HBB Rates The Media: Florida
The HBB continues it’s look at the media and the housing bubble, with Florida.
The good:
Palm Beach Post, March 2005: “Don Todorich is one of many Palm Beach County residents who find themselves suddenly wealthy on paper yet trapped in their homes.’I'd have to spend $500,000 to $700,000 (for a new home),’ he said, ‘and my taxes would go to at least $12,000.’”
“‘It’s not an obstacle for people moving out of the area,’ said agent Lauren Hollander. ‘They just can’t afford to move down the street.’”
“Mark Trudel, owner of a construction services company and a Palm Beach County native, says he has finally been priced out of the area. When his son graduates from Lake Worth High School next spring, the family is moving to North Carolina. Even though Trudel says his house in suburban West Palm Beach is worth $400,000 more than he paid for it in 1998, he can’t make enough on it to buy what he wants and stay here.”
“Instead, he recently purchased a large, lakefront house on an acre outside Charlotte for $340,000. The same house here would cost at least $800,000, he said, and his taxes would be close to $16,000. His taxes in North Carolina? About $2,000.’This bubble has got to burst sometime,’ Trudel said. ‘I just hope it’s after I leave.’”
“(R)eal-estate investment is what has allowed the Ackermans to move from a modest $165,000 home, purchased in 1999, to the six-bedroom stunner they live in today..The Ackermans bought three of their houses the same way: They financed 80 percent of the purchase price with an interest-only loan. To avoid paying private mortgage insurance, they put 20 percent down on each home, but only 5 percent of that was out of pocket. The remaining 15 percent came from simultaneous second mortgages, called ‘piggyback’ loans.”
“The double loans have left them carrying eight mortgages..If interest rates go up, ‘we could be in trouble,’ admitted Gregg. ‘If that happens, our exit strategy is to start liquidating homes. Right now, I’m just playing the game,’ said Janey. ‘But we have an out. We can always sell.’”
The Herald Tribune, May 2005: “With home prices in Bradenton and Sarasota appreciating faster than anywhere else in the nation, you’d think residents and Realtors would be cheering. But they’re not. In fact, many are finding the trend downright unsettling. ‘It’s upsetting people,’ said Tracy Seider, a realtor.”
“‘Is this a bubble, or a ramping up in prices that will continue?’ asks Craig Smith, a Sarasota property appraiser and real estate investor. ‘All I know is that we’ve never been through a run-up in Florida that has been this extreme. The farther up we go, the greater the risk that we’ll be subject to a correction.’”
St Petersburg Times, May 2005: “Of the people who bought existing homes, townhomes or condos in Hillsborough County last year, an unprecedented 40 percent didn’t move into them. It was 30 percent the year before. ‘The returns have been unbelievable,’ said Alan Schreier, who buys rundown houses. ‘A lot of people are jumping into the business.’”
“Sammy Tuffaha has lived in Tampa Palms but coveted historic Hyde Park. But when Tuffaha shopped for a condo there, he couldn’t stomach the prices. For two years, he watched the market and stewed. This year, Tuffaha concluded that prices will keep climbing. ‘It’s at least double what I would have been willing to pay two years ago,’ Tuffaha said. His faith in the market extends to New Tampa. Tuffaha is keeping his house there, seeking a tenant.”
“Wanda Vann of Cheval also is becoming a first-time landlord. She paid $132,000 four years ago for a home in Cheval West. She couldn’t bear to part with it. As for being a landlord, she said, ‘I’m getting a little brave.’”
“Linda Nowicke a real estate agent, entered the business after moving here in 1998 from Michigan, where she owned a day spa. ‘I help people all the time with investment properties. They’ve been burned by the stock market, and they’re looking for places to protect assets.’ In the process, Nowicke began buying investment houses for herself. Nowicke prefers houses she can see. ‘My firm opinion of this market is, it’s crazy.’”
“Wayne Spencer noticed movers loading a van in the driveway of a doctor’s home. Spencer bought the house with his fiancee. He said, ‘I believe Florida will be the next California.’”
Miami Herald, May 2005: “More than 114 major projects, most of them high-rise condos, are under construction or in the planning stages in the urban core along Biscayne Bay. Citywide, developers are proposing more than 61,000 new condominium units, eight times the number built during the past decade.”
“‘You have a wave of development underway here in Miami that is unprecedented, bigger than anything, bigger than Hong Kong in the boom years of development,’ said Charles Hales, a transportation consultant.”
