More Money Down The Tubes In Florida
The St Petersburg Times reports from Florida. “Developed in 2004 and sold largely to investors, Carriage Pointe offers an extreme example of the dilemma faced by area suburbs ravaged by foreclosures: Which is worse, an empty house or an unsuitable renter? Homeowner Kourtney Ingrati said she became aware of the issue in December 2007 when two Carriage Pointe teenagers — who lived in a Section 8 house — were charged with shooting two other teens after school. Ingrati poured her outrage into a letter to the authority. ‘I purchased a home at the peak of the housing market at $220,000, and my home is worth $100,000, along with anyone else who purchased homes during that time,’ she wrote. ‘How do you expect our community to bounce back if the residents you are placing here barely make minimum wage?’”
The Palm Beach Post. “The Obama administration announced more assistance Friday for underwater and unemployed homeowners, saying the foreclosure crisis has shifted from volatile subprime loans to ‘hardworking” people.’ ‘This will focus on affordability and foreclosure prevention for responsible homeowners, who, through no fault of their own find themselves in a situation of negative equity,’ said FHA Commissioner David Stevens.”
“Joel Bienvenu, a laid-off marketing specialist with a home west of Boca Raton, is hoping the new plan will help him and his wife, an architect who lost her job when her company closed. The couple tried unsuccessfully last year to get a modification to lower their interest rate. Bienvenu, who is current on his mortgage payments, said the best offer the bank gave him allowed him to go two months without paying, but then required three full payments in the third month.”
“The couple rejected the offer, and were dismissed from the program. Bienvenu says they’ll start again from scratch. ‘They said if we weren’t working, they wouldn’t even consider us for a modification,’ Bienvenu said. ‘This program sounds like it’s designed more to help the unemployed.’”
The Herald Tribune. “The latest plan is weak on several fronts, said Dean Baker, the co-director of the nonpartisan Center for Economic and Policy Research. ‘I don’t think it will make much of a difference,’ Baker said. ‘You have a lot of homes so badly underwater the principal write-down won’t go far enough to help.’”
“Another problem is the FHA loan concept. By not addressing that in certain markets home values are still tumbling, the government agency that insures home loans against default will get into the same type of trouble it did during the housing crash: Homeowners will be underwater once again and as likely to walk away as they are now, only this time leaving the FHA even more on the hook than it already is.”
“And if a decent principal write-down should occur, second mortgage holders would have little reason to modify their loans even if the government is going to double what they pay for the work, Baker said. That is because after the write-down, the homeowner can afford to make both the first and second mortgage payments and the second mortgage holder will ultimately receive all of the money due rather than a few thousand dollars.”
“‘I’d give it a C-minus,’ he said of the plan. ‘It will provide some help to some homeowners, but the main beneficiaries will be lenders and servicers.’”
“The administration cautioned that the plan is not intended to stop all foreclosures or assist all troubled homeowners. ‘There’s no intention here of tackling what may be 10 to 12 million foreclosures over the course of the next three years,’ said Diana Farrell, a White House economic adviser.”
The News Press. “Administration officials cautioned that the plan isn’t an instant cure, won’t stop all foreclosures or help all troubled homeowners. Instead, officials said their goal is to meet their original target, announced last year, of helping 3 million to 4 million borrowers avoid foreclosure.”
“‘In general, I am supporting of any action against people losing their homes,’ said David Hall, president of First Community Bank of Southwest Florida in Fort Myers. ‘Banks don’t want to take back homes. On the other hand, customers have to be making their payments. If the government helps them make their payment, it would be wonderful.’”
“Fort Myers attorney Charles Phoenix, who has handled numerous foreclosures, called Friday’s action ‘window dressing.’ He said those on unemployment get a ‘meager amount,’ and even if their mortgage were reduced by 31 percent, they’re still in trouble. In Florida, the benefits are up to $300 a week. ‘How much it helps …. for me, it’s just more money down the tubes,’ Phoenix said.”
“On the other hand, Phoenix said, ‘It’s a step in the right direction. A couple of years too late, but still it’s a step in the right direction. This creates a lot of hope, which is a good thing.’”
The Miami Herald. “Cut-rate foreclosures, rock-bottom interest rates and lucrative tax breaks helped South Florida home sales edge higher in February. At the current rate of sales, there were enough homes on the market in Miami-Dade and Broward to last 14 months and 10 months, respectively, according to data provided by EWM Realtors. For condominiums, there is enough inventory to last about 21 months in Miami-Dade and 11 months for Broward. A year ago, homes and condos could expect to sit on the market about twice that long.”
