If you’ve paid any attention to the Florida real estate market over the last few years you will have witnessed a tremendous roller coaster ride. Unfortunately, the ride is not an enjoyable one for many who bought real estate and got caught with property where prices have dropped below what they paid.
It is not unheard of for real estate prices to drop. While infrequent, real estate prices have dropped in the past and will do so again. I don’t think too many people saw the magnitude of the price correction that has occurred in Florida.
Like most of Florida, Sarasota real estate prices started to rise in 2003 and took off in 2004 and 2005. We hit the wall in August of 2005 with sales activity dropping dramatically. Our prices have been correcting ever since.
In many segments of our market, prices have returned to 2003 levels. I suspect the same for the Orlando market as well. Those who have purchased their home prior to 2003 have seen a wild ride in the amount of equity in their home.
This price volatility has created a lot of problems. Many of the weaker buyers who purchased in 2004 and 2005 are walking away from their homes because they are thousands of dollars “upside down”. People used the equity in their homes to go on vacation, purchase boats, new cars and other toys. Now that the equity is gone people aren’t spending as much – which has ultimately led to the current recession.
Let’s say you owned a home in 2003 that was worth $500k. The appreciation rate in Sarasota for 2004 and 2005 was in the 30% neighborhood. At those rates your home would be worth in excess of $800k in the middle of 2005. Now that prices in many areas are back to 2003 levels all of those properties that were purchased in 2004 and 2005 are now worth less than what was paid for them. So basically, we are back to where we started in terms of price except now we have a whole bunch of foreclosures, bankrupt financial institutions and people, a recession and a skittish buyer pool.
The good news is that I see a light at the end of the tunnel. The demand for real estate in Sarasota has been very good in the first quarter of 2008. We still have a supply imbalance but if you have a good property in a good location at the right price you will see action. This is a very price sensitive market. Buyers are scared and before they get off their checkbook, they have to feel a sense of value. Remember that when pricing your home.