Why Naples Real Estate is Undervalued

On September 19, CNBC did a story on the “Finding Housing’s Market Basement” where Richard Dekaser, a senior vice president and chief economist at National City Corp., singled out Naples in talking about the “first rays of sunshine on a possible end to the housing crisis.”

“Three years ago, the poster child for excess valuation in America was Naples, Florida,” he said.

Not anymore. Through the second quarter of this year, prices have dropped 33 percent, he said, leading him to judge the market as “slightly undervalued.” That means home prices are actually lower than where they should be.

Although I have not agreed with Mr. Dekaser in the past regarding, due largely to the methodology used in evaluating Naples overvaluation, I do have to agree with him at this time - to a point. Where I differ with Mr. Dekaser is that the Naples real estate market has gone through significant valuation adjustments and just might be undervalued to such a point where prospective buyers might be missing some excellent purchase opportunities.

In order to better understand the Naples area real estate market it is best to break down the market into an overview of single family homes and condos with a view towards the historical price appreciation prior to 2003. In the very late part of 2002, loan or mortgage program underwriting criteria were lowered to a point where sub-prime borrowers, stated income, and no doc loans proliferated. The proliferation as we are all aware resulted in abnormal price appreciation due to increased demand, which ultimately has resulted in today’s economic issues. Price appreciation 2002 and prior could represent what can be determined a “normal appreciation.”

Naples Homes:

Below is a graph reflecting both the actual and projected median price for a Naples single family home, based upon the “normal appreciation” prior to 2002, showing 1998 to 2007 for actual annual median price with actual median price through September 30 for 2008.

Graph of Naples homes median prices actual versus projected

Under “normal appreciation” the median price to be paid for a home in Naples would be approximately $378524 for calendar year 2008. Through the nine months ending September 30, the actual median price paid is $335000.

In 2005 the median price paid was $474450 (the peak of the market), while under the “normal appreciation” a home should have been selling for $295060. The drop in median price from the peak of the market to the actual year to date through September equates to 29.4 percent.

The present actual year to date median price of $335000 is less than the actual median price paid in 2004 which was $345000.

This is an overview of the Naples area single family homes and there are differences to be found between various neighborhoods where the median price declines are greater and others with where the price declines are less severe.

Naples Condos:

Below is a graph showing the median price paid for Naples condos for the calendar years 1998 to 2007, with the actual median price paid for the 9 months ending September 30.

Graph of Naples condo median price paid and projected median price.

Under “normal appreciation” the median price to be paid for a condo in Naples would be approximately $270083 for calendar year 2008. Through the nine months ending September 30, the actual median price paid is $260000.

In 2005 the median price paid was $360000 (the peak of the market), while under the “normal appreciation” a home should have been selling for $211070. The drop in median price from the peak of the market to the actual year to date through September equates to 27.8 percent.

The present actual year to date median price of $260000 is almost the same actual median price paid in 2004 which was $241000.

This is an overview of the Naples area condos and there are differences to be found between various neighborhoods where the median price declines are greater and others with where the price declines are less severe.

Summary:

When looking at history there have always been recessions where property values declined and in the long run have increased. The Naples area and Florida is projected to substantially increase. The State of Florida projects the estimated population for the Naples area to increase about 6 percent by 2010 and 14.8 percent from 2010 and 2015. Barriers to affordability have been reduced in regards to the increase in homestead exemption from $25000 to $50000, capping of assessed valuations for non-homestead properties, portability of the homestead savings to other Florida properties, historically low interest rates, and restrictions on county government spending.

These changes are subtle and will assist to increase the demand for residential real estate.

With Naples real estate currently under-valued - should you be thinking about making your Naples Florida real estate purchase at this time? If so, please call at (239) 593-3581 or email me via the contact form to the left.