Buy at the beach for cheap
SHERRI C. GOODMAN
The threat of hurricanes wasn't enough to keep Nancy Carr from buying a
condominium in Gulf Shores.
The three-bedroom beachside unit in Island Winds East was too good a deal to pass up. The condominium, which might have gone for about $500,000 a couple of years ago, was a steal at $300,000.
The Calera resident, who purchased the property with her husband earlier this year, will pay about $500 a month to a condo association to help cover structural insurance in case another storm hits the shore. That's on top of her mortgage. She'll also have to insure her furniture and other belongings.
She says the expense and the risk are worth it to have a waterfront gathering place for her family. But coastal real estate agents say they are seeing fewer buyers who feel that way these days in the wake of Hurricane Katrina, the most destructive storm ever to hit the Gulf Coast.
It's a buyer's market along the beaches of Alabama, real estate experts say, with an abundance of new properties at marked-down prices.
Two years ago, buyers would put a contract on a home without even seeing it. These days, they're taking their time, real estate agents say, knowing they can easily get a $400,000 condo at a reduced price.
So what's causing the slowdown? Dr. Semoon Chang, an economist with the University of South Alabama, points to two factors: fear of a devastating hurricane and fear of rising insurance prices. The fate of the market depends on this year's storm season, he said.
The National Oceanic and Atmospheric Administration predicts this hurricane season, which begins Friday, will be more active than last year. Forecasters expect 13 to 17 tropical storms, seven to 10 of them becoming hurricanes. Three to five of them are expected to be strong hurricanes.
"If we do not have a major hurricane hitting the area this year, the fears will calm down quite a bit," Chang predicted. If a major storm hits the Gulf Coast, it will definitely slow the recovery of the beachfront market, he said.
Real estate agents agree with Chang's assessment. Claudette Gable, managing broker of RealtySouth's Orange Beach office, said she saw a surge of buying activity after Hurricane Ivan battered the Gulf Coast in 2004 and triggered a wave a construction projects.
"But after Katrina in 2005, when the media showed so many pictures from New Orleans with the flooding, that's when sales started slowing down. That's when people got scared," she said.
Studying options:
Nowadays potential buyers are taking their time, studying their options and shopping around, she said.
That's a complete turnaround from a couple years ago, when buyers would make asking-price offers on condos without seeing them, she said. Many condos and waterfront homes drew "contract on top of contract," she said.
Today there are plenty of bargains for potential buyers to consider, she said. Two-bedroom condominiums that would have sold for $400,000 or more before Hurricane Katrina are now selling for $250,000, she said. "Prices have dropped considerably."
Home prices along the coast were bound to fall because they had soared for so long, said Tommy Brigham, chief executive of Birmingham-based RealtySouth. "Prices in that area a couple of years ago reached a point where they were not within reach of a broader market. Now there seems to be some bottom-fishing going on."
He estimates prices have dropped about 35 percent, even in the upper range. Condominiums that were priced at $1 million or more are selling for $650,000 to $750,000, he said.
In Carr's case, she and her husband offered $300,000 for a condominium priced at $329,000 and their offer was accepted.
"I think we were very lucky," she said.
Brigham said overbuilding along the Gulf Coast has contributed to the lower prices.
Prices have fallen to a point where people interested in waterfront property should start taking notice, he said. "There is only so much loss of value that will take place."
Last year, according to the Alabama Gulf Coast Convention and Visitors Bureau, 1,366 condominiums opened. A further 1,027 are set to open by the end of this year, and more than 900 next year.
Construction slows:
But the construction boom that led to the glut of inventory and lower prices is slowing, said Rob Burton, chief executive of Hoar Construction, which does work on the coast.
"From Panama City to Mobile the condo construction is starting to slow down," he said. The focus is now shifting to commercial construction, he said.
The Birmingham-based company is building Escapes to the Shore on Orange Beach, an 88-unit property set to open next year.
Burton says his company for the most part avoided the condo building boom so it wouldn't get caught in a bust. The Escapes project is more secure than some others, he said, because the developer is Cooper Communities, a well-established time-share developer. Many of the units are also presold, he said. But he expects younger, less stable developers might get pinched as more projects dry up.
Johnny Roberts, president of the Roberts Brothers Inc. real estate firm in Mobile, said he feels "the staying power" of residents and developers is being tested.
But positive things are happening, he said, noting that many restaurants, shops and other commercial businesses wiped out by Hurricane Ivan are back in business.
He estimates about 2,500 condominiums are on the market today along Alabama's beaches.
Two years ago, "there were none. Everything was sold" even before units were built, he said.
An analysis of the market along the Alabama Gulf Coast commissioned by Gulf Shores-based Condo Owner magazine found that in 2005, there were closings on 520 condos in Perdido Key alone. In 2006, there were 388.
Sales of condominiums and townhomes in Baldwin County dropped 15 percent last year, from more than 3,200 units sold in 2005 to fewer than 2,750 units last year, according to the analysis.
After Hurricane Katrina, some buyers of condominiums in projects still under construction backed out, in some case forfeiting as much as 30 percent of the asking price they paid to hold the property, Roberts said.
"I believe we'll have to go through another hurricane season unscathed for buyers to really start coming back," Roberts said.
Some of those buyers could have been scared off by the escalating insurance premiums, Gable said. "If you do get hit by a hurricane there are some pretty hefty assessments."
Chang estimates that insurance premiums have tripled for many waterfront property owners. A hurricane deductible of 2 percent, or a minimum of $1,000, is also being applied to every policy, according to the Alabama Insurance Underwriting Association, better known as the Alabama beach pool.
Ragan Ingram, spokesman for the Alabama Department of Insurance, says it has been difficult for some to find insurance. "Most are finding it, but it's been more expensive."
A storm-free season might help stabilize insurance rates, he said. "But I don't know that we're ever going to return to pre-Ivan insurance pricing."
Some property owners, like Carr, are willing to take the risk.
The coastal area is going to be an appealing place regardless to some people, Brigham said.
Carr recalled Hurricane Ivan, which did little damage to her previous beach home in Panama City. Two tornadoes spawned by the storm, however, ripped 15 trees and a fence from her Calera property.
"If it's your turn, then it will happen to you regardless," she said.
E-mail: sgoodman@bhamnews.com