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New home sales fell 8.5% in March, according to the Commerce Department. The vacancy rate for homes is at 2.9%, the highest level recorded since the Census Bureau started keeping track in 1956. Over 18 million U.S. homes were empty in this year’s first quarter. Sound like bad news?

Not everybody thinks so. There are those who believe that the bottom of the real estate market is either here, or will be here soon. The optimists, on whose side Topretirements rests, believe that the mismatch between inventories (still way too high), demand (pathetic), and prices (still too high in spite of very big reductions in some markets) will eventually be resolved and the real estate market will return to equilibrium. The pessimists believe that news like the 32% decline in the median price of existing condos in the Bradenton-Sarasota market from March 2007 to March 2008 will continue well into the future, fueled by factors like baby boomers fleeing the suburbs for low tax sunbelt retirements.

In the meantime for any optimists out there, there are deals to be had. A number of developers are offering incentives, which include: guaranteed buy-backs, help selling your existing home (Erickson Communities), special prices, reduced interest rates (Lennar Corp.), and lots of “frees” (landscaping, granite countertops, finished basements, etc.). Shea Homes says they won’t offer incentives, but will offer lower no-haggle prices (e.,g.; like Saturn automobiles). Sellers of existing homes, faced with pages and pages of competition, know that they have to offer a deal to rise to the point of being noticed, so there are plenty of deals to be had there too. As always, cash buyers who are ready to sign a contract will get a better deal than a window shopping customer who needs a mortgage.

Of course there is always the difference between a come-on and real deal. So if you are tempted by an incentive, analyze it carefully to find out its real benefit (or get your lawyer or financial advisor to help). Go out and visit the property and ask questions of the neighbors and HOA (Home Owners Association). The bold and the brave can easily find deals - if they do their due diligence and are willing to be patient. Then time can tell if their instincts were correct or not.

March 28 — January housing statistics from Case-Shiller were released this week - and the news continues bad for sellers, good for buyers. Of the 20 metro markets that this firm tracks, only 1 metro managed higher real estate prices vs. the year ago period, Charlotte (+1.75%). The 19 others had declining prices, with 10 of them experiencing double digit declines. Las Vegas, Los Angeles, Phoenix and San Diego had the biggest drops (Las Vegas went down over 19%). Overall the 20 city index showed a 10.7% decline in January 2008 vs. Jan. 2007.

Meanwhile industry pundits had plenty of theories about what this all means, and above all, when it will get better. One of the most interesting we read was by Barry Ritholz. His point is that until illogical sellers get the picture that there is too much inventory out there and reduce their prices, the market will be soft.

Another provider of housing data ran into flack this week over the positive way it slanted its reporting of its February numbers. The NAR (National Association of Realtors) chose to highlight sales changes from January to February, instead of the more traditional year to year comparisons (thus eliminating seasonality). The effect was to mask the declines that actually existed year to year - although sales increased 3% from January, they were 24% behind the year ago period.

Other pundits wonder when the market will turn around - can the end of the bad news be near?

February 17 - Sales of existing homes in the 4th quarter of 2007 continued the slide seen earlier in the year. According to the National Association of Realtors sales fell in 45 states; down 21% on a national basis vs. the year ago quarter. The median price declined a record 5.8% in the quarter. Prices increased in about half of the markets surveyed.

Hardest hit were Las Vegas, Jackson (MS), Sacramento, and the Riverside and Orange County areas of southern California. Foreclosures are often cited as the major cause of the declines. But all the news wasn’t bad, showing that real estate is nothing if not local. Bucking the trend with double digit price increases was the Cumberland region in Maryland and nearby West Virginia; Yakima, Washington; and Binghampton, New York. Commentators from these regions cited strong local economies, moderate prices, and a desirable lifestyle as reasons for their relative strength.

Industry experts seem to think that the turnaround will take place in the second half of 2008. All are concerned about the large number of foreclosures, which continues to add inventory to an already over-supplied market. Another problem for people looking for a retirement community is that although they might have the money and the interest in buying into an active adult community, they are having a difficult time selling their existing home in this environment. Several experts were emphatic that “when” (not “if”) the current over-supply gets back to normal, the market will resume its upward march. Late 2008 is seen by many as the beginning of the trend.

