The Damage Is Already Done In Florida
The New York Times reports on Florida. “While prices have declined, they have not dropped off a cliff in South Beach because many of the newer developments were completed, and sold, before the market shifted in 2006. But South Beach has not entirely escaped the wave of foreclosures and short sales that have swept the rest of the state. An oceanfront town house is listed as a short sale at $1.7 million; it sold for $3.2 million in 2006. A bank-owned condo in a luxury high-rise, stripped of its fixtures, was purchased for $1.35 million in 2006 and is now in foreclosure at $599,900.”
“The influx of high-rises has affected sales of single-family homes in Miami Beach. Among those homes is a renovated eight-bedroom villa on the Indian Creek Waterway with luxury amenities The villa went on the market for $11 million; now it is listed at $7.9 million. Sheri Falco, a lawyer who bought a two-bedroom bungalow with a yard near Flamingo Park in 2005, has dropped her price to $499,000 from $675,000.”
“‘I show my house constantly, but I haven’t gotten an offer yet because it’s still a little bit high,’ she said, explaining that she does not want to go lower based on what she owes on her mortgage. ‘I bought it at the height of the market, and I’m trying to sell it at the current low market — that’s how I roll,’ she joked, citing efforts to chase millionaire status during the dot-com boom. ‘Maybe I’ve learned my lesson.’”
From Marketplace. “When it comes to those falling housing prices, Miami has taken one of the biggest hits according to the Case-Shiller index — (a) 30 percent drop from a year ago. And according to the Florida Association of Realtors, prices for condos have fallen as much as 10 percent faster than for single-family homes. For some investors and would-be-homebuyers, smells like opportunity. But you better do your homework first.”
“Dan Grech: Steve Economou and his wife Janie were tired of winters in Boston. So they followed a path laid by generations of Northeastern retirees. They became snowbirds. Steve Economou: ‘I was interested in getting a place in Florida and I didn’t want to be left out. Prices came down and I figured I might as well take advantage of it.’”
“Economou bet much of his life savings about a month ago on a winter home in Boca Raton. He paid $157,000 in cash for a two bedroom, two bath condo on a golf course. Economou says he didn’t do much research into the condominium complex he bought into. Economou: ‘We just took a chance and we hope we’re lucky.’”
“Buying in a depressed market can also mean hidden costs. Like huge first-year tax bills. Realtor Doug DeWitt says this has become a big problem in some luxury condo buildings in Miami. Doug DeWitt: ‘There were units selling as high as $800,000. And some of these were staged transactions that involved mortgage fraud. Now those same units are up for sale, you know, as low as $150,000, $200,000. But the assessed value within the county tax assessor’s office still reflects that fraudulent, hyper-inflated value of $800,000.’”
The Wall Street Journal. “Investors and second-home buyers account for a stunning 60% of the nearly 13,000 new condo units sold in downtown Miami since 2003, according a report. It could become the largest concentration of tenants in the Southeast–if not the country, the firm says.”
“‘There is an enormous number of unwanted condo units. The oversupply in downtown Miami is absolutely massive,’ says Brad Hunter, chief economist for Metrostudy. But there’s a silver lining for all those renters. ‘They’re going to have the opportunity to live in a brand-new luxury building for a very, very low rent considering the quality,’ says Mr. Hunter. ‘This is unprecedented.’”
From Florida Today. “When Joe and Anna Chan decided to rent out their Viera home instead of moving into it, they didn’t consider going it alone. The Miami residents knew the long-distance landlord life couldn’t work, so they hired a property manager. It’s a service homeowners are turning to when they’re unable to get the selling price they want in today’s market.”
“‘They want to hang on until the value comes back,’ Matt Marshall said of today’s homeowners-turned-landlords. He’s a partner in Thomas Kay Realty Property Management in Melbourne with his wife, who is a Realtor. The company grew fast in the beginning through working with builders who were quickly building and selling homes to investors before the market slowed. Today, the company manages about 80 properties; for every property it loses to a short sale, it gains a new one.”
“The increase in properties available to rent has put downward pressure on rental rates. When the couple started the business three years ago, a typical rental income for a 1,500-square-foot, three-bedroom, two-bath home in Southeast or Southwest Palm Bay might have been $1,250. ‘Now, maybe we’ll get $875,’ he said.”
