Palm Beach Booming, No End In Sight

All the talk of Florida real estate market corrections hasn’t fazed Palm Beach one bit. It’s nice when you have a steady stream of buyers willing to pay millions of dollars - often without financing - for a home in sunny. The island’s luxury real estate market is immune, in large part, to the impact of rising mortgage rates and fluctuating market conditions that may affect markets elsewhere in the state.

Les Evans, a Florida real estate attorney and publisher of The Evans Report, an annual review of the island real estate market released in the spring, began issuing a mid-year report in December because many people did not want to wait a whole year for revised information. The report issued this week is compiled from closing documents filed with Palm Beach County, and shows about $870 million in Palm Beach homes and condominium sales taking place in the first six months of 2005.

That’s a 5 percent increase over 2004, putting the island on track for an estimated $1.8 billion in real estate transactions during this calendar year.

“A lot of people were wondering how this year would be, compared to last year, with rising interest rates,” Evans said. “What we found here are some startling changes. It’s been more positive than people would have thought.”

A combination of fewer homes on the market and more Baby Boomers in the market for Palm Beach retirement homes combined to boost home prices. The average price for a Palm Beach home was $4.6 million in the first half of 2005, up from the $3.47 million price paid by buyers in the first six months of 2004. Prices throughout Palm Beach increased by 24.93 percent in the first half of 2005, compared to 20.24 percent in January-June of 2004.

Marlene Hayes, the new president of the Palm Beach Board of Realtors, agrees with recent data released by the National Association of Realtors that predicts real estate markets in general may level off as overall demand falls and inventory rises. But Hayes also sees the situation on the island as different.

“There will always be a demand in Palm Beach,” she said. “If someone wants a home [in Palm Beach], they will buy it. You have educated real estate agents that will fill that demand as far as information and education. We’re approaching the season, so we’re all looking very hopeful and positive.”

The island’s real estate is also seeing a decrease in its number of overall units, which may be contributing to escalating prices. Every time lots or homes are combined to create larger homes, condo units are combined to create larger units, or small apartment buildings are converted to condominiums and remodeled into bigger units, the island’s inventory drops. Evans estimates it may have decreased 8-10 percent over the past 4-5 years.

In addition, as analysts have observed with other South Florida home loan markets, more Palm Beach buyers are purchasing homes as a long-term investments rather than as their primary residences. Evans’ report showed that the average Palm Beach home solid during the first half of 2005 was owned for around seven years - not exactly the length of time used by people looking to turn a quick profit.

And, because the odds of a hurricane in Florida are much smaller than the odds of cold, snowy winters up north, the past two hurricane seasons have not been major factors in sales. Real estate price increases have also made owning a Palm Beach home or condominium more rewarding than the stock market in recent years. While the stock market has been relatively flat, Palm Beach homes and condos went up about 25 percent in value last year.

“I think a lot of people are putting their money into real estate, and they are trying to get a piece of paradise before it becomes unreachable,” Evans said. “[Real estate is] continuing to outpace any other kind of investment. There is a shortage here, not an oversupply of houses available, and that’s totally the opposite of the situation where there could be a bubble. This report basically validates that there is no bubble here and will be no bubble here on the island.”

• Although only four home sales topped the $20 million mark during the first half of 2005, including two $33.6 million transactions for the same property (at 1960 S. Ocean Blvd.), there were also only three home sales under $1 million.

Although full data is not yet available, Evans believes real estate prices continued to climb during the second half of 2005. He said Hurricane Wilma did affect sales for the end of October and November, but that the market has bounced back strongly since then. The average Palm Beach home appreciated in value by about 25 percent annually for the past seven or eight years, with no end to the appreciation in sight.

Wow. Now there’s an investment everybody should jump at. Too bad few of us will get the chance to join this party. Got a couple million sitting around? Probably not. You can go the route of trying to snag the cheapest place in town, but even then, you’re probably looking at a jumbo Florida home loan. So keep dreaming.