Your Topretirements editor just returned from a trip through the south where he observed big differences within local markets. Whereas southern Florida seems to be the home of bad real estate news these days, other parts of Florida are flourishing. Gainesville, for example, seems very strong. On the streets of Tallahassee “For Sale” signs are a distinct rarity, “For Rent” signs are more likely to be seen. Orlando real estate is reportedly strong as well.

Time to Buy Yet?
Ads were seen last week on USA Today from REBAC (The Real Estate BUYER’S AGENT Council of the National Association of REALTORS®), which urged buyers that this is now a great time to buy real estate. They cite lower prices, low interest rates, and plentiful supply as good reasons. And as the NAR numbers reveal, buying in the right market makes all the difference.

The real estate market in South Florida, one of the hardest hit regions of the country, affects thousands and thousands or baby boomers who are considering retirement communities there. Your Topretirements editor has been in the Sunshine State for the past several weeks - this report summarizes his microcosmic view of the Florida real estate market.

2005’s Unsustainable Price Increases
The recent history of home prices in this market is very instructive. (Note: all pricing figures are from the National Association of Realtors website). In 2004 the median selling price of a home in 5 of Florida’s major metros (Miami, Fort Myers, Tampa/St.Pete, Sarasota, and Orlando) averaged $212,000. A year later (2005), when speculators were waiting in line to buy condos sight unseen, the selling price for homes in those markets had jumped 35%, to $287,000. In 2006 prices were mixed; prices continued to increase in some markets and declined in others. By the 3rd quarter of 2007 the average selling price had declined to $271,000, still a significant 23% above the group’s 2004 median selling price.

Our conclusion is that - even without the sub-prime financial mess, speculation, or over-building - the price increases experienced in 2005 were unsustainable. When these other factors are added in, it is no surprise that real estate markets are hurting through much of Florida (although prices in Orlando have actually held up quite well).

Observations from a Secret Shopper
While in Florida we have had the opportunity to read about real estate, talk with realtors, and visit many properties for sale. Here are some general observations and tips that we offer for any baby boomer considering retirement here.

- The condo market is moribund. We visited a number of condos projects, both existing and new, with very few signs of life. In some new buildings not a single unit had been sold, even though the project has been on the market for more than a year. It would be very scary to be the first person to buy – but some one has to eventually! In existing buildings the problem is too many units for sale, at 2005 prices. If you are tempted to buy an unusually nice property, you should demand a sizable discount.
- Far too many homes for sale. In Key West, considered to be one of the more stable markets because of its steady tourist business, there are generally at least 2 homes for sale on every block. Many have been on the market a long time, and getting attention from buyers or brokers must be very difficult.
- There seem to be 2 groups of sellers (and this observation seems to be true just about anywhere in the country). The first group is stuck in the mind set of 2005 prices. They put their properties on the market at high prices, and no one is interested. The second group, sellers who know that if they want to sell their property they have to be realistic about their asking price, is in the ascendancy. Their properties are being looked at by buyers, who are making offers.
- In any market this uncertain there have to be some bargains somewhere. Some buyers have to sell. Others want to sell and know they have to be realistic. Anecdotal evidence from agents tells us that offers at 85% to 90% of the asking price have a good chance of success.
- Get a good broker. A poor broker will waste endless amounts of your time showing you only their listings, whether or not they are the best properties for your needs. A good realtor will ask you about your needs and pricing range, and then only show you properties that fit. The broker you want will only show properties that are fairly priced, and that are quality listings. If you feel your broker is wasting your time get another one, there are plenty to choose from.
- Foreclosures and forced sales. If the bank is taking over a property it might be prepared to make a good deal to qualified buyers. If you can pay cash, you are the kind of buyer they want. Ask your realtor to show you (quality) foreclosed properties, or at least explain to you what is involved in buying one
- Coping with the fear issue. If you decide to buy a home in Florida (or most any other state) you have be apprehensive with what you are reading in the news. But there are 3 positive factors to consider: 1) If you buy now you won’t be buying at the top, because prices have definitely fallen back. 2) Experts usually advise buying when fear is at its highest (and fear seems pretty high now!). 3) Many high quality properties are available now, so you are in a rare position to be very selective.

