has been between $235$310 (averaging $260/sqft) depending on the year built, interior fit and finish, complex amenities, etc. Off beach condos were a tough sell until a few “short sales” brought banks to the table and Lost Key Golf and Beach Club dropped prices into the $150/square foot range earlier this year. Since that reduction in price Lost Key and Galia properties are new bright spots in sales data after being dead in the water for some time. The resales will show in the MLS but not WCI “developer units” due to WCI policy. Much of these drastic changes in off beach real estate were driven by the short sales and foreclosures and the pricing pressures they forced on the rest of the listings. The same price pressure was felt in beach front, resulting in new buyers pulling the trigger. Prices have remained flat since Labor Day after a slight bump up over the summer. Older, “classic” condos of the 1970-1980s vintage in particular are selling in the lower ranges (in the $248/sqft mark). The majority of sales, however, in the last 6-9 months remain in units built since 1999 with the newer condos in Indigo, Palacio and Spanish Key most likely to get buyer interest and offers to buy. Windemere has been a bright spot when prices got below the $300K range with short sales and a few foreclosures. With lots of choices and prices at compelling levels this only makes sense. The good news: We are seeing a broader demand although a pause in the inventory levels this month so with some caveats we still expect price increases through 2010 in all areas of our market. Very, very good news. So how does it look for 2009 and beyond? The upward movement in the first eleven months of 2009 in the number of sales and the continued decline in inventory is remarkable in our discussion. We defined a bottom in the microcosm that is the Perdido Key market. (The Orange Beach/Gulf Shores area is experiencing similar numbers for their markets but in a much less dramatic fashion) We had a lull in the action since Labor Day but it picked up in the latter part of October with the emphasis centered on lower inventory and more urgent buyers as a result. Prices have found stability (note the averages have held steady) and continued increases from these levels will be seen if we see a continued decline in real estate product on the market through March 2010. The central theme is the sustained decrease in product which says to me that fewer are willing to part with property at these current low prices. In fact in certain cases we saw the first price increases since 2006 in May 2009, a dip in June and again slightly up in Aug/Sept. I believe this is influencing the trend to fewer units entering the market in a time frame that usually sees a flurry of listings. The seller psychology has changed with a belief that the longer you hold out the higher the price you can demand. Inventory versus demand has always been and will continue to be the major factor (Supply and Demand of course) in the price points so I am particularly encouraged for the market in 2010. The absorption rate will be based on price increases, or in other


words, new units will not come on the MLS until price points continue to rebound off a bottom. The seller psychology will continue to take its cue from the sales data. It is a self-fulfilling effect. Another strong key to continued improvement will be interest rates and credit markets if we are to see a hoped for expansion of buyers in the market. Right now strong credit risks with significant down payments rule the roost with mostly cash buyers moving into real estate from equities. If credit does not loosen to some degree we might run out of qualified buyers. Cash has been king since the fall of 2008 but only a certain segment of the demand can come from cash buyers and superior credit risks. A continued drop in inventory and seller psychology is crucial to these discussions and predictions. We were waiting to see how many units came into the market after the rental season. I think we have our answer in the low inventory number that sellers are waiting it out. We currently have 263 units for sale compared to 396 last year in November. Couple this trend with the activity reflected in the 56% increase in sales volume we are definitely in a positive market psychology. That should result, given the above caveats, in more sales, less inventory, more urgency…price support and then continued price pressures to the upside in 2010.

In summary then…..I think we will have a typical rate in unit sales through the last quarter, continued whittling down of inventory, but likely no significant price increases until January-March 2010. Credit concerns may impact the overall picture. I think the inventory will be in the 255 units range by January. This number will be directly impacted by the number of properties being held off the market awaiting the further recovery in price points. Absorption will be key between now and March 2010. I know from anecdotal evidence (many conversations with my client base) that there will be a significant number of condos brought on the resale market as owners perceive they can get their price. The absorption rates to this point in 2009 have been a true positive sign in the Perdido market but a flood of inventory could derail price increases from these lows. I think we need to be below a 2 to 1 average annual ratio for Inventory/Sales. We will have below 260 in inventory and we will have sold more than 150 units (I predict 159) by year’s end so we will easily make that guide post. That 2 to 1 ratio defined a great market in 2005, (post Ivan numbers in Dec2005 were 391 available and 215 sold) so I look for great year end numbers on Perdido. The monthly sales number to watch is 20+ units sold in an exceptional month (defining the peak price points of 2004/2005). We saw 24 sales in June and 26 sales in August and averaged right at 19.6 from May-Sep, so we are meeting that objective too!! Continue to watch those figures and ratios for your cues as we move through 2010. They are your tipping points. My recommendation is to buy now in anticipation, with the knowledge that this looks more and more like recovery of the market and price points. We are leveled off for the time being but January typically brings out buyers, higher demand, and so more urgency. Make offers now, before January, if you can’t find your comfort zone in these list prices to flush out the still possible bargains. There are less and less obvious “deals” after this flurry of activity and condos being held back off the market but you can still find a gem in there if you get off the sidelines. Sitting on your hands now if you want to own a piece of paradise will likely cost you more going into 2010. If you own on Perdido Key, Orange Beach/Gulf Shores hold on to your property as long as possible into the next year’s anticipated price jump and stay informed.


Dec2009 Market Report