When is the Best time to Buy in Sarasota?
Real Estate is one of the biggest investments we will ever make. Like any other investment, timing can be a key component of an overall purchase strategy. For those who have been following our market updates, we called the bottom in April of 2011. We not only track the number of sales but also average price and price per square foot for Sarasota County.
Patterns Emerge Since 2010
What we saw in the 2012 Sarasota Market Report were consecutive years of higher highs and higher lows with increased volume. These lows occurred in the early fall of 2010, 2011, and 2012. The mid-summer highs occurred in each of these years as well.
The Annual Report for 2012 shows a nice botting pattern when looking at the market yearly. Looking at annual and month charts, these visually showed the downturn was slowing with a nice, modest upturn. Annual transaction volume almost exceeded 2005 indicating the 3rd best year since 2003.
Looking at the preliminary numbers for the first half of 2013, a similar pattern is emerging. The (preliminary) May 2013 average sales price is at its highest of $272,000 since 2012. The rolling 3-month average cost per square foot is also at a statistic high at $144.30. Final numbers for the first half of 2013 should be published here by mid-June.
Looking Forward
The second half of the year is most likely the best time to close in late summer before the snowbirds hit (if the pattern continues). Since the dates we are reporting are settlement dates, we project back 60-da
ys to determine when these contracts were written. A low period of September of each year would indicate contracts were written and accepted in July.
Foreclosures
We track the number of new filings at the Sarasota County Clerk’s office and are not seeing and upward movement in the new cases being brought. If anything, the number of new foreclosure filings is slowly turning downward this year. While there are many pending cases in the pipeline, it appears that there will be no new upswing in supply. Typically, active foreclosures represent less than 10% of the market at any given time and can be as low at 5%.
Financing vs. Cash
The shift from financed purchases to all-cash purchases occurred with a 21% increase in 2008 and a 16% increase in all-cash sales for 2009. Cash real estate sales have remained at nearly two-thirds of all transaction in Sarasota County. 4,361 total sales for Sarasota County have been recorded to date. 2,885 of these are listed as “all cash” which represents 66% of all sales that do not involve a lender on the buyer’s behalf. This has remained fairly consistent over the past several years. Interest rates remain and historic lows while credit standards remain fairly tight.
It was a real eye opener to discover that what began the recovery was the cash buyer. This is one of the market realities that may force a little common sense into lending standards. After all, banks make money by lending money and essentially, the market recovery happened without banks making loans.
Buy vs. Rent Analysis
The monthly cost to own a home vs. rent a home has really favored buying for a number of years. People who had their lunch handed to them during the downturn are beginning to have their credit scores return. You will see them entering the market as buyers. The fact that rents far exceed the cost to own is a temporary situation at best. This will only last as long as the only choice a family has is to rent due to bad credit. We expect the monthly cost to rent a home to decrease slightly or remain flat. The current monthly cost of ownership will likely rise with prices and interested rates. Buying is the best choice for those who have the cash or financing behind them.
Hedge Fund Participation in the Real Estate Market
The rumors have been around for a few years that hedge funds came into the market and bought many of the foreclosures
directly from banks in 500 and 1000 home lots. I have read a few stories just in the past week that they may be in the process of exiting the market. Remember, they are good at doing what they do quietly and ahead of the market. They typically get into to an investment vehicle and get out once the bulk of the money is made. This is saying there are going to be fewer foreclosures out there to buy. There are more buyers entering the market who for one reason or the other cannot buy right now but that is temporary. What this is also confirming is that there will be fewer tenants in the market which will impact the rate of return due to flattening or modest retracing of rent prices. Real Estate prices most likely won’t (and shouldn’t) have returns of 10%+ per year as they did over the last year. It is simply not sustainable and the funds know this. Expect interest rates to rise at some point in the future which will slow the rate to a more sustainable 4-6%.
Conclusion
If Sarasota is a place you are buying. Our belief is summer is the best time to buy. The market is heading up and many of the snowbirds have gone back home. It’s human nature to think of sunny Florida in the winter while you watch the snow fall from your window up north. People just don’t think of the Sunshine State when its 95 degrees in New York. This creates the perfect opportunity to buy when the demand wanes during the summer.
While we do our best to read the market, any statement looking forward is not a guarantee of any future return. There is risk involved in any investment and we urge you to get the facts you need to be comfortable with any decision to buy or stay out.
John Woodward
Broker/Owner
Sarasota Real Estate Group
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