How Long Will This Market Last?

As the market unfolds today, property supply increases and prices fall: That's been the trend for 110 years, since 1890. But since 1997, real home prices have increased by 90 percent. There is no economic fundamental — real income, migration,interest rates, demographics — that can explain this escalation. That means there was a speculative bubble. And now the bubble is bursting.

So how is the Sarasota market poised? I'm personally bullish on the city. I live in Sarasota, and, in the last five years, property values have increased between ±60-120 percent depending on the location of your home (mainland versus waterfront). That exaggerated price appreciation doesn't make sense.

Now there are several devolpments under construction coming to the market in the next one to three years. There's going to be a glut especially in the downtown market with so many condos .

With hundreds of new luxury units coming on the market, the question is: Who going to buy them? The Metropolitan is one development that has not met its goal. It only had 30 reservations when the developers had projected 90 reservations by now. Banks will only lend when you have 60 percent sold in the building.

There's a glut of new condos and it's getting worse. This supply will affect condo prices. A home is a home, and excess supply leads to falling prices.

It's wishful thinking to say that things are becoming more realistic. Sellers have not quite reached that point. While we don't know have hard data yet on what exactly is happening in the market, we do know that prices of homes are sluggish. Some of the price action will come in the next few months when the supply increases even further, and demand is lingering, and the national economy slows down.

Some people say that there is so much wealth here that there will always be buyers for high-end properties. That's nonsense. It's not as if there's infinite wealth. After all this is not the only city in Florida people choose. We are also competing with other parts of Florida.

People who bought years ago are lucky but that does not mean the increase in value of their home make them richer. If I were to sell my home and buy a property that has the same amenities, I would have to pay the same price. So I'm not wealthier, even though my home has gone up in value. What has happened in the past five years is that the real price of my housing service has doubled. I'm paying more to live in that home.

On a positive note there will not be a fire sale in Sarasota. I'd expect that a year from now prices may fall 20-30 percent. The ride for now is over and it will not be soft landing when you had 35-40 percent sales driven by speculators. Like many of us we do prefer people who will live in their homes. It's just like the stock market in all runs in cycles. I remember when the real estate market crashed in California back in 1990 and six years later it soared again. So we need a little patience...

The good news is what prices do in the future shouldn't matter much if you buy a place you love. And that's much easier to do now than in the past four years . So hire the best real estate agent to get that great deal.

For more information, please call:
Louis Wery, Broker Associate, CIPS, CRS, ABR, LHMS
Coldwell Banker Residential Real Estate, Inc.
201 Gulf of Mexico Drive, Suite One
Longboat Key, Florida 34228 USA
1-941-232-3001