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The season’s real estate: A busy business indeed

Posted On: 05-03-2015

By Darrell Hofheinz

Daily News Real Estate Writer

At first glance, Palm Beach’s housing market this season seemed a paradox: How could real estate agents and brokers report being busier than ever — with transactions on the rise — when the number of properties for sale has been hovering at historically low levels?

The answer is all about supply and demand. On steroids.

“Despite chronically low inventory, sales are actually rising in Palm Beach. They’re moving faster than inventory can be replenished,” says analyst Jonathan J. Miller of Miller Samuel Real Estate Appraisers & Consultants. “The demand is overpowering the supply, so the market keeps grinding forward as inventory falls. And that continues to put (upward) pressure on prices.”

No wonder real estate professionals in island offices are trying to catch their collective breath. “The pace just feels faster,” Miller said.

The season began in mid-October with 101 single-family properties — including houses and townhouses — listed for sale in the Palm Beach Board of Realtors Multiple Listing Service. That was a historical low, according to many observers, and down from 120 the year before. Over the last seven months, as properties sold, new listings replaced them — but just barely.

Last week, the number of single-family listings hit 136, a number nearly unchanged from year ago. Even so, the total still is down sharply from what many brokers would expect to see in a bustling economy with house-hunters on the prowl.

Limited inventory

The reason for the limited inventory isn’t rocket science: No one is adding any more land to this built-out barrier island. So what’s already here is the only thing that be sold and redeveloped — and sell it has. In 2014, the Architectural Commission approved designs for 36 new houses, up nearly 30 percent from the previous year, according to a new report from the board.

For more proof, just take a drive through the North End, where entire streets resemble construction zones and homes are rising in just about every price range. North End developers, largely dormant during the recession years, have been scrambling to make up for lost time, snapping up outdated houses from the 1950s and ’60s and building houses on speculation to sell to eager buyers. Other North End buyers have hired architects to design new custom homes, often with West Indies-style architecture that provides open floor plans for modern living.

Over the past two years, buyers burned through so much inventory on the North End that what’s left is selling at a premium: During the past couple of seasons, buyers could readily find lots for under $2 million. But those lower price categories simply evaporated as buyers feverishly competed for limited pickings, said broker Bill Yahn, whose regional duties at the Corcoran Group include overseeing the Palm Beach office.

“We saw a lot of homes bought and sold at, say, $2 million. And now the homes (that replaced them) have been built and traded in the $5 million to $7 million range, lifting the prices up. It’s inflating the value of other tear-down properties, because the owners are recognizing that they have an asset in high demand,” Yahn said.

Who is buying?

The situation is compounded by property owners who know they could get a nice price for their homes but remain hesitant to sell, unsure they’ll find something else on the island they like better — or even as much.

“Where are they going to go?” asks one broker, who has sold property for a couple of decades on the island.

Those who do sell and become house-hunters also know they’ll be competing with plenty of buyers new to the island. Although foreign buyers continue to seek Palm Beach addresses, the interest from South and Central America lately hasn’t been as pronounced as it was in the the past few seasons, thanks, in part, to the political unrest and currency devaluation south of the border. Meanwhile, brokers here are monitoring whether the ever-strengthening American dollar will dampen sales to Canadian buyers, traditionally an island mainstay.

And wealthy Chinese buyers, who have driven sales of trophy properties in New York City, have yet to make much of an impact here. But Douglas Elliman CEO Howard Lorber is already seeing interest among Chinese buyers in Miami. “They’re beginning to buy in Miami, but not to the extent they are in New York,” Lorber said. “I don’t think that there’s any question that we’ll see them in Palm Beach.”

Among domestic buyers, Californians have joined the traditional flock of snow-weary New Yorkers and New Englanders heading to Florida for weather as warm as the state’s tax picture is friendly. And their wallets have been fattened by the booming stock market.

Was anyone really surprised, after all, that it was a hedge-fund king — Connecticut billionaire Paul Tudor Jones III – who at the tail end of March paid Dwight and Martha Schar a recorded $71.2 million for oceanfront Casa Apava on the South End? Brokered by Lawrence Moens of Lawrence A. Moens Associates, it was the season’s largest single residential sale and ranked No. 3 on the list of the highest-dollar single seller/single buyer deals ever recorded on Palm Beach.

Casa Apava wasn’t listed for sale in the local MLS when it changed hands, nor were several other big-dollar deals this season. And while Palm Beach has always had its share of off-the-market sales, brokers have reported that private deals are more prevalent than ever, as agents seek to match buyers with properties through a phone call, often accompanied by an offer. Adding even more interest to that picture, more than one property destined for the MLS sold last season before it ever had a chance to get there.

Broker Ava Van de Water of Brown Harris Stevens said it all adds up to fierce competition among buyers.

“They know what they want, but they can have a hard time finding it,” Van de Water said. “We deal with that in every price range.”

Wish lists

So just how active has the local market become? Analyst Miller pointed to a benchmark metric in the quarterly sales reports he prepares for Douglas Elliman. The so-called “absorption rate” estimates how many months it would take to sell every single-family house, townhouse, vacant lot and condominium listed in MLS at any given moment, given the current sales pace.

Last year during the first quarter, it would have taken about 15 months to sell everything listed. With this year’s revved-up market, doing so would have taken just under 10 months.

“You have this compression of supply and expansion of demand,” Miller said. “And that makes the market feel like it’s a frantic kind of place.”

The number of transactions also tells the story. Sales of houses, townhomes, lots and condos during January, February and March were up 24 percent, year over year – from 98 in the first quarter of 2014 to 118 this year, according the quarterly report Miller prepared for Douglas Elliman, using MLS records.

That trend also was apparent in the final three months of 2014, as detailed in the latest Evans Report real estate analysis prepared by Palm Beach real estate lawyer and property owner Les Evans. His analysis showed that total fourth-quarter residential sales rose year from 105 in 2013 to 117 last year. Unlike Miller, Evans’ analysis includes every sale recorded at the Palm Beach County Courthouse.

Even with sales on the rise, local agents and brokers still see gaps in the market. There are a few items on their wish lists, things they say would help satisfy buyers while easing sellers’ worries. They include:

* A new condominium complex or two on the island — or even a good supply of updated older apartments, including larger ones with high ceilings and direct-water views. Again and again, brokers and agents report that most buyers have little interest in taking on a major condo renovation project. With no land available for the new tower, some buyers are looking instead across the bridges.

Such interest this season fueled the controversial plans of developers of the new 24-story Bristol condominium planned for the former Chapel-by-the-Lake site on South Flagler Drive just south of the Royal Park (middle) Bridge. The project could be ready for occupancy within a couple of years, and condominiums there are expected to sell for between $4 million and $25 million.

* More townhouses priced below $4 million in what one broker calls “the Palm Beach-affordable range,” which would provide buyers a lower-priced alternative to condominiums and a single-family houses. Most of the luxury townhouses available today — on Midtown streets or in the near North End — are priced between $4 million to $6 million.

* More new single-family houses priced between $5 million and $7 million. That price category that has become the island’s new “sweet spot,” encountering little resistance from many buyers, broker report.

Even with these obstacles, broker Van de Water said the mood among her agents has been largely upbeat over the past six months. The housing stock may be limited, but there’s certainly no shortage of house-hunters.

“Everyone is just so confident in the market right now — and they’re confident in putting money in real estate,” she said.

 

Source: Darrell Hofheinz, May 3, 2015, Palm Beach Daily News

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