“Most homeowners who rent out newer homes can expect their rental income to fall short of their monthly mortgage payment. As he tells prospective clients, ‘what your mortgage is has absolutely nothing to do with what you can charge in rent,’ Marshall said.”
“Joe Chan uses Real Estate Direct to manage his Viera property. The couple built the home in 2007 expecting to move into it to be near their extended family. But because of business interests in Miami, they haven’t been able to relocate. And because of the slow real estate market, they don’t expect to get the price they want quickly.”
“The home was rented during 2008, and those tenants moved out in February. They’re asking $2,200 in monthly rent for the four-bedroom, three-bath pool home, or $535,000 for a sale; both prices have been lowered recently. ‘I don’t have the ability to be there,’ said Chan.”
The Orlando Sentinel. “If no new houses were to hit the Metro Orlando market for the rest of the year, it would take more than eight months to sell the ones already built but still vacant, according to a new report. The four-county metro area has more than enough finished-but-vacant new homes to cover the population of a town the size of Eatonville.”
“Metro Orlando single-family starts, for instance, were down 41 percent in the first quarter to 863 units compared with the same period last year — and last year’s 1,463 first-quarter starts were down 59 percent from the year before. ‘It is encouraging that new-home inventory continues to decline, but the supply of existing homes far outweighs new-home inventory,’ noted Anthony Crocco, director of the Metrostudy’s Central Florida division.”
“Two factors that could flood the market with even more homes: the many unresolved foreclosures still tied up in court, and the ’shadow inventory’ of houses ready for market that simply haven’t been added yet to Realtors’ MLS.”
The News Press. “The number of foreclosure actions filed in Lee County fell almost 10 percent since April 2008, the first year-over-year decline since 2006. There were 1,954 foreclosure filings in April, down from 2,160 a year ago and down from 2,217 in March, according to the Southwest Florida Real Estate Investment Association.”
“The median price of an existing home sold in Lee County plummeted in March to $88,500 — the lowest since it was $78,500 in December 1998. But Realtor Bob Osborne of Coldwell Banker in Cape Coral said the number of empty homes on the market is starting to decline. He said the inventory of homes in the Cape was about a six-month supply, a quarter of what it was last year.”
“‘That’s down significantly,’ Osborne said, but he said it was too soon to guess when prices might start increasing. ‘There are thousands more (foreclosures) to come,’ Osborne said.”
“It’s a hot afternoon in North Naples and construction crews are hammering down plywood on the roof of a new addition to the Quail West luxury community. The project stands out in this slumping market of 2009: its builder, Florida Lifestyle Homes of Fort Myers, doesn’t have a buyer yet for the nearly $3.4 million estate home.”
“One incentive to build now rather than waiting is the low construction costs. Robert Greco, president of Acra Electric in Cape Coral, said his prices have dropped sharply because of the increased competition for contracts. ‘The market is significantly different,’ he said. ‘Projects that had four or five bidders now have 20.’”
“At Levitan-McQuaid Real Estate Services in Naples, many of owner Ann Levitan’s clients are still hunting for deals. ‘We have quite a few buyers waiting until May and June to see if any sellers get desperate,’ Levitan said.”
“Many wealthier home buyers she works with have seen their portfolios plunge in value. ‘Someone in the past who might have been looking at a $4 million house is now looking at a $2 million house,’ she said.”
The St Petersburg Times. “Steven and Judy Patterson thought they had found the perfect home in Sterling Hill. Then, two days before their closing in mid April, a second inspection confirmed their fears. The unusual smell inside wasn’t only because the new house had sat empty since 2006. The home was riddled with defective Chinese drywall.”
“During the housing boom between 2004 and 2007, millions of pounds of drywall were imported from China to meet the high demand. The drywall has been associated with a rotten-egg, sour or chemical odor, particularly when exposed to Florida’s humidity and heat. Home inspector Tom Herman said the problem of Chinese drywall is so new that a lot of home buyers and homeowners don’t know what to look for. In fact, inspectors often miss it.”
