The Naples area will see the sharpest decline in home prices in the nation next year, according to a report released recently by financial services company Fiserv Inc.
That’s a conclusion that is drawing sharp disagreement from other analysts — but all concerned acknowledge that the area’s unusual demographics and diverse housing market make it tough to lock in on exactly what will happen.The report predicts that Naples, with a median home price of $225,000, will see a 16.6 percent decline by the first quarter of 2012 compared to a year earlier. Homes are forecast to continue to lose value through the end of that year.
In the same report, Cape Coral-Fort Myers, with a median price of $99,000, is forecast to have an 11.1 percent drop through the first quarter, with prices continuing to fall through the third quarter of 2012.
“We take a number of factors into account, including unemployment and foreclosures,” Fiserv chief economist David Stiff said. “In addition, we look at the long-range affordable level in each area based on income growth and population growth.”
But beyond those hard numbers — used by Fiserv to study all the country’s markets — the picture becomes more complicated.
For example, real estate agent Cheryl Turner of John R. Wood Realtors said that using the unemployment rate as an indicator can skew predictions downward because the Naples market relies much less heavily than most on the income earned locally.
“A lot of people in Naples are retired and they don’t have any desire to be employed,” she said. “You still have all those baby boomers who are going to head south and fulfill their dream of retiring to Florida. They may buy a little smaller or less expensive property, which is the trend I’m seeing, but they’re still coming.”
Brad Hunter, chief economist for Metrostudy, which tracks subdivision sales in Southwest Florida and other areas, said that because of those characteristics, calculating future value in Naples is “not so much reversion to the mean, where prices would be dictated by local incomes. It’s more like what one thinks will happen in the economy as a whole. For example, we’ve seen erosion of the stock market recently. If you think it’s the beginning of a bear market, that’s probably bearish for Naples. If it’s just a correction, it’s the opposite.”
Stiff acknowledged that factors like that make predicting future values in Naples somewhat subjective. “I don’t necessarily disagree with what local analysts are saying in that regard.”
But he cited big-picture factors of his own that could hold down prices in Naples.
“Many of those who are going to retire have moved to the sidelines,” he said. “Some of them are not buying because they’re waiting for the absolute bottom. Psychology matters a lot right now and we can only get at that indirectly.”
Also, Stiff said, momentum plays a role in a decline as long as the one that started in Southwest Florida in the beginning of 2006. “When prices are falling, they tend to fall for a long time.”
Boomers will continue to retire, he said, but noted that they may delay buying a new home because “many of them lost substantial stock market wealth” as well as having reduced equity in the homes where they’re living now.
Turner said that from the standpoint of what’s happened in the market over the past year, she thinks Fiserv is unduly pessimistic.
For example, she said, Naples Area Board of Realtors statistics show that the median sale price in 2011 so far has held steady at $195,000, the same as in 2010.
Turner also noted that the market seems to be holding its own in terms of demand: In July there were 7,010 homes listed for sale compared to 8,731 a year earlier.
That decrease has come about in part by selling homes foreclosed on by lenders and then resold, so continuing foreclosures shouldn’t have a negative effect, she said, because “They’ll be replacing the ones that have already been absorbed.”
Hunter said that however things go in the Naples area, any future price declines likely would not affect different price ranges equally.
Hardest hit, he said, will be homes going for $750,000 to $2 million.
“Those are price ranges that people aspired to and were able to get into because of the exotic financing available” during the boom, he said.
Least likely to be affected, Hunter said, will be the extremely high end, especially waterfront.
Buyers of those homes, he said, “weren’t aspirational, they were just rich.”
Courtesy of News Press
Melinda & Paul Sullivan, Realtors