A Naples Real Estate Truth Bomb
Hello Naples Friends! Today, I’m going to share with you a much-needed truth bomb about Naples real estate according to Shannon Lefevre. It all stemmed from an innocent Facebook post that arrived in my stream last week. Here it is:
This is a photo a Broker took illustrating the line to get into a new listing with the hashtag “35 offers”. I believe it, we’ve been seeing this stuff for a while. While many buyers and agents are attracted to the hype, they aren’t paying attention to the details and this creates the problem. Posts, comments, and conversations like these irritate me to no end. Is it because I largely work with buyers? No. It’s because I’m not a fan of markets that are so extremely tilted to one side and perpetuate a stream of unconsciousness.
I’m not one of those people purposefully praying for world peace or banging my tambourine to the soothing sounds of Kumbaya but holy smokes, there’s nothing more repulsive than capitalizing on the fact some people are probably going to get really hurt in this market.
If I see something irritating on social media, I have the ability to mind my own business and scroll past without comment but I couldn’t help myself this time. I commented, “Mhmm if memory serves, the lines were the last thing we saw before the bust.” Snarky, I know but it’s “my” truth. In typical real estate agent dogpile fashion, that tiny comment leads to six “local experts” chiming in. Here’s what they had to say:
One out of six seemed to be agreeing with me while the others talked about all their reasons why “a downturn is not going to happen to us.” Contrary to popular belief, Naples real estate isn’t exempt from depreciating values. Let’s pick apart the recent philosophies I’ve heard several times around Naples. (I blacked out the names for the sake of common decency.)
Naples is an all-cash market
I guess all these buyers are sitting around with millions in their checking accounts all the time because all these buyers are paying cash? A ton of people don’t realize that magic cash came from selling stocks, selling other real estate holdings both near and afar. Perhaps all those businesses that were sold had nothing to do with that cash in those accounts. The fact is, when buyers’ balance sheets look healthy, they buy real estate in Naples. Who doesn’t want to have a good time in the subtropics? What people forget is when a balance sheet looks light, those once buyers go back to the drawing board to see where they can trim the fat, and often they decide that second, third, fourth, fifth property is the vehicle to replenish that piggy bank. New inventory hits the market.
There is always a portion of our market who can do whatever they want whenever they want. That means there are sellers who don’t mind dropping their Naples property because they’d rather do something else. I remember during the peak of the last market trend when I had a couple who purchased a home in Old Naples. When they decided to write the offer, I told them, “It’s probably going to take “x” to get this property but you need to know, you are probably going to go through a time where I can’t get your money out of it if you decide to sell it. Are you prepared to hold the property until the market recovers?” He said, “Yeah, yeah no worries.” One year later he called to put the property on the market. I said, “NO, NO remember when I said…” He said, “Shannon, it’s totally ok if we take a loss. We’ve decided to get into horses and we want to do that right now.” He was fine with taking the loss but when that new reduced sale hit the record, property values shifted in Old Naples. If you get enough of those sales, you have new market values.
Naples isn’t affected by the stock market
How much do you want to make a bet? If the market takes a big dump, it’s been my experience buyers don’t want to pull money out of their low-performing stocks to buy real estate. They certainly don’t do it to buy over-valued real estate. They may make sound business decisions but that is not what’s going on right now. Many buyers will wait until the money makes sense and in a market like Naples, that can take years.
What do buyers do instead? They wait for values to get in line. Buyers will shift from a buying position to a renting position. They’ll choose a cheaper market like Sarasota and Fort Lauderdale. They’ll opt to do nothing at all.
Everybody has real money this time
Inexperienced agents are putting WAY TOO MUCH STOCK into how the downturn happened during the financial crisis when an exorbitant amount of unqualified people were flipping properties for profit without having to come out of pocket or hold their investments to see a return. Many of these people didn’t actually have the cash to hold these properties and we saw some backlash from that. Naples didn’t experience near the same levels that other markets did because we didn’t have the same levels of new construction other markets in Florida offered. Our prices are considerably higher as well which meant we had fewer buyers with that objective than other markets but we certainly didn’t get out of that trend unscathed.
I’ve seen a fair amount of investors who are expecting great returns on their investments here which may be accomplished slightly before and during a peak of a market but what do you think happens when there are fewer renters. What happens when those buy, remodel, flips can’t be flipped? When rents come down, some investors put those properties on the market. When they don’t sell, they reduce their price. When flips don’t flip, those prices come down too.