“It may have been used in 100,000 homes nationally and 35,000 in Florida, according to the Associated Press. For the Pattersons, whose purchase fell through after their second inspection, their dream home might have been a nightmare. Herman, the inspector, estimated a fix might run $50,000 to $60,000.”
“‘I had never heard of Chinese drywall in Hernando County,’ said Terisha Miller, the Realtor working with the couple since last fall. ‘It was a brand new house — never been lived in. (But) we kept coming back to the smell,’ she said.”
The Bradenton Herald. “The ‘pink palace’ has joined the growing ranks of Manatee properties threatened with foreclosure but its developer says he still hopes to restore it to a luxury hotel. Regions Bank sued the owners of the historic downtown landmark last week, claiming they defaulted on a $2.625 million loan used to buy the building, court records show.”
“River Grande Development Inc. bought the property for $3.5 million in 2005 with plans to renovate the former senior-housing complex into condominiums. Those plans later changed to a proposed luxury, boutique hotel after the condo market crashed. Tax records show River Grande Development paid $48,789 in 2006 taxes on March 25 of this year, but its 2007 and 2008 tax bills remain unpaid.”
“Darrell Reha said he had hoped to avoid the foreclosure filing, but it became unavoidable after Regions froze the developer and hotel operators’ lines of credit. ‘They worked with us as much as they could but I guess they couldn’t hold off any more,’ he said.”
“Like most credit unions, Eastern Financial Florida Credit Union cites modest roots, formed more than 70 years ago for pilots of now-defunct Eastern Airlines to get decent savings rates. Maybe to secure a boat or car loan. But over the years, the Miramar-based, tax-exempt, member-run cooperative certainly morphed.”
“By the time regulators swept in 10 days ago to seize the $1.6 billion Eastern, the third-biggest credit union in the state was over its head in real estate and securities speculation. To some, including rivals in the banking industry, Eastern Financial is a poster child for how credit unions have strayed: They wanted to become so much like banks, they overextended themselves and put their members at risk.”
“‘This is going to be Exhibit A for the Florida Bankers Association and for banks overall as to why credit unions should not be allowed to expand their powers,’ said Ken Thomas, a Miami-based bank consultant and economist. ‘Some have gone well beyond their original scope and started to act like highfalutin banks.’”
The Palm Beach Post. “There’s a reason why regulators large and small failed to pick up on warning signs that the nation’s investment portfolios were about to fall off a cliff. Blame ‘gaps in regulation.’ That phrase was the mantra last week from representatives of FINRA, a self-regulatory body of the securities industry.”
“The Financial Industry Regulatory Authority, was in town to educate investors, mostly retirees, about investment scams. But rather than point the finger at itself, FINRA mostly blamed unforeseen regulatory gaps for its failure to catch scammers. The presentation was heavy with irony.”
“Many attendees at the seminar blamed FINRA regulators for failing to notice the red flags waving in front of them. ‘FINRA has members who have scammed, big-time,’ Valerie Priest of Lighthouse Point said during a Q&A session.”
“Government officials also tried to explain away their lack of oversight. ‘There’s no doubt there was a failure chain here,’ Robert Kynoch, financial administrator for the Florida Office of Financial Regulation, told investors. ‘Regulators didn’t do as good a job as they should have. We’re trying to learn.’”
“U.S. Congressman Ron Klein, also a panel member, said new unregulated investment products were partly to blame for the crisis. He assured investors that Congressional committees were conducting ‘fact-finding” inquiries to determine what went wrong, and to make sure government enforces the laws ‘and doesn’t just look the other way, as the (Securities and Exchange Commission) did.’”
“But even as the mostly retiree crowd jotted down notes on how to avoid bad investments in the future, they also remembered losses in the recent past. And they pointed the finger squarely at panel members and government regulators. ‘This is all well and good, but how do we get the government to protect us? It’s the government that failed us,’ Barbara Strugar, a Fort Lauderdale resident who lost money investing in stocks, told the panel.”
“FINRA Senior Vice President John Gannon urged investors to remember several tips before investing.
Among his suggestions: Don’t be swayed by promises of phantom riches and high returns. Ignore claims that ‘everybody is doing it.’ But Jackie Schwertok of Boca Raton still felt burned by the regulatory agencies. ‘The damage is already done,’ Schwertok said.”
