One Year After Hurricane Michael- Mexico Beach Real Estate Market Report

What a year it has been in Mexico Beach.  Hurricane Michael devastated Mexico Beach beyond imagination.  It’s hard to describe the devastation the area faced to those that haven’t been here, but we’ve proved resilient and are looking forward to a bright future.  Massive cleanup and rebuilding efforts have been underway for the past year.  While there’s been tons of progress, it’s also become clear that this is going to be a slow process.  It’s going to take years before the new version of Mexico Beach is rebuilt completely.  The town incurred so much destruction that it will never be the same.  Most of us here loved what we had, but we’re having to start over in many areas, and we might as well make things better.  There is a great deal of excitement about the future of a town that essentially has a new beginning.  Many owners have decided to sell and move on for various reasons, but we’ve also seen more new buyers wanting to be a part of the future in Mexico Beach than we’ve ever seen in the past as well.  This large number of buyers have held property values remarkably well with many properties currently selling for more than they would have before the storm.

The City of Mexico Beach and also local government in Gulf County have done a great job repairing and replacing the damaged main infrastructure rather quickly with almost all utilities including sewer and water being restored by this past June.  The rebuilding of the private infrastructure including homes and commercial properties has been slower than many had hoped.  The beaches have been rebuilt and many say they look better than ever.  In addition, the canal is open and fishing has been great.  Other amenities like our pier and some of the parks and green-spaces are still potentially years from starting construction.  Waiting on insurance payments/fighting with insurance and a shortage of building contractors and laborers in general is further complicating and slowing many private rebuilds.  While there are many individual homes under construction, we’ve yet to see a completely destroyed commercial property in Mexico Beach start to rebuild other than Shell Shack which started this month.  None of the destroyed multi-family properties have begun construction either.  It could realistically be 2021 before there is a hotel room to stay in, a rebuilt restaurant, or a gas station. (Mango Marley’s has been repairing their building and hope to be open by early Spring) The single family home construction is really starting to take off and I’m looking at 9 new homes under construction out of my office window as I write this report.

We’ve seen the market have a number of trends since the storm.  There was almost zero interest from buyers ready to close for the first few months after the storm.  We were getting tons of inquiries from buyers hoping for big reductions, but few buyers willing to pull the trigger on slight reductions.  Only 6 out of the over 2,500 parcels in Mexico Beach sold in the remaining 3 months of 2018 after the storm.  The town during the first few months was filled with debris removal trucks, government agencies, and volunteer groups helping the area.  You couldn’t even get into Mexico Beach without being a property owner or resident and had to go through a National Guard checkpoint after the storm to enter the city.   January and February started to see more buyers closing on properties.  Buyers in this time were getting some slight reductions from pre-storm values in the first months after the storm.  So many uncertainties existed for the area, but at the same time, interest was building from more and more buyers excited about the future of a beachside town where almost everything in it would be new.  If you had a home not damaged or in livable condition that you wanted to sell, we started seeing these sell quickly with prices rising.  There were lots of buyers that lost their homes completely, so they needed a place to live, and they had their insurance payouts.  There weren’t and still aren’t a lot of options for move in ready homes in Mexico Beach and areas like WindMark with all of the DR Horton homes started selling quickly to displaced residents.  There are currently only these 12 homes in Mexico Beach on the market.  There are 25 in St. Joe Beach/Beacon Hill9 in WindMark, and 26 in PSJ that do not need repairing.

By March and April, there had a been a light switch go off in buyer’s minds, and we were almost getting overrun by buyers wanting to be a part of the future as they felt the current prices were good deals.  Their overwhelming thought is that everything is going to be brand new, thus it’s going to be very nice once rebuilt.  A remarkable number of these buyers had only come to Mexico Beach because of the news of the storm.  We are still seeing most buyers from the traditional markets in the southeast with Atlanta residents leading the way, but we’ve also seen an ever increasing number of people trying to escape the crowds of Panama City Beach, 30A, and Destin.  Inventory was still very low in the Spring and bidding wars were common on anything listed near or on the beach.

If we take a $100K vacant lot for example, people could have purchased this in the first few months after the storm in the $90K range.  By late Spring, this same property would have been up to $110K-$115K.  It looked like prices would keep going and going up, but things had tempered by Summer due to an increase in the number of sellers.  There were still buyers, but we had started to go from almost nothing to sell, to a somewhat flooded market.  Many owners had finally dealt with insurance and combined with the high sales prices and other factors, they decided it was time to sell. (One example is beachfront and beachside single family lots, which are considered by most people our most desired properties.)  We averaged less than 3 on the market for the first 5 months after the storm, today there are these 14 listed.  It’s a good time to be in the market for a premium lot with sellers having to compete for buyers.  We averaged less than 2 of these type lots on the market pre-storm, but now the increase is coming from owners whose homes were destroyed.  We’ve seen prices level off and even go back a little on vacant lots with the increases in supply/sellers.  Our $100K lot pre-storm saw a dip to $90K, rose to $115K, and has settled back around $105K-$110K at this point.  Most homes are also seeing moderate 5-10% increases from pre-storm values currently.  The big reductions many buyers and investors hoped for were never seen.  My list of buyers hoping beachfront lots went from $500K to under $200K and canal front lots from the $250K plus range to under $100K grew to over 100 hopeful potential customers.  We didn’t know what was realistic a year ago, but now see we have a very confident and solid market making these type purchases unrealistic.  The lowest a single family beachfront lot reached was $400K and the lowest canal front lot reached was $235K.