“Still, what is characterizing the South Florida real estate market now are the foreclosures and short sales sloshing through the system, said David Dabby, a real estate analyst. When the foreclosure rate hit 16 to 17 percent of homes on the market in the 1980s and early 1990s, market watchers thought it couldn’t get worse. Now, about six out of every 10 homes for sale are in foreclosure, he said.”
“‘Anybody who wants to take advantage of foreclosures, this is the ultimate market to do it,’ Dabby said. ‘There will never be one like this in our lifetime.”’
“But with price likely to be stuck in the doldrums for months to come, real estate is not the road to quick profits. ‘In my opinion you don’t want to buy a home today unless one of two things are true: Either you need a home to live in or the price is a steal,’ Dabby said.”
“Lawrence Yun, the National Association of Realtors chief economist said…the market is stronger now than it was last year. However, Yun acknowledged that ‘the housing recovery is fragile at the moment’ and the real estate market is facing a crucial test. The industry has set its sights on this spring’s buying season, when more people could take advantage of a recently renewed tax credit for first-time home buyers and others that is due to expire in April.”
“‘The key test for a durable recovery comes in the next few months as the tax credit deadline approaches,’ he said.”
The Sunshine State News. “Economist David Denslow offered a snapshot into Florida’s future — and it’s not as dire as many predict. ‘It’s not a great, rapid recovery, but it is there and we won’t have to wait until 2013 or 2014 to see it,’ he said.”
“Denslow, a professor and research economist at the University of Florida, addressed the Economic Club of Florida in Tallahassee Friday on ‘The Economic Influence of Florida’s Changing Demography.’ ‘What’s clearly going to happen is the rate of growth in Florida will slow down,’ Denslow said. ‘There will not be as many construction and real estate jobs as before.’”
“He said that Florida’s economy and its unemployment remained tied to the housing market. Noting that the number of two parent families with children were declining, Denslow insists this did not mean that there would be a housing crisis. ‘The demand for housing,’ he said, ‘has nothing to do with kids.’ Denslow said that families with children spend on their kids and not their houses.”
“Denslow reviewed the changes in the housing market that Florida has seen over the last 30 years. He said that the housing market kept pace with the rate of inflation from 1980 until 2000, before housing prices started increasingly drastically. Denslow said too many people insisted there was no housing bubble. He specifically targeted David Lereah, who formerly served the chief economist for the National Association of Realtors. Lereah wrote the book Why the Real Estate Boom Will Not Burst and was very bullish on the future of the market.”
The Sun Coast News. “Richard Gehring is a chief architect of a growth management plan for Pasco during the next five years. Even though the Great Recession has zapped the area’s economy the past few years, Gehring foresees a rebound. During the past 10 years, property values saw outlandish gains. Property values were going up $50 a day in the statewide average, Gehring said. Many Naples homes were appreciating by $300 a day in some of the state’s real estate hot spots.”
“‘It created this balloon of value … which then burst,’ Gehring commented.”
“Diversifying will provide the key to progress in Pasco, Gehring emphasized. ‘We’ve been too dependent on construction,’ Gehring observed.”
From TC Palm. “Another South Florida developer has defaulted on its bank loans meant to build a massive residential development that promised to bring some workforce housing to Indian River County, according to a civil lawsuit filed in Indian River Circuit Court. Court records show National City Bank, now PNC Bank, won a $2.28 million foreclosure judgment against CJM Development Inc., of Boca Raton for nonpayment of loans.”
“The company’s Web site lists one subdivision in Vero Beach currently in development called Bella Vista Isles. The company’s last update on the project in July 2007 describes the development as a ‘luxurious, private-gated community,’ featuring lake views and a pool. According to previous Press Journal reports, the project’s controversial rezoning request for more density was approved by the Indian River County Commission and CJM was granted final approval in 2006 to build the 136-unit townhouse community.”
“At the time, approval was contingent upon the developer pricing 10 of the units at $166,500, 10 more at $199,500 and another 10 at $219,000. CJM could then sell each of the 106 remaining town houses for $300,000. Local residents living in the surrounding area were strongly opposed to the project during the county’s approval process, stating that the development would cause more traffic on the roads.”
From Ocala.com. “If Jeff Hartwell had tried to rent space for his new hair salon even three years ago, the deal would have been significantly different from the favorable one he negotiated last year. ‘[Landlords] would have laughed at you and said, ‘Get in line. There’s 30 more like you,’ said the 46-year-old hairstylist and businessman.”