“‘We are building an instant city; what should take 15 years will take three,’ said Michael Cannon, a Miami real-estate analyst. It all amounts to a multibillion-dollar gamble, outdoing in risk and bravado the 1920s boom that made Miami a modern city”
“‘As much as 85 percent of all condominium sales in [downtown Miami] are accounted for by investors and speculators,’ housing analysts at Raymond James warned in a March report. Philip Spiegelman sold the condo units in the Marina Blue condo going up on Biscayne Boulevard. ‘One hundred percent of the buyers were investors and speculators,’ he said. ‘Anyone who tells you their projects are different are deluding themselves.’”
April 2005. “A writer at the Miami Herald is spooked about the dark, empty condos. “I looked up at the tall new residential tower by the New River and shuddered. It was a 31-story tower of darkness. Lights shone from no more than a dozen of the 315 condos. The rest were a study in black windows and empty balconies.”
“Last month, Raymond James & Associates warned that ‘anecdotal reports’ indicated speculators and investors accounted for 85 per cent of Miami high-rise condo sales. There are reports of condos changing ownership two or three times without an actual human being ever moving in.”
“When the bubble bursts, South Florida will have a ready-made solution to its affordable housing problem. After the big bust in the 1980s, a regular Joe could land himself a luxury high-rise condo on Miami’s Brickell Avenue for 60 grand.”
The bad:
Sun Sentinel, April 2005: “I’m getting my hair cut last week, and the owner tells me she just bought two condo conversions. Now she’s frightened and wants to know if I think she’ll be able to sell them in a year or so and make a killing.”
“Jeff Merlin, a car salesman turned real estate investor, plans to buy two townhouses with the $71,000 profit he just made on the sale of a Coral Springs townhouse he purchased last year. ‘I don’t believe’ there’s a housing bubble, he said.”
“Jason D. Brown…quit his job as a waiter after earning about $80,000 last year doing four real estate deals part time. Now he spends six days a week searching for homes to purchase by knocking on doors. ‘I don’t plan on going back to working a regular job, I’m doing great.’”
The Orlando Sentinel, March 2005: “The market is moving so fast, they [appraisers] can’t keep up with it,’ said Greg Pingston. The situation has led to behavior not frequently seen in the housing market, ‘People are buying new homes before they sell their old house,..They’re confident their old house will sell.’”
“Many buyers are more concerned about finding something to buy, not rates,’ said Dan Dunn. Grant Simon “sees interest rates as becoming less of a problem, ‘It’s not about rates, it’s about monthly payment.’”
May 22: “‘It’s insane,’ said Gary Balanoff, broker-owner of Re/Max Select. ‘Where does it end? I don’t know.’ The 21-year industry veteran said he has never seen such price escalation.’”
“There was a sign that change could be coming, with April sales throughout the region falling nearly 5 percent compared with April 2004. That was accompanied by a 5 percent increase in the inventory of available homes. Barbara Vance said she is dealing with more investors than ever before, with many buyers quickly becoming sellers.”
“If there is a slowdown, Brenda Rogers of the Lake County Association of Realtors wouldn’t mind: ‘I kind of wish we would. We’ve been so busy.’”
Market observers, you decide:
October 2005: “According to county property records, 68 of 287 units in River House remain unsold. What’s more, records suggest that only about 25 percent of people who purchased a condo at River House live in the building. New condominiums in South Florida, particularly in Miami-Dade County, have come to represent commodities more than homes. ‘Just doing straw polls, it’s been about 70 to 80 percent of the units bought by speculative investors planning on cashing in on the South Florida real estate pot of gold,’ says Jack McCabe, a real-estate industry analyst from Deerfield Beach.”
“McCabe predicts a 10 to 30 percent correction in South Florida luxury condos in 2006. A glut of available units, coupled with a dearth of affordable housing, could precipitate a fall, the analyst says. ‘The problem is that developers have been led to believe there’s a much greater market for luxury condominiums — particularly $700,000-and-above units,’ he says. ‘But the majority of people who were buying them were not true end users. What it’s done is overinflate the true demand. So we’ve built this oversupply, because developers have had a lot of cheap money to do it with.’”
May 2005. “Like most economists, Joe Keating used to downplay the likelihood of a housing bubble. That was before sharply escalating home prices in markets including Florida started adding up. ‘In selected markets, housing prices have risen 40 to 50 percent . . . some isolated cases for waterfront properties are up 100 percent in a 3-year time-frame,’ Keating said during a visit to Tampa last week. ‘Personally, I do believe there is a chance of a bubble. I’m a better seller than buyer in real estate for the moment for speculative purposes.’”
