Naples Real Estate Background Report
Overview
The Naples housing market is driven by the second home buyers. Second home buyers that are either putting their leisure plans in place, or soon reaching retirement. They usually plan on staying anywhere from 2 to 8 months in Naples. A small percentage of these buyers are looking to make a full-time permanent move.
Most second home buyers plan on keeping their exiting home, so they do not plan on selling a home in order to buy a home.
Unlike most housing markets, Naples gets a fresh infusion of new home buyers each year, regardless of what is happening with the local economy. Overtime this yearly infusion of new buyers is expected to increase, as we are just at the beginning stages of baby-boomers reaching retirement. Based on the overall economic events of the country, the number of buyers purchasing a new second home in any future year might be up or down, but the trend over time will be up.
While a second home buyer is probably represented in every community and neighborhood within Naples, they tend to concentrate in the locations and communities that best suit their leisure desires. These will be communities with greater amenities, more expensive locations, higher fees and higher values. Or they might be in smaller more affordable condos not sought after by the local workforce.
A large percentage of the the Naples local workforce is in the construction, hospitality, retail and public sector related jobs. The local workforce concentrates in areas that they can afford based on their local wages.
The second home buyer is more affluent and over 50% pay cash, and others usually make substantial down payment. Over 60% of homes sold over $1 million are cash deals. Workforce buyers tend to buy affordable housing, where it might exist, and mostly use mortgage financing for their purchase.
Naples 2003 and Earlier
In the late 1990’s and early 2000’s home values in Naples were generally appreciating in the 8% range per year. Then in 2003, as more pre-boomers began planning ahead for their retirement, demand began to increase. This pushed appreciation rates near 20% for that year, an outstanding rate.
2004 and 2005
In 2004 Naples appreciation increases were getting more and more
national press coverage, sparking the interest of investors. This
caused the Naples housing market which had traditionally been driven
by second
home
buyers, to transition into an investor driven market. Investors
began flooding into the market, causing a significant overlay of
buyers on top of traditional second home buyers.
The large entry of investors caused a rapid price rise from 2004 through the first half of 2005. Many homes, particularly those that were in the $150,000 to $500,000 price range back then, jumped 75% or more during that time period. Higher priced homes also appreciated well, but a little more consistent with second home buyer demand, vs. investor demand.
Because of high demand, low supplies and high rates of appreciation, the later entry of investors went after anything that said pre-construction, regardless of the location, price or its potential desirability to future second home buyers. They were purchasing on the baseless belief that high appreciation trends will continue for years. The buying frenzy had investor buying from investors, and caused the number of real estate transactions to double above previous years’ norms.
By the summer of 2005, the Naples’ investor driven engine was getting low on investors, and high prices were were beginning to deter even the most starry eyed investors.
Yet sellers continued to believe that higher than normal appreciation rates would continue. When the trend was moving to fewer buyers, it was common to see sellers demanding 10% above recently sold prices - an additional year or more worth of appreciation.
Fall of 2005
Once the slowing trend began to emerge in the fall of 2005, investors wanted out, and out in big numbers. But they also wanted even larger gains.
It wasn't just investors wanting out, many homeowners had mentally banked their artificial gains and wanted to cash in on their good fortune. Beginning in November 2005 the area started seeing a record number of new listings added each month at record high asking pricing. Seller wanted 10% to 20% above the most recent highest priced home sold. That put the brakes on buying as buyers said no, and listings continued to pile on.