May 2009
Community Paper
copyright ©2009 by Community Paper College Park, Inc. All rights reserved.


Getting Squeezed - A Tale of Three College Parks
by Mike Derenthal, Derenthal Realty Group and College Park resident

The media has been reporting improvements in our housing market. Inventory is down. The number of closed sales and new contracts is up. Cautious optimism. Optimism because any improvement is a good thing. Cautious however in that a large chunk of the “improvement” has been record numbers of distressed homes such as bank-owned, foreclosure, and short sale properties.

As is often the case, a deeper study of the numbers reveals something that I think is being overlooked.

First – what’s on the surface? I took a look at the closed sales over the past 90 days here in College Park. A quick pass of the numbers revealed the following:
• 27 closed sales versus 34 from the same period a year ago - slightly behind last year’s pace. Not all that interesting.
• The median selling price in the past 90 days was $222k versus $301k from last year. Significant in my opinion.
• 13 (or 48%) of the homes that have sold in the last 90 days were at some level of distress. This is a massive increase over the same period last year when a mere 3 (less than 9%) of the closed properties were in distress.

If you’ve been keeping up with the news at all, none of the above is what I would call earth shattering. So lets dig deeper.

    Now what follows may seem a bit “mathy” to some of you, but if you can just bear with me for a couple of paragraphs I think you’ll find it interesting once we get through it.
The selling prices of these recently sold homes covered a wide range, from below $100k on the low end, to well over $700k on the other extreme.
    But what is interesting is that, while there is a wide distribution of selling prices here in College Park, almost all of the distress sales are showing up in two distinct groups at either end of the price spectrum. And this is creating problems for everyone else left in the middle.
    On the lower end, 2 out of every 3 homes that sold for a price below $190k were distress sales. On the higher end, 4 out of every 5 homes that sold for over $400k were distress sales. For everything else in between (approximately half of everything that sold) only three were distressed properties.
    What we’re seeing in these numbers is a division of three different types of properties here in College Park that speak so aptly to what happened to the real estate market in recent years.
    On the lower end, many of these homes were previously purchased as investment properties by newbie investors or first time buyers who were leveraged to the hilt to enable the purchase and were thus more susceptible to the damages brought about by dropping values and a more competitive rental market.
    On the higher end, the depth of the downturn has not truly revealed itself yet in my opinion. In any case it has been harder to track.
    In fact, of the 5 homes that sold over $400k in the past 90 days, none of the 4 that were distress sales are even identified as such in the MLS sales data. In other words, unless someone has first-hand (I think the term “insider” is much sexier) information on these transactions, they wouldn’t even know that they were all short sales.
    These recent higher end closings typically represent newer, larger homes that were built during the height of the market. The owners of these homes were usually able to put more money down and as a result they were not so highly leveraged, or if they were they had more resources to outlast the market correction. In any event, if they found themselves having to sell at this point, they often have the resources to either pay the difference at closing or to negotiate a deal with the lender such that the home was never marketed publicly as a short sale.
    So what’s left? The majority of homes in the middle of course. And here’s the rub – those homes in the middle make up the “meat and potatoes” of College Park real estate. The numbers would suggest they are typically healthier in terms of equity and / or represent a smaller portion of speculative purchasing during the boom.
    And while statistically less likely to be sold in some state of distress, the values of these properties are nonetheless being brought down (some might argue disproportionately) by the effects of the distressed properties on the higher and lower ends of our market.
Is that justified? As a homeowner in this middle range, I don’t like it. But as a realist who loves the efficiencies of market economics, I can’t disagree with it.
    The real question moving forward is to what level appraisers and banks will work to uncover this type of data when trying to assign an appropriate appraisal value to homes that are being financed. New rules to be implemented by Freddie Mac and Fannie Mae on May 1st are about to throw the appraisal industry on its ear and in my opinion could lead to significant problems in home valuations in established, eclectic neighborhoods just like… you guessed it – our own College Park. I’ll talk about that in more detail in a future column. Stay tuned….

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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