“Keating zeroed in on those buying condominiums and single-family homes intent on flipping them for a fast profit. They’re entering eerily familiar, and dangerous, territory. He equated the situation to the dot-com craze ‘when everybody was rationalizing about why these properties could only go higher in price. When you start building rationales for why it can go only higher, it gets a little bit scary.’”
“Don’t get him wrong. Keating still believes in real estate investing, particularly the buy-and-hold strategy for people with their primary homes. It’s still the top tax break for most people. But short-term investors trying to capitalize on Florida’s real estate run-up may soon find the pool of prospective buyers is tightening. ‘If you were to invest in housing speculatively, to whom would you sell? That pool of “to whoms’ is shrinking,’ Keating said. ‘I’m not saying the sky is falling. I’m just saying go into it with your eyes open just like some never did in 1999 with the dot-coms.’”
March 2005: “More than 55,000 residential condo units are in some phase of development in Miami, and..increasing monthly. In contrast, Miami has built about 7,000 condo units in the last 10 years. Downtown developers have brushed off worries about rampant speculation..’I don’t see it backed up by empirical statistical data’ said Pedro Martin, CEO of Terra Group (which) recently signed a contract to buy 10 acres..for $190 million. ‘You don’t put 20 percent down on a $500,000 condo when you are a speculator’ said Martin, who has two other high-rise projects in downtown Miami.”
April 2005: “‘Regardless of how good market fundamentals are, we’re running out of land,’ said David Dabby, a Coral Gables-based real estate analyst. ‘With the kind of land restraints we have, it’s no wonder single-family starts are down.’”
April 2005. “Buddy Hucks’ research shows oceanfront closings numbered 1,100 last year, with more than $300 million in total sales volume. His research shows there are another 4,000 units either planned or pre-selling. There were 123 multifamily permits issued in February compared with 33 the same month last year. You’re trading maybe a 30 to 50 unit motel or hotel to a 200-unit condo complex.”
“Tom Maeser, president of Fortune Academy of Real Estate says, ‘Everyone I’m talking to says it will continue. Of course, that’s predicated on the buyers being there.’”
May 2005. “Craig Pepin-Donat has purchased two homes in Jacksonville to rent and predicts the city’s real estate bubble will only blow up even bigger. ‘I don’t foresee too soon that they’re just going to burst and the market is going to take a dump. I don’t see it happening in the next 3 to 5 years.’”
“While the three killer B’s - balloon, bubble and bust - are in everyone’s active vocabulary, so is that rosier “B” word, boom. The rationale for the boom continuing is the nature of Greater Miami, which panelists see shielding us from trends including rising interest rates that will constrict housing demand throughout the US. Michael Cannon of Integra Realty Resources (said)…foreign buyers account for more than 60% of South Florida real estate buyers.”
“NeoLofts residents clearly work locally while Four Seasons buyers don’t live there. But can we infer anything about booms and busts from markets at individual developments? ‘We are having a recession with certain developers right now,’ Mr. Cannon said, ‘because they’re out of business.’”
“According to Miami Commissioner Johnny Winton, this is the first time since the first wave of Cuban immigration in 1959 and 1960 that Americans other than New Yorkers have been moving into Miami in greater numbers than have been moving out. ‘They’re from mainstream America,’ he said. ‘That segment has found Miami.’”
“But will a bust follow the boom, as has happened here over and over? ‘You can’t use historical data to predict the future because we are in uncharted territory,’ Mr. Winton said.”
“Will new condos succeed? Or will they, like Four Seasons units, remain on the market for years? ‘Build ‘em,’ was Mr. Winton’s sage advice. ‘If they fail, we’re going to end up with affordable housing.’”
“In the past, investors bought gold as a hedge against inflation and other unpredictable economic misfortunes, David Lereah, chief economist for the National Association of Realtors, told some 150 people at a Saunders Real Estate forum called ‘Florida Land . . . How High Can It Go?’ at The Club at Eaglebrooke. ‘Now they buy real estate,’ said Lereah, author of the book, ‘Are You Missing the Real Estate Boom.’ ‘The stock market has disappointed everyone over the past five years.’”
“Host Dean Saunders of the Lakeland real estate company agreed. ‘People are coming to Florida,’ Saunders said. ‘We can’t keep them out, and they’re going to come where the land is more affordable.’”
“Lereah spent most of his 30 minute speech debunking Cassandras warning about the coming collapse of a bubble market in real estate. Housing values have indeed risen substantially since 1991, the end of the last market contraction, but that’s because of factors that don’t look to change during the next five years or more, he said. ‘The air will come out of the balloon, but it will not burst,’ Lereah said.”