Good luck!

January 2 — The new year might have just rung in, but the news for buyers of retirement real estate is the same - buyers are cautious as inventory piles up, sales slow down drastically, and prices come down only slightly. A dire New Year’s Day front page headline in the Miami Herald screamed about “Home Sales and Prices” being in a “Nosedive”. But aside from the softness in the market for retirement communities, another worry has emerged - unfullfilled promises and communities.

One of the worst things that can happen to spoil an active adult community dream is to have important planned amenities not materialize. For example; a sleek clubhouse, 2nd golf course, or extra swimming pools that are promised - but don’t get built. Unfortunately the list of bad things that can happen doesn’t stop there. A builder may find that it is so strapped for cash it must sell off extra property, and the community loses control over what gets built there. One just has to read the newspapers to find out new problems one hadn’t even thought about.

Making the news in late December in the Maryland Daily Record were the woes of D.R. Horton Inc., which was sued by MTBR LLC for allegedly breaching a 2004 agreement to purchase 3 land parcels. The land was supposed to be part of the Bulle Rock complex near Maryland’s Havre de Grace. D.R. Horton Inc. is the nation’s 4th largest builder and just had its first loss in 15 years. Most of of the affected lots were targeted to be single-family houses.

Back in November a division of Levitt made news when the giant builder laid off more than 200 workers, defaulted on loans, and stopped building. Affected projects include Florida active adult communities such as the Seasons at Tradition (Port St. Lucie), the Cascades development in Sarasota, the Cascades at World Golf Village in St. Augustine. Projects in Georgia, South Carolina, and Tennessee have also been halted. One of the ones in South Carolina is its Murrells Inlet project, Seasons. As detailed in a New York Times article, “With Builder in Bankruptcy, Buyers Are Left Out“, residents of that community are upset by the many unfinished or unbuilt homes, including an unfinished community center.

Obviously, finished and more established communities would appear to be safer from problems with failure to deliver. But ample due diligence is always a good practice even before buying in a completely built out community (see 10 Questions to Ask Before You Buy). Most people rely on their attorneys to do a lot of that work.

Reputable sellers and developers encourage buyers to study all disclosure documents carefully. They have usually put protections, such as bonds and escrow funds, in place to protect buyers. They also want happy buyers, because bad publicity is so damaging and good word of mouth so helpful. Just make sure you take the effort to ask all the right questions - before you sign on the dotted line.

November 12 — One of America’s household names in construction, Levitt Corp, announced last week that its Levitt & Sons LLC division has filed for Chapter 11 bankruptcy. The division built retirement communities for baby boomers. In making its move the company cited cited “unprecedented conditions in the home-building industry” that were “particularly sudden and steep” in Florida and the Southeast. While the sub-prime catastrophe has been really bad for builders of traditional homes, this is one of the most direct cases that show that the troubles are extending into retirement communities as well.

The Levitt retirement community division has laid off more than 200 workers, defaulted on loans, and has stopped building. Affected projects include Florida active adult communities such as the Seasons at Tradition (Port St. Lucie), the Cascades development in Sarasota, the Cascades at World Golf Village in St. Augustine. Projects in Georgia, South Carolina, and Tennessee have also been halted. One of the ones in South Carolina is its Murrells Inlet project, Seasons. Residents of that community are upset by the many unfinished or unbuilt homes, including a community center that is not complete.

Levitt revolutionized American construction in the unique Long Island “Levittowns” it built on Long Island for returning WW II veterans. The company estimates it has built more than 200,000 homes in the last 78 years. Among the options it is considering is the sale of its remaining assets.

