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Investment Analysis Template Sample
We recently updated our Panama City Beach condo sales data through mid June 2008. The graph below illustrates the number of monthly re-sales from the 70 Panama City Beach condo buildings in our database. The 2008 monthly re-sales through May mirror the number of re-sales from the same period in 2007 even though there has been a substantial number of new units come on line.
The market trend line is illustrated below. It is structured to show a sale price trend measured in terms of the percentage sale price as of a particular date. The starting date used was May 1, 2007 so we could show the price trend for the 13 months. We chose units from a variety of buildings of different ages and sizes that had a sufficient number of sales as to be statistically significant. The units used in the analysis were:
Boardwalk Beach; Opened in 2005; 1,380 SF; 2BR/2BaCalypso; Opened in 2006; 1,226 SF; 2BR/2Ba
Celadon; Opened in 2004; 846 SF; 1BR/2Ba
Grandview East; Opened in 2005; 1,492 SF; 3BR/2Ba
Gulf Crest; Opened in 2003; 1,388 SF; 2BR/2Ba
Emerald Isle; Opened in 2005; 1,146 SF; 2BR/2Ba
Treasure Island; Opened in 2005; 1,370 SF; 2BR/2Ba
The Summit; Opened in 1983; 912 SF; 1BR/1.5Ba
Regency Towers; Opened in 1975; 1,114 SF; 2BR/2Ba
The May 1, 2007 market value for each type of unit was determined by analyzing sales data from January 1, 2007 to June 19, 2007. The sale price of each type of unit is only compared to the typical sale price of that particular type of unit as of May 1, 2007. In other words, a unit type with a May 1, 2007 market value of $400,000 is represented as 1 or 100%. An October 2007, $380,000 sale of that type of unit is depicted as .95 or 95% of the May 1, 2007 sale price. The sale prices and sale dates were charted with a price trend line for each type of unit. The chart contained in the price trend analysis is a trend line of the trend lines of the sale prices of each type of unit from the nine buildings. Foreclosure sale prices that were unrealistically low were not included. There were 112 sales used in the chart. The analysis does not try to skew the price trend in any direction. The data is just the data.
The data indicates that the rate of price decline has been mostly steady over the past 13 months with a total price decline of around 15%.
There is still no empirical evidence that the market has stabilized. However, there is significant evidence that the pain is not over yet. According to the Wall Street Journal more adjustable rate mortgages will reset to higher rates this summer than reset last summer. The number of sales for 2008 has been very similar to the same period in 2007. Mortgages for second homes continue to require extensive income verification and a significant down payment. Rental income to the owner from a property that is on a rental program typically just barely covers the holding costs while any mortgage payments come directly out of the owner’s pocket. As of 6/6/2008, county records indicate there are over 1,300 unsold developer units in Aqua, Origin of Seahaven, Shores of Panama, Tidewater, Emerald Beach, Grand Panama, Sterling Breeze, Palazzo, and Ocean Reef. That’s not counting the 1,400 or so unsold units in Laketown Wharf, Magnolia Bay, and Marina Landing. Fuel and food costs continue to increase.
Is the bottom in sight? Not yet. I expect sale prices for Panama City Beach condos to decline another five to ten percent over the next 12 months.
Sam Portman
Condosaletrends.com
Panama City Beach Condo Prices Decline in 2007
Panama City Beach condo sale prices declined 10-12 percent in 2007 after a 10-15 percent decline in 2006 (see chart below). New issues have entered the markets that will exert downward pressure on existing condo sale prices during 2008.
Many speculators purchased properties from mid 2004 to mid 2006 at prices that were as much as 40 percent above current market values. The majority of these properties have adjustable rate mortgages for 80 percent to 90 percent of the purchase price with the interest rates resetting during 2008. The current mortgage market makes it much more difficult for an owner to refinance into a 30 year conventional mortgage. It is reasonable to assume that there will be more foreclosures in 2008 than there were in 2007 which will contribute to declining condo sale prices.
Stricter qualifications for borrowers in obtaining mortgages for second homes will keep many willing buyers out of the market. Current national economic conditions appear to be trending downward which may influence buyers to put off purchases of second homes. These factors will have the effect of reducing the number of buyers willing and able to purchase condo properties.
There are owners in several of the newer beach-front buildings that closed in 2005 and 2006 who have a preconstruction purchase price that is still below current market values. Those owners who are contemplating selling may reduce their asking price in order to facilitate a quick sale before the market deteriorates further. This will have the effect of additional downward pressure on current prices.
There are several thousand units nearing completion or waiting to close along the beach that will add to the supply of units available for sale. It appears that the number of condo units available for sale will exceed the demand for purchases during 2008.
2007 Market Trend:
The following chart illustrates the Panama City Beach condo sale price trend from January 1, 2007 to January 1, 2008. The chart depicts 103 condo sales from nine buildings ranging from 912 square feet to 1,492 square feet with one, two, and three bedrooms. This cross section of Panama City Beach condo units were chosen because there was a sufficient number of sales of each type of unit to be statistically significant in the analysis. The sale price of each type of unit is only compared to the typical sale price of that particular type of unit as of January 1, 2007. In other words, a unit type with a January 1, 2007 market value of $400,000 is represented as 1 or 100%. A July, $380,000 sale of that type of unit is depicted as .95 or 95% of the January 1, 2007 sale price.
