It's truly amazing how much doing business, and the real estate market on Hilton Head Island has changed in just the past couple years. I'm shocked on a daily basis as I hear stories from real people struggling in these difficult times.
Many of these people felt financially secure just a couple years ago, now they're truly concerned about their financial health, especially if they are close to, or in, the retirement stage of their life.
A year ago, there was just a handful of people hurting, now the hurt seems widespread as the equity markets have destroyed large portions of diversified wealth. A year ago, most of the people I met with to discuss listing their property fell in two categories; 1. the person who had to sell and 2. the person who wanted to sell but were at that time unwilling to sell because they felt the market would recover quickly, since time was on their side. The first group either sold their property through a conventional selling process, a short sale or worst case, foreclosure. These folks have “cut their losses” and have moved on. The second group now find themselves in a very difficult situation.
Those folks who didn't sell last year now face the realization that their properties are now worth 20% less than they were worth this time last year. Most of these people have been affected by the collapse of the equity markets others have lost jobs or closed their businesses. Large numbers of these people have moved to the "must sell" category. For these folks to sell their properties, they now must compete with properties in their market which are bank owned or short sales, many being offered at prices 40-50% off of peak market values.
Realistically, we most likely have some more value to lose before our market hits it's pricing bottom. When we look back at this crisis, I think we'll see the "bottom" in terms of sales activity occurred the third quarter of 2008. If we look at the relationship of activity vs. price, the two run parallel, activity leads price by 18 months to 2 years. If we look back, the peak in sales activity occurred the second or third quarter 2005, but prices didn't peak until the 2nd quarter of 2007, about 18 months after the activity peak. It is my belief price bottoming will follow with the same delay.
Before our prices bottom, we have to work through two major issues - 1. Foreclosures and 2. the upcoming commercial loan problems that are forecast for the 3rd and 4th quarter of 2009. It's likely we'll see additional value losses in residential real estate before we find our bottom. Once we finally get to the bottom, we'll need to consume the mountains of inventory that has built up over the last few years. So, if we hit the price bottom in 12 months, then are in a flat market for 18-24 months while we consume inventory, now we are three years out and at a price point lower than where we are today. Therefore it all becomes a question of time. Once we hit the price bottom, how many years of appreciation will it be before we get back to peak market values? Once we get back to peak market value, where will inflation be? What will your dollar be worth?
These are the questions I contemplate with sellers every day. Some choose to hold, understanding the likely hold period will be 6 to 10 years. Others choose to “cut their losses” and move on. All realize, it is all just a matter of time.