November 5 — Here at Topretirements.com we spend a lot of time writing about why college towns make such great retirement communities. Now there’s yet another reason to choose a college town to retire in - they are much less likely to be involved in the sub-prime mortgage mess that is wreaking havoc on so many other real estate markets.

A recent New York Times article, “College Towns Escape the Pain”, reported that college towns have among the lowest sub-prime or high cost loans of any places in the country. The people who live in college towns might be smarter, but they also have a lot of other things going for them. Stable employment, big medical centers, and a strong real estate market - in part propelled by retiring baby boomers - are also contributing to strength. The bottom line is that college towns are very strong economically and represent a solid real estate investment.

Figures from the Federal Financial Institutions Examination Council show that almost all of the 10 metropolitan areas with the nation’s lowest percentage of sub-prime loans in 2006 were college towns. For example,here are the lowest 5: Ithaca (NY), Iowa City (IA), Boulder (CO), Morgantown (WV) and Madison (WI). Whereas the U.S. average was 29%, Ithaca had only 11% subprime loans. Here is more information about the best college town retirements. Another site worth visiting is www.collegetownlife.com

October 27 — It’s one thing to pull up stakes and move to a town that’s known as a retirement community like Asheville, Phoenix, or Naples. But it’s quite another to hitch your star to a community that has potential - but hasn’t yet made the transition from to “idyllic”. While Vicksburg has a lot going for it (see our review of Vicksburg) it has been economically depressed for a long time, with much visible poverty.

Undaunted, some pioneering baby boomers are charting an adventurous course in Vicksburg, hoping that it becomes the next hot tourist destination and baby boomer retirement community. Topretirements recently traveled to this beautiful city on the Yazoo and Mississippi rivers to check it out as a retirement community. We interviewed 2 sets of young boomers who moved here recently to find out more.

Baer House Inn)
Doug & Marjorie Cousineau moved to Vicksburg 3 years ago after their home in New Orleans was destroyed in Katrina. Doug, 46, had been a city and country manager for United Airlines and lived all over the world. Their dream was to buy a bed and breakfast in a good spot - to find one they looked in states from Washington to New Hampshire. At the urging of their realtor they came to Vicksburg and quickly fell in love with the palatial Baer House Inn, a 6800 square foot brick mansion with 12 foot ceilings, black walnut and chestnut inlaid floors, not to mention an extremely rare (and not in use!) 2 story outhouse. They converted it to a 6 bedroom B & B, the Baer House Inn, that provides an exquisite bed and bed experience. Doug explained his choice of Vicksburg as coming down to the “absolutely wonderful” people (even the town’s B & B owners encouraged him to buy here), the presence of his nearby family, and the reasonable costs. Plus, the presence of a Convention Center, riverfront casinos, and the enormous Vicksburg National Military Park were a virtual guarantee for tourists. For a fraction of what he could buy elsewhere, he was able to purchase a historic mansion that quickly turned profitable. Doug, who competes worldwide in team adventure races, credits Vicksburg’s new mayor for much of the success for the town’s turnaround. Doug believes that new initiatives like the Vicksburg Main Street Program are succeeding at bringing in new visitors and commerce.

Meanwhile down the hill towards the rivers, Troy (47) and Laura Weeks (45), have poured their life savings into creating Lorelei Books in an abandoned building on newly reclaimed Washington Street. The Lorelei, their long-standing dream fulfilled, is a beautiful book store on the first floor. With its interesting collection and frequent author signings, the store has quickly become a beacon to book lovers in the Delta. Upstairs the Weeks created an apartment that is worthy of Architecture Digest. The Weeks were attracted to Vicksburg for some of the same reasons as Doug and Marjorie - nearby family, good weather, and prices so low they just had to take the risk.

