We are seeing the number of home sales on a monthly basis
consistently increasing each month when we look back on a year-over
year basis.  Let me translate that into English.  Each month, when
the National Assoc. of Realtors releases the prior month’s sales
figures, those numbers are typically compared to the numbers from
the same month the previous year (comparing the same months helps
to minimize seasonal sales trends).  So, when the January 2009
figures are released later this month, analysts will compare the
figures to the sales numbers from January 2008.  My guess is that
we’ll see an increase.  That’s what’s been happening for several
months now in some areas.

So why are house prices still dropping, you ask?  Well, first, the
number of home sales tend to be a leading indicator.  Thus, a
consistent increase in the number of home sales tells us in advance
that home prices will soon stabilize, if not increase somewhat.  We
are actually starting to see this already.  St. Lucie County,
believe it or not, saw a slight increase in the median home price
last month.  Since prices in St. Lucie have fallen as hard as
anywhere, in some respects, St. Lucie has a leg up on other areas
in seeing a recovery, as there is just not much more room for
prices to fall when you factor in the cost of land.  I expect Palm
Beach to be a little further behind in its recovery, but not by
much.   

Do you remember a few years ago when the market was going
gangbusters, appreciating at 30-40% per year?  The same phenomenon
happened – the trend in number of home sales foretold the direction
the market was heading.  Even while appreciation continued to
skyrocket, sales figures began to decrease.  Eventually, the market
reached a peak and began its long and severe correction.  Bottom
line:  focus on the trend in home sales to determine which way the
market is headed in the future.

Now, I’m not saying that we’re going to return to 30-40%
appreciation anytime soon (probably not even in our lifetime).  And
I still think there is reason for caution, particularly with
higher-end homes; I think higher-end home prices still have further
to fall. 

But, now is a great time to think about the opportunities that are
available in this market.  Buy-fix-flip is a great strategy in
bread-and-butter neighborhoods, particularly by selling to FHA
buyers.  Rentals once again make sense because it’s not difficult
to find a property that will produce a nice cashflow.  And where
else can you get a decent return on your money these days?  Not
from a bank, not in the stock market, not in bonds.  Real estate is
one of the best opportunities available right now. 

Apparently, others share my view.  Here’s a link to an article I just found where a well-known Florida economist predicts that house prices in FL are close to a bottom. 

http://www.floridarealtors.org/NewsAndEvents/n3-021209.cfm

“The sky is falling, the sky is falling!”  Seems like everywhere you turn, the media wants you to believe that now is a terrible time to buy real estate.  Nothing could be further from the truth.  Now is an opportune time to buy West Palm Beach investment property, for a number of reasons.

First, prices have come down dramatically, particularly in “bubble” markets like Florida, California, Arizona, and Las Vegas.  In West Palm Beach and the Treasure Coast area of Florida (which includes Martin, St. Lucie, and Indian River Counties), areas where I actively invest, prices have come down by more than 50% in a lot of cases!  To give a quick example, I was looking at West Palm Beach investment property today.  It was a foreclosure listed for $50,000, but 18 mos. ago, that very same property was purchased for $210,000!  That’s unbelieveable!  Think about it, that’s a discount of a whopping 76% off of the price the very same property sold for less than 2 years ago.  That’s one heckuva a sale!  Try looking for 76% off the next time you go shopping at the mall. 

Second, along with significant drops in price, we have seen the return to a more normalized market where single family homes can be purchased as a real estate investment and rented out for enough cashflow to cover the costs of holding the property.  While this is nothing new for many parts of the country that never experienced a price bubble, for real estate investors in places like West Palm Beach, this is extremely good news!  A couple of years ago, there was no such thing as West Palm Beach investment property that cashflowed. 

Today, though, you can cashflow many properties at the reduced prices present in today’s market.  [A quick aside - many West Palm Beach area real estate investors say they like to buy property at a price that supports the 1% rule, meaning the amount the property can rent for accounts for at least 1% of the purchase price of the house, e.g. a house that rents for $800 can be purchased for $80,000 or less.  There are plenty of South Florida and West Palm Beach real estate investment property deals out there like this right now.]

On a similar note, another effect of the drop in housing prices is reduced costs for property taxes and insurance.  Both taxes and insurance costs are based upon the value of a property.  So, it stands to reason that since prices have fallen, the costs will be less. 

In the case of property taxes, the assessed value on West Palm Beach investment property dropped last year and will do so again this year.  In addition, local governments have been forced to lower their tax bills in line with tax reform on a state level.  The bottom line is that real estate investors will pay less property tax today than they would have on the same property a couple years ago.

Likewise, a reduction in prices means that a real estate investor does not need to insure his property for as high a value.  Thus, insurance costs are coming down on West Palm Beach real estate investment properties, as well as in other parts of South Florida. 

Taking all of these factors together, now is an ideal time to purchase West Palm Beach investment property.  While prices may not have bottomed out just yet (I expect that will happen later this year), by buying at prices that cashflow, investors will be in a good position when the market rebounds. 

The danger in waiting for the bottom is that you will miss the boat.  By definition, we won’t know we’ve hit bottom until prices have started to rebound, and by that point, they may have rebounded to levels higher than today. 

Like investing in the stock market, remember, it’s all but impossible to buy at the very bottom or sell at the very top, but if you can buy within 10-20% of the bottom and do the same when you sell, you’re in great shape.  Plus, by purchasing West Palm Beach investment property that cashflows and leaves an investor with some extra monthly profit after expenses, you’ll be able to continue to hold the property for as long as you like. 

If you’re looking for investment property in West Palm Beach and the South Florida area, check out the blog entries on this page to see what we currently have available.