Saturday, March 22, 2008

Is SPI a Good Investment?

Hunkered down on a huge Spring Break / Semana Santa weekend, I ponder the common wisdom of whether SPI is a good investment. So often we hear that the Island is cheap as compared to other coastal resort areas, or places like Florida and California. Just so you know, we - Lori and I - didn't move here to turn a profit and can weather most economic storms. But I find that a lot of the SPI cheer-leading about real estate is pretty much untrue.

The data, however, is all over the board and I think a lot of what we hear is simply perception and not fact. It is true however that SPI remains a safe haven because of stable prices based on median numbers ($302K all household units and $369 new) and price per square foot (about $75 plus land and frills). And, it it true that the same numbers in California are way higher with San Diego at $425K median price and over $150 per square foot. Florida is way lower on all accounts so I would tend to discount the Florida market as being more expensive - but remember, median prices hide a lot of detailed nuances and aren't really meaningful.

The one statistic that grabbed my attention was appreciation, however. While Texas averages 5.2% appreciation from 4Q 2006-2007, with SPI much lower at about 0.6%, California and Florida areas and zip codes are off -5%, meaning a loss in value. In fact, some experts see more like 10-15% negative appreciation and if the bubble continues, those rates could hit -30%. Folks, we're talking about land worth one-third less that what they were in 2006. And that's NOT happening here, knock on wood.

So then I wondered why on Earth people aren't moving here to SPI, since we're doing rather well even in a bubble economy. The answer is twofold: the foreclosure rate and the ability to sell off before buying here. Don't look at foreclosures for Cameron County and the Harlingen-Brownsville MSA because they are high - indeed many zip codes here are blacklisted as being sub-prime with 3% or less down payment, and significant foreclosure rates. But for Florida and California these levels are extremely high, reaching in some cases to 5% foreclosures on "good" property. So people owning in these areas can't sell and if they walk away from their investment, can't buy. So, no mass immigration from Florida and California.

I also looked into second home buyers and ownership, although I'll have to follow this up
with some more at least rudimentary research. I'd hypothesize that there really are two distinct markets aside from the investors: those who want a winter dwelling and the average person who wants a summer dwelling. From anecdotal information, many of the so-called "Winter Texans" are selling off because of high taxes and other reasons such as health. The strength of the local real estate economy seems to be with the summer crowd who targets economical condos.

Finally there are the houses. Despite low cost per foot to build, the land is outrageously priced and few are touching it, with only a few sales since January, 2006. I have no idea why land with nothing but maybe a sliver of a view of the water is worth $250K. But it is fun to tell people that my land is worth more than my land is with a house on it! So far, the appraisers haven't bought my story though. Sigh.

No comments: