Jack Sullivan


Jack Sullivan
The Emergent Group

October 10, 2011

Southwest Florida Real Estate Market Trends
On August 12, the website 24/7 Wall Street predicted that Naples was the market likely to collapse the most between now and 2012.  Their article, which can be found here ( http://finance.yahoo.com/banking-budgeting/article/113299/housing-markets-collapse-2012-247 ) sparked a pushback from the local real estate community, according to a Naples Daily News follow up piece that same day  (http://www.naplesnews.com/news/2011/aug/12/realtors-say-naples-market-stable-financial-websit/?partner=popular ).

What was lost in the Naples real estate community's response was a clear analysis of the data being used by the 24/7 Wall Street folks, a determination that it was accurate, and a determination of whether they were making a reliable prediction or an unreliable one.  Let's take a look at the underpinnings of the 24/7 analysis - and along the way, hopefully learn a little something about data and statistics.

The base data for the 24/7 article was the Fiserv Case-Shiller (FCS) Indexes, and you can see a summary of that data, by market, here (http://cgi.money.cnn.com/tools/homepricedata/index.html ).  The FCS historical quarter over quarter data which shows a price drop of 6.1% from Q1-2010 thru Q1-2011 is nearly accurate (per NABOR was actually higher, at 8.2%).  But that year over year quarterly comparison is only a small part of the story, and appears to be about the only thing the 24/7 article (and Fiserv Case Shiller) got even close.

According to my "trended" NABOR data attached to this article, which is real data, you can see that the general median sold price for residential housing in Naples is moving "favorably".  It appears from the data that the bottom is in, seasonality is returning, and we can expect annual, moderate increases in 2012 and beyond as the market stabilizes and nominal increases return.  From the charts, one can see that using quarterly comparison data, or monthly year over  year comparison data certainly doesn't tell the whole story.  One needs to look at the market gyrations over a longer period of time, take into account seasonality, consider monthly anomalies, and get a better feel for the "overall trend" if they are to make a good prediction about future performance.

Certainly the 24/7 article started with data that was pretty close to being accurate.  But they chose a data set that was too limited (as did Fiserv Case Shiller), arguably picked a quarterly comparison that portrayed their pre-conceived vision of the future, then extrapolated their further negative vision of the national real estate market onto the local Naples story.  But, "all real estate is local", and the Naples story is different than the national one.

From looking at the actual data performance within the market, Naples appears to have already bottomed and is on it's way up, not the other way around.....  It would be nice to see somebody report on the actual broader performance within the market instead of making projections based on partial snippets of already parsed data based on analysis that isn't even their own.

To view Jack's Naples Comparative Analysis Charts, please click here
To see Jack's previous charts and data, please click here

April 26, 2010

March Update
March was one of the best statistical months in memory for the SW Florida residential real estate market.  All trends I track in Collier and Lee County show improvement, and an accelerating recovery in residential housing.  Most importantly, median price is recovering - up roughly 30% since the spring 2009 bottom within the single family market (about 13% overall, with condo prices dragging down the overall numbers, but even they are starting to improve).
New starts will be last to improve, but they are also showing signs of recovery with new unit volumes and builder sentiment increasing the last few months. 
Generally, good indications that residential real estate continues to gain positive momentum in SW Florida.... 

October 16, 2009

Investor and Developer Outlook: The Data Tells it ALL!

 I have a unique perspective on the SW Florida real estate development market.  I split time between my home in Dallas, TX and my residence in Naples.  I travel back and forth between the two – primarily to manage my development investments in Lee and Collier County.  As a result, I get to see how the “non-FL” real estate developer / investor looks at the SW Florida market, and compare it with how the locals look at the same market.

It’s a very different perspective.

Local developer/investors see the market as depressed, see lease rates at rock bottom and vacancy rates sky high.  They drive around their neighborhoods and see vacant land, vacant commercial buildings, vacant and foreclosed homes, and a level of unemployment not seen in a generation.  They’ve experienced firsthand what it’s like to see real estate prices drop between 50% - 90% (depending on the asset class), over the course of 4 years (or what seems to be an eternity).  The level of skepticism about any legitimate or sustained recovery is palpable, and any vision of recovery is both tepid and extended.

