The Real Estate market from our perspective.


The Real Estate market from our
February 1, 2015
I am often asked if I think we are nearing another bubble
like we experienced starting in 2006.  My
current answer is no.  While many areas of
our market have exceeded their previous highs by 25% or more, I do not believe
a 40-50% correction like we saw last decade is warranted or imminent.  Many things contributed to that crash.  The ones I recognize were easy financing, low
interest rates, and greed.
 We all have heard the
stories of hotel valets that were able to secure 100% financing to purchase
more than one spec properties with limited assets.  At Divco we were hired by at least 5 people
in 2005 to build spec homes in addition to what we were building
ourselves.   In the new construction
market, people were so eager to start new houses that they would sign contracts
with up to 10% as an allowance for future upgrades.  At that time, banks were extremely lax in
their requirements of anyone for spec building. 
At Divco we were continually contacted by banks wanted to extend lines
of credit or raise our limits for spec building.  I am sure most all other builders were
experiencing the same thing.  Since
values were rising so quickly there was not a concern about the ability to pay
the interest, with no thought to what would happen if the property values
We all know what then happened.  As the increase in value slowed and then
dropped, the people and companies who had nothing invested in a home or could
not afford to come out of pocket to sell a property quit making payments.   Soon, the real estate market had significant
amounts of bank owned property.  Values
in many established areas declined by 40-50% and in areas like Cape Coral and
Lehigh Acres many declined to 10-20% of their former appraised values.
Why is 2015 different? 
One of the main differences is in the financing.  All of our current lenders require 20-30%
down on spec properties.  I have not
heard of any lenders that are loaning 90-100% on spec properties.   With this policy, many people who would like
to build spec homes are excluded because they do not have the funds for the down
payment.  This reduces the overall number
of properties for sale and also those that potentially could be bank
owned.  The next is where the increases
are occurring.  While all of the local
markets have increased in price in the last several years, the areas that have
exceeded their prior record prices are areas with limited land and great
appeal.  Waterfront areas and down town
Naples are examples of this.  The final
one is frenzy.  While the new
construction market is significantly better than it has been  in the last 8 years, it is not as frenzied as
it was in 2004 and 2005.  Prices were
rising a percent a month during this period. 
In summary, in the current market I do not expect large
swings either way.  I think the large
increases seen in the last several  years
will moderate to a more sustainable level, with increases in certain areas,
some pausing in heated markets, but without the downturn we saw start in
2006.  Of course, no one has a crystal
ball and there are many global and national situations that could disrupt the
market, but I do not currently see same items looming that I believe caused the
2006 down turn.
Written By, 
Stephen Kaufman, CEO of DIVCO Custom Homes