There have been just over 200 total sales since the storm in Mexico Beach, which is about one out of every 12 parcels.  That stat should dispel the rumor that half the people here decided to sell.   There have been an additional 735 sales in Gulf County since Michael on MLS.  There are a lot of 2nd homeowners still in the wait-and-see mode along with many long time owners excited about the future of the town.  Who are the buyers?  The storm put Mexico Beach on the map for many people.  I’m selling to people that had never heard of Mexico Beach before the storm that were intrigued to visit after the storm and want to be part of the future.  The buyers have been mostly end users looking to live here or a have a 2nd home or vacation rental in the area.  Prices never got low enough for the large investors hoping to purchase multiple properties at reduced values because there have been so many end users/retail buyers.   I am very happy to report that we’ve dealt with very few sellers that were forced to sell.  Our company has sold 214 properties since the storm in either Mexico Beach or Gulf County and less than 5 people were in bad financial positions from the storm and were forced to sell.  The vast majority of sellers netted a substantial amount more than they could have sold for prior to the storm when insurance and sales proceeds were combined.  A lot of these sellers stayed in the area and moved up or to an area they preferred more than their previous situation.

Sold links and totals below are from properties listed on MLS.  There are additional private sales not included in the below data

 

         Properties sold on MLS from 10/10/2018 – 10/10/2019

        Mexico Beach – 162 sales

         St Joe Beach/WindMark Beach- 130 Sales

Port St Joe – 229 sales

  Cape San Blas / Indian Pass – 185 sales

      Currently under contract – 96 properties

Construction is a huge factor moving forward that will have a big influence on the market.  Even leading up to Michael, it was getting harder and harder to find a builder.  Building had been a popular option with costs going up for the past 4 or 5 years.  It’s hard to pinpoint exactly why building costs have gone up, but everything is a little more expensive these days than it was in the past.  Labor is substantially more expensive and harder to find.  I know out of area builders have seen the opportunity as I’ve met at least 5 that planned to move to the area and start a construction company.  None of these 5 companies have been able to get one house off the ground.  They can’t find the local labor/subcontractors that they hoped to find, and those that have wanted to bring their own work crews here can’t find housing for them.  It’s not uncommon for workers to be driving 2 hours each way as that’s the closest place they could find with somewhat affordable housing.  We need a lot more labor to help the rebuild go quicker, but I see no end in sight for our affordable housing shortage.

This shortage combined with the amount of people settling with insurance that are ready to build points to construction prices getting higher rather than lower over at least the next 2-3 years.  For an example: a middle of the road, but nice 1,700 sq ft home on pilings that would have cost $135-$150/sq ft 5-10 years ago had gotten up to $175-$185 sq ft before the storm.  That home is now costing an owner $210-$225/sq ft.  This means the same home that could have been built not long ago in the $230K range is costing closer to $380K.  High building costs make many of the existing homes and fixer-uppers that can be repaired a more cost effective option right now.  I’ve got a number of customers that lost their home and planned to rebuild.  Now that they’ve designed and priced their new proposed home, the price is so high that they’ve bought a temporary home while they wait and hope building costs come back down.   Others that are building are downsizing and modifying to try and reach budgets. Even with these increased costs, most builders have a significant waiting list of clients ready to start construction.  Some of the established builders are telling me they’ve got their next 2-3 years of work already lined up.  There are almost no spec houses being built by builders right now for two reasons.  The first is they are worried their costs are too high to hit established price points, and the second reason is why take on the risk when they’ve got years worth of clients lined up and happy to pay the going rates.

I believe the high construction costs are really going to help the values of existing homes over the next couple of years.  This will be true of condos, townhouses, and single family homes as the market prices rise to equal land plus construction costs.  Many of the large condo buildings in Mexico Beach have been under repair since right after the storm, and some of them are getting close to finishing repairs with owners allowed back in a few of them.  There should be a few hundred condo units getting completed and ready to be lived in by sometime next year.  I think these repaired buildings will be very popular products looking forward and looked at as values.  On the other hand, I can see vacant lots losing some value if more and more come on the market and construction costs continue to rise.