The chart indicates an overall 10% to 12% decline in Panama City Beach condo sale prices in 2007.
Resales by Month of Panama City Beach condo units within the condosaletrends.com database:
The following chart depicts the number of resales over the past four years of condo units within the 70 buildings in our Panama City Beach condo database.
The chart illustrates that the number of condo resales has remained mostly steady over the past two years. Based on current market factors, we anticipate fewer Panama City Beach condo resales for 2008 when compared to 2007 or 2006.
Expect More Price Declines for 2008
There are several factors that will put additional downward pressure on Panama City Beach condo prices during 2008 including the following:
- Adjustable Rate Mortgages that are due to reset in 2008.
- Difficulty in refinancing adjustable rate mortgages.
- An increased number of foreclosures.
- Stricter buyer financial qualifications in obtaining mortgages for new purchases.
- A perception of a declining national economy may keep buyers away.
- An oversupply of available units for sale.
- Profit-taking by existing owners before further market deterioration.
It may take several years before the downward sale price momentum trends upward again. It is not unreasonable to assume an additional five to ten percent decline in Panama City Beach condo prices during 2008.
However, if you are anticipating holding your property for more than five years, now is a good time to buy. The opportunities are especially good for cash buyers that can close quickly.
The Panama City Beach Condo market has experienced a significant correction over the past 18 months after several years of exceptional price increases. The run-up in prices was fueled almost entirely by speculative buying. Buyers were speculating that another buyer would come along and purchase their unit or units at a higher price than their original investment. Fifty percent, sixty percent or even 100 percent yearly appreciation was not uncommon. However, this kind of 'irrational exuberance' was not sustainable. As of mid-2005, the speculators left the local market.
There are two different types of value, Market Value and Speculative Value. Market value is what appraisers and lenders typically use. When the definition of market value is boiled down to its essence, it is the highest price that will attract a buyer over a defined marketing period. Implicit in this definition, is that there is always a buyer at market value. Say you have given yourself six months to sell your unit. After six months it has not sold and your Realtor tells you that there are just no buyers out there. What he is really telling you is that there are no buyers out there willing to purchase at above the current market value. If your unit has not sold in six months, it is priced too high to sell. There are always buyers at market value. Buyers don't care what you paid or what you think your unit is worth. Buyers pay market value 99 percent of the time.
If the current market value of your unit is $350,000 but you think it would sell for $400,000 next year, the $400,000 is a speculative value. Speculative value is a valid concept that investors use all the time in evaluating their investments. Should I sell today at $350,000 or is it advantageous for me to wait until next year and try to sell at $400,000. As a general rule you can never sell a condo unit today at a price equal to next year's speculative value.
Median or average statistics based on all of the area sales don't really give you much useful information when evaluating the current market You need information on the sales of similar units, say 2BR/2Ba units in one complex in order to accurately compare yesterday's market to today's market. The chart below graphs the sales of 1,368 SF, 2BR/2Ba units in the Long Beach Towers complex from 1/1/2004 to 12/31/2006. These condo units are currently selling at early 2004 prices.
There are currently five of these 2BR/2Ba units listed for sale under $490,000. The previous purchase price for all of these units was under $315,000.
The chart below depicts sales over at The Summit Condos and illustrates a more startling portrayal of the current market.
There are 2,000 plus new condo units along Thomas Drive and Front Beach Road scheduled to be completed in 2007. Many of these new units will be offered for re-sale. There are many pre-construction investors and owners of completed units and units to be completed in 2007 that have a substantial equity position at current market values. Take a furnished unit listed for sale in Majestic Beach Tower I at $428,000. According to public records and the estimated cost to furnish, the owner has a total investment around $290,000. If he sells at $390,000 (which is below the last two sales of similar units) for a $100,000 profit, he still looks like a genius. It is not unreasonable to assume that many investor/owners, after evaluating the declining market will sell at current market value and take their $100,000 or $50,000 or $25,000 profit and be happy.
What's the prediction? There are 2,000 plus new units that will be completed in 2007. A significant number of these units will be offered for resale and compete with existing units that are listed for sale for a limited number of potential buyers. In other words, the supply will outpace the demand. The chart below illustrates the number of condo sales within the 70 buildings contained in our data base over the past three years.
Many investor/owners will sell at current market value and take their profits. These factors tend to increase the downward pressure on current market values. We don't expect the bottom to fall out, but an additional 10% below current market value is not unreasonable. We believe that it will be another two to three years before investor profit-taking and supply stabilizes. Baby boomers love the sun and love the coast and will continue to purchase local real estate. If you are in for the five year plus investment term, Panama City Beach condos are a good investment. If you purchased or signed a pre-construction contract after 2004 your purchase price will most likely be above market value for the next several years.
If you want to know more about the sale prices of units in 70 Panama City Beach condo buildings along Thomas Drive and Front Beach Road, visit our web site at www.condosaletrends.com.