What is the Future of the Daytona Beach Real Estate Market?
The future of the Daytona Beach real estate is uncertain for the short-term. In the long-term the market will become more stable. There are many factors at work but here are the top issues affecting the market:
- Tight Credit
- Economic Confidence
- Deflating Home Prices
- Demograhic Changes
- More Defaults and Foreclosures
- Renting Saves Money for a lot of people
Banks are not lending much money these days. It doesn’t matter whether you’re a small business, home buyer, or even another bank, money is tight. Most bank balance sheets are a mess and they are in the process of cleaning them up. We suspect that most banks will write down their losses this year and they will be in a better position to make good loans early next year.
Yes, real estate is local, but economies rely on each other on a local, regional, national and international level. The national economy is struggling according to a lot of well publicized reports. Gas prices and food prices have increased to the point that people are changing their driving patterns and consuming patterns. Medical costs and educational costs have long been increasing at a rate higher than inflation. We are in an a period of economic adjustment, but that will change as well. We are not as confident that economic confidence will improve until next year.
Deflating Home Prices
Let’s face it, buyers are most concerned with the value of their new home purchase declining. This is the greatest risk to buying a home. Sellers are still attempting to get as much as possible for their homes. This is the disconnect and the reason that we have almost 6,000 homes and condos on the market. Of those homes on the market, a small number are agressively prices to sell fast. Homes prices will stabilize, but our best estimate is that credit and economic confidence must improve for prices to stop their decline.
There are indications that retirement trends are changing. Baby boomers are not following in their parent’s footsteps to retire to Florida or Arizona. They are chossing more and varied locations. They are seeking adventure and challenges. Our view is that Daytona Beach and the surrounding areas are lagging behind in addressing few needs other than tourism. Our infrastructure for business development is not at the same level as many growing dynamic communities in the country. The sun and ocean and beach are wonderful, but if they are to be the basis of our future growth, that growth will be limited. The question is, where will new residents come from? One option that won’t be explored here is legalized gambling. Regardless, if we compete for new residents with the current model, we will be very limited in our growth.
More Defaults and Foreclosures
June foreclosure numbers were 53% above last year. We are by no means finished with this problem. Adjustable Rate Mortgages (ARMs) will continue to come due through 2010. The rate will probably fall, but we are not done.
Renting is Cheap
Rental costs in Daytona Beach are falling because more homes and condos are available for rent. During the boom, people were buying homes because of the belief in every rising home values. Rents, meanwhile, did not rise. Since the bubble burst, more homes are available for rent. Home builders are even renting their spec homes that they can’t sell. It is just cheaper to rent than to buy and the gap hasn’t closed enough for many people to change their minds about buying. The market will adjust, but we believe rents will stay relatively low for a few years.
The Daytona Beach homes market is in a period of adjustment. What is uncertain is how long the adjustment will take. The combination of a tight credit, deflating home values, an uncertain economy and a weak economic base in Daytona Beach means that we will not see fast improvement. It appears that the worst is past for our area, with home sales up 36% in the second quarter over the first quarter, but we are still well below the sales level of the boom days.
Prices in our area went up because of speculation, not because of underlying market and economic values. We are adjusting to the level where we should be based on those factors. Where that level is and when we hit it is simply a matter of time.