These increased costs are not primarily due to new building codes.  The building codes have changed very little since the storm.  Most people can rebuild about the same house they could have built 10 years ago.  This house may have to be quite a bit different than the homes built in the 90’s and before, but the only big change due to the hurricane relates to flood zones.  FEMA came in and reevaluated all the flood maps in the area, and there are many properties that will have to be elevated a couple of feet more than they would have had to pre-storm.  Requiring homes to elevate that could have built on the ground is a pretty big added expense that can add 5-10% to costs.  Individual insurance premiums on average have gone up some, but not a huge amount that many feared would come after the storm.  I’ve averaged about 10% increases on my properties. The biggest negative impact has come from those now in a worse flood zone situation than before.

There has been quite a bit of turnover with the city staff in Mexico Beach.  We had a temporary city manager at the time of the storm as the previous city manager had recently resigned to take another job.  Tanya Castro did a fantastic job in my opinion and went above and beyond in her temporary role.  Andy Andrews, the new city manager, started in late August.  Our city clerk, Adrian Welle also resigned this Summer to work in the private field.  Tanya and Adrian have been staying involved helping out their replacements and trying to help them get up to speed.  Mexico Beach has a strong mayor that I’m happy to have and a good city council that are helping to guide the new staff.   The building department saw probably a 1000% increase in questions and permit requests due to the storm.  There were some rocky times getting answers and the same question would often yield 3 different answers if asked to 3 different people in the department.  The company that runs the building department (EPCI) hired some very competent new staff, headed by Gena Johnson.  This department is getting much more consistent with a streamlined process worked out.  Everything isn’t ironed out as we’ve found ourselves in an evolving situation with new questions coming monthly from the unique rebuilding situation going on.  95% of the questions we’re having to learn the new answers to relate to the destroyed multi-family properties.  The way Mexico Beach grandfathered in every owner that had a home to build on their previous footprint has made some lot specific challenges, but I think it was the best rule that could have been made given the circumstances.  Full lots are pretty simple to deal with, be very careful with what you can do on these partial lots is my advice.

Is Mexico Beach okay financially is a question I’m asked at least weekly.  When your budget is under $4 million a year, and you have in excess of $250 million of damage, things do become difficult.  Fortunately, many Federal and State programs are in place that help cities in events like this.  Mexico Beach will be responsible for less than 5% of it’s costs incurred from cleanup and rebuilding.  FEMA and the State cover the rest, not counting additional grants and credits the city gets for other factors.  The Governor has been here 4 times, and it’s clear the state government isn’t going to let Mexico Beach fail.  A few million more dollars of aid were announced yesterday for the area on the one year anniversary of the storm.  The next couple of years won’t be easy and we’ll often be waiting on the next much needed check from FEMA and the State of Florida.  We’ll be counting pennies on some items and every dollar raised and grant received will make things easier, but we will be okay.  We’re nowhere near any kind of bankruptcy or even considering consolidating with Bay County.  The City Council did vote to have the Bay County Sheriff’s office take over the police department duties.  The pros to this decision are a huge increase in professional resources that are controlled by the Sheriff’s office and slight cost savings.  Some residents see the cons as losing control of a Mexico Beach controlled service to Bay County, and a fear there will be a less personal relationship than currently exists with the Mexico Beach officers.

There have been no big changes in Gulf County zoning except their RV ordinance.  This has been changed numerous times in recent years, and a moratorium was put on RV permits this Summer and then rescinded last month.  There are lots of people on both sides of the RV rules, but they are allowed for now in most county areas that meet the RV lot regulations.

This report was obviously focused much more on Mexico Beach than Port St. Joe and Cape San Blas.  I’m happy to report that both of these areas that received much less damage are thriving.  Port St. Joe is vibrant these days with about 90% of businesses reopened with new businesses coming to the area as well.  This is a great asset for Mexico Beach to have so many services available about 10 miles away.  The Cape is abuzz with a very strong market as well in 2019.  The much needed and postponed beach re-nourishment project started last month and the North Cape is looking amazing.  With almost nowhere to rent in Mexico Beach in 2019, but the Cape and PSJ hosted many previous Mexico Beach vacationers, with many of them liking what they saw and purchasing.
Michael has been classified as a Category 5 Storm which is extremely rare with a chance of hitting an area once every 500 years.  We pray this is correct and that we never see anything like Hurricane Michael again.  13 out of our 17 agents and staff either lost their homes completely or had significant damage.  We graciously worked from a foldout table at Big Fish Construction for 8 months and out of our vehicles while our office was being repaired.  It was a challenging year for everyone dealing with the personal situations while working.  I am very thankful and appreciative for the success we’ve had.  Our office has set a company record in 2019 and ranks #1 out of 64 brokerages along the Forgotten Coast with $52,133,549 in sales.  We are committed to the area for the long haul and look forward to helping many more customers and a bright future.

Cheers to a better Year,

 

Zach Childs

Broker/Owner- 98 Real Estate Group

#1 Producing Real Estate Company Located in Mexico Beach-

2013, 2014, 2015, 2016, 2017, 2018, & 2019

850.819.0833

[email protected]