Washington Street

Laura Weeks believes that Vicksburg will successfully make the transition from depressed river town to prosperous community. First of all Vicksburg has charm and culture, offering visitors and residents plenty to do. Most importantly, unlike some towns where one person or a small group drives the renewal (like Morgan Freeman and his business partner, Bill Luckett, in Clarksville, MS), in Vicksburg there are 3 groups pulling the town’s renewal. Those include people who have moved in from outside like Doug and Marjorie, people who never moved away but are accepting to new ideas, and a very important group - people raised in Vicksburg who had successful careers elsewhere and then moved back with capital and ideas. One of the most visible revitalization projects has been on Washington Street, 3 years ago a boarded up street facing the river that today literally hums with boutiques, shops, period street lamps, and piped in jazz.

At the crossroads
The transition from depressed river town to the next Asheville NC is at an interesting point. The Warehouse, a new luxury boutique hotel on Washington Street that overlooks the rivers, is nearing completion. Yet just down the street obviously poor people are shopping at bargain stores. The new baby boomer pioneers are obviously hoping the town and the street will fill in with even more shops and home restorations, boosting property values and bringing a return on their investment. The new prosperity will bring retirement communities and housing for retiring baby boomers. It should also bring new jobs and opportunities for the poorer people. Doug, Marjorie, Troy, Laura and many others have made major financial and emotional bets that the transition will be successful - but the next few years will tell the story. From Topretirements perspective, given all that Vicksburg has to offer and all that is being done for it, we think their bets are very good ones.

October 8 — Competition for the dollars of the newly retired is heating up, and it seems like Florida could be the state that takes the biggest hit. The Sunshine State, always popular for its retirement communities, has seen a number of negative factors that are increasingly deflecting retirees to other states in the Sunbelt.Retirement in Luxurious Fort Lauderdale

Some of the Florida downsides include overcrowding and traffic, increasing real estate costs (64% higher than just 5 years ago), a spate of devastating hurricanes, and ever-increasing insurance costs related to those hurricanes. The current housing bust is about as bad in Florida as anywhere. Builders overbuilt, speculators overbought, and prices went too crazy. The near-panic in the market has scared away buyers and discouraged sellers. According to a recent Wall Street Journal article (”Is Florida Over“) that cites Census Bureau data, while foreign immigration to Florida remains strong, “migration from inside the country is slowing.” In fact, Atlas Van Lines moved more families out of Florida last year than it moved in.

Part of Florida’s problem is competition from other Sunbelt states trying to attract baby boomers in retirement. Apparently they have been successful in generating more and more “halfbacks”, retirees from the Northeast who move to Florida, then come half way back to the Carolinas or other Sunbelt states after realizing Florida was not for them. States like Mississippi, Louisiana, Texas, West Virginia, and Kentucky have started Certified Retirement Communities programs to promote retirement for economic development. Other states like Georgia are attempting tax reforms such as exempting retirement income from taxation as a way to attract retirees.

While growth in what has always been one of the fastest growing states in the U.S. might be slowing down, Florida is still growing. One of the comments that we thought made the most sense came from Dave Schreiner, a VP at Pulte Homes’ Dell Webb communities: “Instead of everyone making the assumption that they’re going to move to Florida, now it’s more of a level playing field.”

Link:
Hawaii is Baby Boomers #1 Preferred Retirement State

September 15 - An inevitable but painful result of the slowing of the housing market is that many new retirees are having to postpone planned moves to a new retirement community. The stumbling block is of course their inability to sell their primary residence, typically most retirees’ biggest assets. A September 13 article in the Housing Bubble Blog recounts the woes in several important California markets. The article mentions the limbo-like situation this has created for Ken Gonzales and his wife, forcing them to postpone their plans to downsize to a retirement community. Unfortunately they cannot get their price for their four-bedroom house in Riverside’s Orangecrest community.

The same situation is playing out in the East as well. A good friend of ours and his wife have now been waiting 2 years to sell their beachfront house in Madison Connecticut. Their plan is to use the proceeds to build their dream house on a lot they have already purchased in South Carolina. They get offers, but no one responds to negotiation requests or comes close enough to their magic number.

This popular blog entry generated scads of blog postings from people who scoffed at the woes of other people quoted in the blog, generally blaming greed as the cause of their troubles.

Obviously, buyers who do not need to sell their primary residence in order to move are in the driver’s seat in this economy.