“But in three years, the demand for shopping plaza space had fallen as severely as the economy. When Hartwell approached the plaza’s owners to lease space, he already had a backup location in case his first choice didn’t pan out. By the time Hartwell left the negotiating table, his cost per square foot was ’significantly’ less than what the plaza owners had asked, he said. In addition, the plaza had paid about half of the $80,000 needed to convert the nearly 1,500-square-foot space into a salon. ‘These are terms you would have gotten back in 1994,’ he said. ‘They [plaza owners] are just trying to get their [loan] interest paid.’”
“John Breder knows all about this trend. He owns and manages 25 shopping plazas throughout Florida. ‘Three years ago you couldn’t do anything wrong. You just had to hang a sign out on the property. We were having a ball,’ he said.”
‘Most area plaza owners and managers agree. One joked that ‘even a monkey could have made money.’ They also agree that by 2008, the party was ending. ‘As the economy took its downturn … we had three, four, five vacancies at each location,’ Breder said. By the time the recession was in full swing, ‘you couldn’t lease a store to save your life,’ he recalled.”
‘For the most part, that’s still the case. But it isn’t just the vacancies that are the problem. It’s also the bank mortgages, typically in five-year renewal increments, that are the next looming storm. Banks made those loans based on the value of the plazas back when the loans were made. But now that both land values and revenues have fallen, banks aren’t likely to renew loans at the same terms. They’re likely to seek more of a down payment — money the plaza owners won’t likely have during this recession.”
“Banks need the extra money because they are under pressure from federal regulators to clean up their books and show more cash reserves to back outstanding loans. Many of those loans are based on properties that have taken financial dives in value. ‘The amount of distressed properties is going to continue to grow rapidly. The people that purchased properties during the boom have a cost basis that can’t be supported during the recovery,’ said Bartow McDonald, managing director for Spery Van Ness/ Skye Commercial Real Estate.”
“While plaza owners and banks might be some of the losers, there are going to be some winners, McDonald predicts. Some will be new investors buying the mortgage notes at 30 cents to 40 cents on the dollar. In some cases those new mortgage holders will offer plaza owners the chance pay off their mortgages at reduced rates, too. Other winners will include tenants that are able to renegotiate new lease contracts, he said, because new owners won’t have as much money invested in the plazas as the previous ones did.”
“‘Capitalism is wonderful in that regard,’he said.”
“Shopping plazas aren’t the only businesses struggling to keep tenants. Just a few years ago, renters skipping out of their apartment leases in Ocala were rarities. Maybe one a month would break their lease at Tuscany Place Apartments, said Andrea Zullo, regional manager for Gray Co. Properties, which owns the 288-unit apartment complex.”
“Now she sees six or seven a month. Filling those vacancies is getting tougher. ‘You definitely have to work for it. It’s not coming to you,’ Zullo said”.
“To keep their occupancy numbers up, apartment complexes are turning to incentives that they wouldn’t have bothered with just a few years ago. All told, Tuscany’s rent cuts and other incentives total about two months worth of free rent for an average new tenant, according to Zullo. Tuscany is doing what many complexes are trying: cutting rents, doing away with application fees, and reducing the cost of optional features like garage fees or floor-level requests.”
“The apartment complex’s residents are mostly middle class, including working families, some singles, professionals and some retirees. ‘It’s not that we’re losing [our renters] to competitors. We’re losing them to unemployment,’ Zullo said.”
“Lee County’s rental market is a work in progress, but there is a silver lining - higher occupancy rates. Lee County’s apartment occupancy increased 7.2 percent in the fourth quarter of 2009 from the previous year to 91.1 percent, according to statistics. The increase was the highest in the state.”
“Of the renters Sue Lutter, a broker for Fort Myers-based Gulf Waters Rentals and Management, has recently seen, many of them are people who have lost their homes to foreclosure. And today’s low rental rates make renting an attractive option for people looking for a place to live. Lee County’s apartment rental rates dropped 12.2 percent to an average $776 a month in the fourth quarter of 2009, according to RealFacts - and three months into this year, not much has changed.”
“The median price for a single-family home in Lee County is also down - in February, it was $88,000, down from $97,500 a year earlier. But that doesn’t seem to deter Southwest Floridians from renting. Bill Powers, a Montego Bay resident and former Wells Fargo banker, said he chose renting over buying to save money.”
“Although homes are being sold at such low rates, there are additional costs that come with buying a home. ‘If you buy a used home, you better be prepared to spend some money on fixing it,’ said Powers, who had to wait for an available unit at Montego Bay. ‘I like renting because I can’t fix a thing.’”
