November 2008
Community Paper
copyright ©2008 by Community Paper College Park, Inc. All rights reserved.

OLD MEN RUNNING RAMPANT IN COLLEGE PARK!
by Mike Derenthal, Derenthal Realty Group and College Park resident

I wrote a column six months ago that highlighted statistics on our College Park real estate market. It was April of ’08. The summer was fast approaching. The headlines of the day were dominated by the Democratic primary race. The Dow Jones Industrial Average was hovering around 12,000 points. And Bear Stearns had collapsed the month prior.

Fast forward six months. Despite some of the scary stuff that’s going on with financial markets and talk of a recession, real estate continues to show signs of improvement. But be careful. By improvement, are we talking about an increase in values? Hardly. Values continue to inch downward, while the rate of buying activity continues to increase.
Understanding some of the subtleties of what’s going on here can be illuminating. I was crunching more numbers recently and something jumped out at me that I think paints a pretty interesting picture of our market right now.

The hard numbers
I took a look at closed sales in the College Park area from two time periods. The first was the 90 days prior to April 20, 2008. The second period was six months later - the 90 days preceding October 20, 2008.

My April data showed 36 homes sold in that period. That number has increased to 49 homes sold in my October timeframe. On one hand you could call that a 36% increase (good, right?). On the other hand, the median selling price of those homes back in April was $300k, while the median selling price in our more recent period has come down to $293k. That’s a 2% loss in values since April (bad, right?)

Not so fast my friend. These numbers don’t tell the whole story.

The Culprits
A lot of what’s going on can be attributed to a small group of old men who are having a real impact on our property values. Some of them I know well, with names like George, Abe, Alex and Andrew. Others like Benjamin and Ulysses don’t hang with me quite as much as I might like, but I bump into them occasionally.

That’s right. The cash boys are back in town, and we need to be aware of what they mean for our real estate market.

On average, about 11% of College Park’s real estate transactions have been cash deals over the years. That number has inched up as lending standards tighten and an oversupply of homes on the market has lured investors back into the mix. Cash transactions accounted for an unusually high 14% of all closed deals when I wrote the article in April. But of the 49 homes that sold in the most recent 90 day period, a whopping 24% were cash transactions. That is a huge increase.

What are the impacts of a cash transaction? It depends on whether you are on the giving end, the receiving end, or just an innocent bystander to the whole sordid affair.

A cash buyer can close quickly. That is valuable to a seller who may be in a bind and who is fearful that values may fall even further if their property remains on the market. And a cash buyer doesn’t have the uncertainty nor the contractual “outs” that a financed buyer typically brings to the table. Again, this adds value in the seller’s eyes, especially if the seller is motivated. All this should add up to the buyer getting a great deal.

But while a cash deal may be a blessing to a distressed seller, they can often seem like a curse to the rest of us in the way of lower comps. And this is exactly what we are seeing in these numbers.

If you are a half-full kind of person like myself, right about now you are wondering where the positives are in this article, right? No worries mate – I’ve got you covered. And those positives reveal themselves when I start to pull the cash deals out of the mix and study them separately.

The picture that emerges is one of two markets. The first being a relatively stable market of homes that are selling at values similar to what we saw in 2005, even if they are taking considerably longer to sell. This would seem to fly in the face of stories we are hearing about the real estate market crashing down around us.

The cash deals however, are a different story. Cash buyers are seeing some fantastic deals out there right now. Sellers who are dealing with cash buyers however, are probably not all that excited at the low prices they are having to stomach. Some recent cash transactions right here in College Park saw properties sell for $150k, $140k and one even sold for $106k just a few days ago. Wow.

And before you raise your half full cup to toast, rest assured that as more and more of these cash deals take place, they may in fact serve to chip away at values. After all, appraisers, banks, and future buyers will see these cash transactions and that will figure into how they will value our properties. But as I’ve said so many times before, College Park is a unique, fantastic place to live and raise a family and that’s not going to change anytime soon. Ultimately that is what will allow our properties to outperform others during this slow market.

Feel free to drop me an email at mike@derenthalrealty.com.

by: Mike Derenthal, Derenthal Realty, www.DerenthalRealty.com
1520 Edgewater Drive, Suite E, Orlando, FL 32804
407-965-1919

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