Flipping seems to be over!

Real estate market shows signs of cooling
Investors pulling back from deals


Bill Gerow bought a lot of houses in Lehigh Acres when prices were low — but now he thinks the market has peaked.

"A few months ago I saw it coming," said Gerow, of Fort Myers, who makes his living trading in real estate. "People were changing, the frenzy was over. It just got to a point where everybody had bought all these houses with 100 percent or 125 percent financing. I started selling some of my properties off before the market started to change."

He succeeded by buying when prices were low. "I was buying the houses for $30,000, $40,000, $50,000 and now they're a lot more. I was buying fixer-uppers for $17,000 to $20,000 many years ago."

Experts say Gerow's not the only one: In Southwest Florida and around the country, individuals are pulling back from buying homes and condos as an investment, in a move that could accelerate the cooling of the housing market.

"The investment frenzy is over," said John McWilliams, a real estate broker with Coldwell Banker Preferred Properties.

Prices for lots in Lehigh Acres have actually dropped in recent months after a red-hot market that lasted about three years, he said. "There are so many out there trying to flip and at these new prices, they're becoming a diminishing buyer."

The phenomenon is being seen around the country in markets such as Las Vegas, Miami, Phoenix, San Diego and Washington, D.C., where investor activity had been heated, fewer people are competing to buy properties as an investment, real-estate brokers and housing analysts say. Some investor-owned properties are returning to the market for sale. With the pace of price appreciation slowing, some investors who were betting on quick profits are instead being squeezed.

But Southwest Florida is especially over-sold, according to two recent surveys of property values.

The Office of Federal Housing Enterprise Oversight reported that Lee County showed a 33.2 percent increase in home prices, No. 2 in the nation. Phoenix, Ariz., was first at 34.4 percent.

In a separate study, Global Insight/National City Corp. listed Collier County as 84 percent overvalued, the worst in the country. Lee County was 28th at 51.9 percent overvalued.

Dave Owens of 1031 Tax Free Strategies LLC in Fort Myers said he's seen a slowdown in the number of people investing in real estate. "We have a lot of clients buying real estate with their IRAs and that has flattened."

But longer-term real estate players are still in the market doing "1031 exchanges," named after the section of the federal tax rules that allow people selling real estate to defer paying capital gains taxes if they buy another property with their profits.

"Our clients are real estate investors, they rarely get out of the markets," Owens said. "They're just being more cautious on buying right now."

Gerow said he's not getting out of real estate either although "I'm done with residential."

Now, he said, "I'm going on to the next level, which is commercial with me. I'm getting ready to build commercial buildings." The apparent pullback by investors is recent and just beginning to show up in national data. Evidence of the development can also be seen in a number of markets that had until recently been a hotbed of investor activity. As speculators withdraw from the market in San Diego, for instance, the number of investors buying property has fallen by nearly half, estimates Russ Valone, president of MarketPointe Realty Advisors, which tracks the San Diego housing market.

In the Phoenix area, as many as 30 percent of properties for sale are currently owned by investors, says Jay Butler, director of the Arizona Real Estate Center at Arizona State University. Six months ago, most investors were buying rather than selling, he said. The shift has helped to drive up inventories of homes for sale in the Phoenix area, which climbed to 22,340 in October from 8,600 in April, according to data from the Arizona Regional Multiple Listing Service.

In the latest sign that the housing market is cooling, the National Association of Realtors said recently that its index of pending home sales dropped 3.2 percent in October. The reading is the lowest since March.

It's too early to tell just how a pullback by investors will affect the broader housing market. One concern is that investors will be quicker to sell if prices soften, accentuating any downturn, particularly in areas where speculation has been most prevalent. Some of the most vulnerable markets include Daytona, Las Vegas, Phoenix and Fresno and Bakersfield, Calif., according to Credit Suisse First Boston analyst Dennis McGill.

Last year, Mike Morgan, a real estate broker in Stuart, set up a Web site designed to attract investors scouring the Internet for pre-construction properties. But with the market softening, Morgan has cut back on promoting his site. Now, he works only with investors seeking "buy and hold" properties. "I haven't sold an investor a property to flip since June," he said.