What these inexperienced agents don’t know are the countless reasons people sold their Naples real estate. Some people flaked out because their property values tanked and it scared them out of theirs. Others recognized big losses in businesses and stocks and needed that cash out of their Naples properties to restabilize. Other owners had to buckle down to keep their businesses from imploding and spent less time in Naples making it an expensive and pointless asset. Those quarterly assessments, golf, and beach club memberships don’t pay themselves. Those discounted sales had nothing to do with unqualified buyers getting bad loans.
Have you noticed the number of new construction properties that have hit the market during the past year? Many of these (especially the higher-priced properties located in areas like Port Royal and Old Naples) get accomplished through developers and wealthy individuals who have the money to take the risk to earn those fabulous returns. If the market takes a hit, do you think they’re all going to stay in the game? They don’t. As recently as 2016, I saw an interesting influx of owners and builders punt their original plans to build speculative new construction and list their lots instead. They got really anxious over the idea that Hillary was going to take office and the Naples real estate market was going to take a hit. Once President Trump was elected, they hit the gas again by taking their lots off the market and building those properties. There are three lots for sale listed in Port Royal right now all owned by different LLC’s who likely expected to build speculative homes on those sites. There are three in Olde Naples. Decisions like this seem to always start at the top of our single-family market. Bigger riskier projects like developments and smaller projects with less risk may follow suit if the market continues to move south but those big projects are way harder to stop or slow.
We Have A National Housing Shortage
There may be a National shortage of homes but Naples doesn’t ebb and flow quite like a primary home community. Tourism is the biggest thing we have going for us. Construction is another. The number of restaurants that closed during the downturn alone is enough to make your head spin. If this economy takes a hit and people decide a job isn’t that bad of an idea, we’re going to see more than a few people punt out of town looking for better jobs. Those lower-priced homes are going to be some of the first on the market. That’s why I always watch the bottom of our Naples market because if it’s hitting them, it won’t be long before it starts affecting my luxury business next. Inventory levels are still low in Naples Park and Naples Manor but market time is double compared to what’s pending. The active market time in Pelican Bay is double compared to the pending listings as well.
What is different compared to the last bust?
There is more cash. There are more people working from home. There are people who have had it with their high-taxed States. There are people who are done with living in explosive crime communities. Are all those reasons going to be enough to shift the Naples market forever? Did anyone forget the droves of people who came to Southwest Florida and moved halfway back? There will be some who chose Naples as their full-time home who are going to find they cannot tolerate our summer humidity long term.
What happens when those working from home in a strong economy end up having to go back to a real office when the economy starts turning? It happened before. When Marissa Mayer the new CEO of Yahoo took over in 2012 one of her first initiatives was to get all her people back in their offices. Many other CEOs followed suit. Poor Marissa ended up quitting after plummeting employee morale and Yahoo’s sale to Verizon but if you think history doesn’t repeat itself, think again. Large banks like Bank of America are already doing it. Citigroup, Goldman Sachs, JPMorgan Chase are going back in February. Those headlines hit yesterday. Can all these people who moved to Naples to work remotely quit and find a job where they can still work from home or perhaps find a good job locally? Stay tuned and find out.
Work With An Agent Who Knows Naples Real Estate!
It is no mystery that a large majority of real estate agents in this market follow each other’s mindsets and have no trouble regurgitating other agents’ elevator speeches. For Pete’s Sake, look at the back and forth we’ve seen with how Covid is being handled. It’s no different.
It’s imperative you work with an agent who can help you determine if now is a good time to do what you’re planning on doing. I spent the better part of the last few weeks talking a few people OUT of buying property. If it doesn’t fit your overall objective, I’m going to tell you why I don’t think you’re making a sound decision. Ultimately it’s your call on whether you go forward or hold but don’t you think you deserve the highest intelligence to make that decision?
Most buyers I’m talking to still really want to do something and with the limited inventory (and I mean extremely limited inventory,) it’s causing people to do crazy things. I have a repeat client right now who is calling nearly every day to ask what I think about new listings hitting the market and about other listings that pended contract. She’s pushing so hard she loses sight of what she’s trying to accomplish. I’ll tell her why I didn’t call her about the property, soothe her anxiety and wait for her next call unless something she will love hits the market.
I had a gentleman this week ask about a property. I didn’t think it was the best option for him. We discussed another property and I told him why that option would be a better strategy for him. There are ways to capitalize on this market if I know your objective.
Many of you are well shielded and making a decision today won’t cause financial turmoil for you in the future but some of you aren’t in the same boat. Let’s chat and let me help you make your best purchasing decision in today’s market.
Shannon Lefevre, PA
Your Naples Smart Girl
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