The “non-FL” developer/investor sees the market as not only affordable, but cheap, sees a diverse mix of distressed properties in which to invest – across a swath of asset classes, sees vacant and sometimes entitled land down 80%+ in most of SW Florida, and sees local governments easing restrictions on development as they seek to attract the return of growth and development in search of impact fee dollars.  They are more inclined to believe a “V” shaped recovery is a very real possibility, especially in areas that had the sharpest boom, bust cycles – as SW Florida certainly did.

So, who’s right?  The answer comes from the data, as it always does in our business.  The key is to parse the data the right way – how it’s normally fed to us provides very little insight into real trends, and where we are within them.  In our business, decisions about asset allocations and investment timing have to rely more on a trendline approach.  We need to be able to visualize market metrics so we can see the top, see the bottom, evaluate the slope of a recovery to determine not only how robust it is, but also where we are in the cycle.  Sure there is certainly a value based analysis that can provide granular insight into any more technical analysis – but because this most recent cycle peeled back the curtain on how far afield our opinions were with regard to “fair value”, I’ve been employing the more technical approach as one that will hopefully shed a clearer light on where we really are in the cycle – and what that means for our future prospects.

The reality is – based on the trendline data – we’re already in the midst of a stable and strengthening recovery in the residential real estate sector in SW Florida.  Every significant metric I track agrees with this conclusion.  The data I’ll reference throughout the remainder of my comments is specific to Collier County (excluding Marco Island), derived from publicly released monthly NABOR (Naples Area Board of Realtors) data – “single family homes” only to keep it simple.  Although this is only a slice of the market in one local geography, I see very similar data in Lee County, and throughout SW Florida.

In the weakest portion of the Collier County market the last 4 years, the “under $300K market”, unit sales have increased from 20 in January 07 to a high of 262 in June 09, an increase of 1310% on a month to month basis.  The bottom of the overall market (all price ranges) was 115 units sold in November 07.  That rose to 383 in May 09, a still very significant 333% increase month vs. month.  Total Inventory (MLS Listings) peaked in February 08 at 6,137, and has decreased 30% since – finishing August 09 at 4,292.  Average Days on Market (DOM) peaked at 208 in October 07, and has decreased to a low of 131 in January 09, but closed out August 09 at 140, down 33% from the peak.  Most importantly, the Median Sold Price in the “under $300K” category hit a low in May 09 of $112,000, and has increased 11.6% thru August 09 – closing out the month with a Median Sold Price of $125,000.  Price has actually been establishing a floor since February 09, when the Median Sold Price closed at $120,000.  For the overall market (all price categories), the bottom occurred in March 09 with a Medial Sold Price of $167,000.  Price ticked up thru the end of July 09, closing out the month at $187,000 – a 12% increase – before pulling back slightly in August to $180,000 mostly due to seasonal variation.

In general, both the overall market and the under $300K category have established price floors thru this past “season”, and both are seeing continued strength thru the summer months in Unit Sales – suggesting price pressures to the upside.  Especially as we head into the 2010 “season”.

One final metric worth considering – Foreclosures.  They have added a significant amount of inventory into the supply side of the market over the last 3-4 years, and have also contributed a great deal to the downward pressure on price.  Foreclosures have begun to subside in both Collier and Lee Counties – with Lee County seeing a 30% decrease from the peak in Oct 08.  And the improving trend appears to be accelerating.  As foreclosure and bank owned (REO) properties come out of the pipeline and make up less and less of the overall supply (80% in Lee County in Feb 09, down to under 70% in Lee County in August 09), the price mix is getting more and more “traditional”.  Why is this important?  Because traditional sales over the last few months have represented a median price of roughly $200,000, whereas the foreclosed and bank owned properties have sold at a median price of roughly $83,000.  As this mix continues to become more “traditional”, expect a continued upward price pressure on single family residential real estate in SW Florida.

Taking all this data together, there is a strong underpinning, across all metrics that I track, suggesting a robust single family housing recovery is well underway, and likely to accelerate into the upcoming season.  This bodes well for all the other real estate related asset classes, and a broader recovery in SW Florida for real estate as a whole.
*See Jack's charts for this article here*
-Jack Sullivan is a real estate developer and investor. He is the owner of The Emergent Group doing business primarily in Dallas, Texas and Naples, Florida.