The tide is turning in real estate

Our new Mid Year Market Report has just been printed (about a month behind schedule) and is now on our website But that delay, plus the lead time to do the research and get it written and printed, means the figures used are now at least 90 days old.  

Normally this would not be significant, but this year it is. There is no doubt in my mind that the mood of the market has improved over that period, as has the frequency of showings.  

The conclusions and projections of the report are positive and accurate. However, the data collected since then further supports, and strongly emphasizes, those conclusions. 

Looking at the CIREBA MLS figures, over the past 90 days alone, 127 properties have closed (sold) and another 150 or more are newly under contract with a 'Sale Pending' or 'Pending Conditional' designation. 

That's 277 properties either under contract or sold within the last 90 days when a total of 442 were sold in all of 2013. If we extended the time to close all of these properties to be as much as 180 days in total, that would still be an increase of 25 percent over 2013. 

Meanwhile, although the total inventory on the market continues to increase in value (now at roughly $1.75 billion), if we look at individual sectors, the supply is getting very thin. For example, on Seven Mile Beach, there are no condos for sale from US$1 million to US$1.3 million. There are other sectors, like forced sales on inland properties, which are adding to the supply. 

If you are a fisherman or boater or diver, you know what a 'slack tide' is. It is the brief period between the changing of the tides when the water is no longer falling but hasn't yet started rising. You can't really tell what is happening unless you are in the water, and even then it is hard to tell until the water actually begins to move the other way.  

In applying this tidal analogy to real estate, there are two terms to consider: sales activity and pricing. In moving from a down/buyers market, which we have been in since about 2009, we must first have increased sales activity. In terms of sales activity, 'slack tide' ended and the tide began to rise around last October when a noticeable shift in sales activity began. That is what we were referring to above. The tide is certainly now rising in relation to sales activity. 

With regard to pricing, the data above tells me that we are just coming out of 'slack tide' and the tide is starting to rise. The CIREBA MLS figures will not demonstrate this for another couple of months, but it is already apparent to those of us on the ground. 

Sellers are becoming more reluctant to sell for what the last few comparable properties sold for, but the historical data does not support higher prices yet. So we have gaps in the supply between the sold prices and listed prices.  

It is only a matter of time until those gaps are filled with sales that represent a compromise between the two - which amounts to a rise in prices. 

How soon, and how emphatic the shift will be, nobody really knows. But speaking as somebody on the ground, the compromise sales should be in evidence anytime now. And how dramatic the move will be is dependent upon the amount of demand in each market area. Buyers are unlikely to pay silly prices again after being burned so recently by the recession.  

Notice that above I said 'compromise' deals. At this point in the market cycle, it is imperative that sellers are not too stubborn about getting back to previous highs immediately. That's not how it works. The upward movement of prices is a process that happens as buyer confidence grows and purchases continue to be made at slightly higher but ever increasing levels. But keep in mind, real estate values were discounted 20 percent to 30 percent from previous highs in Cayman during the recession, so purchases made before that discount disappears will be good buys. 

On the heels of the information above, the next question is probably, Why is this happening now? The short answer is that a lot of people have been holding on to their money for a number of years, but there are no traditionally safe investments giving any return. Banks and bonds are hardly worth the trouble, and stocks get riskier every day, it seems. Staying in U.S. dollars is also scary. 

The lone safe haven of precious metals is probably due for another move higher soon. And yet, you can own it, but you can't spend or enjoy it easily. Real estate has become the new darling of investors, more by default than anything else - although the lower prices have certainly also made real estate more attractive. 

Many individuals from foreign countries are looking to geographically diversify their assets. A beneficiary has been the commercial sector, with global investments totaling around US$1.1 trillion, making it the most active year since 2007. Some commercial and residential properties in Cayman are offered with a 6 percent to 8 percent cap rate.  

And even those at 4.5 percent yield much higher returns than banks. In fact, in Cayman, many condos will pay all your expenses with rental income and still allow you to use them as well. 

We believe that this winter we will see a continuation of the trend already begun, and the tide of prices will indeed rise.